Casey Peters
Casey Peters is the Founder and Managing Partner of Pacenote Capital, a boutique private equity investment and advisory firm. Today, Pacenote has a team of five with two core business lines, having raised about $1.75 billion across 10 oversubscribed fund raises (on behalf of seven GPs). The firm is also investing out of Pacenote Equity Fund I, a fund of about $90 million that Pacenote manages to invest with best-in-class independent sponsors in pre-fund opportunities that support high growth startup companies at the earliest stages of their growth and development. Prior to founding Pacenote in 2019, Casey was a principal at Mercury Capital Advisors.
Casey graduated from Duke University, earning a B.A. in and a B.S. in environmental science and policy. Casey was also member of the Duke men’s basketball team, part of the 2010 NCAA national championship team during his junior year season and earning academic all-conference honors in 2010 and 2011. Casey lives in Austin, Texas, with his wife Caroline, daughters Dillon, Shea and Quinn, and dog Colt.
CIO: What actionable thing have you learned over the course of your career that has proven itself this year?
Peters: Trust and alignment of interest cannot be faked.
CIO: What asset classes (specific securities or sectors) look good to you now? Why?
Peters: Lower middle market private equity continues to be where I believe the best risk-adjusted opportunities for net multiple-outperformance exist. Specifically, we love investing with new specialist sponsors who have honed their skillsets through exceptional training at their prior shops and have recently spun out to form their own firms. While underwriting new firms can be difficult (particularly if an individual or team does not have attribution for their prior investments,) we’re adamant believers in the alignment that exists for a new firm in “having to get it right” with their first few investments under their own flag. I particularly find opportunities in the lower end of the lower middle market (sub-$10mm of EBITDA at entry) to be compelling. That said, we’re hyper mindful of ‘small company risk’ and believe that only sponsors with real experience investing and operating companies at this end of the market are qualified to navigate the nuances inherent to entering at this scale. While there are certainly merits to private credit in a portfolio, we feel strongly that by investing with ‘newer’ sponsors who aren’t burdened with an extensive legacy portfolio (and can exclusively focus all their time and attention on a select number of platforms in a concentrated portfolio), you can maintain maximum upside through equity securities, while also sufficiently mitigating downside via hands-on approach to ownership and driving value-creation at the companies.
CIO: What macro themes will drive the most volatility for institutional investors over the short term? Over the long term (next 10 years)?
Peters: Specifically, within our world of private markets, short-term volatility will be most directly driven by debt maturity. We’ve heard from both sponsors, as well as buy- and sell-side intermediaries, that the number of companies that loaded up on debt that, at the time, felt cheap and are now facing the realities of having gotten over their skis, is “astounding.” As a plethora of private companies have/will continue to face reckoning on their debt servicing, we expect to see a continued increase in carve-out and turnaround transactions. Over the long term, I expect retail interest in private markets will be a driver of volatility for institutional investors. We wrote about the rise of private wealth channels and ‘PE Democratization’ in our “2023 Year in Review” letter and expect to continue seeing a proliferation of digital technology platforms designed to reduce friction for individual investors. While we’re believers this trend will persist, we also believe that the highest return-potential investment opportunities are capacity constrained. Much as thoughtful LPs are hyper focused on judicious fund sizes for a given opportunity set (and hence, the intense competition among these groups to access the highest-quality, appropriately sized GPs), we believe that the influx of retail capital into PE will ultimately drive volatility of performance among sponsors.