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How Olympus Ventures used drawdown funds, co-investment and secondaries to transition to private markets
Key Takeaways
- Mike Elliot of Olympus Ventures discusses their transition to private market investing.
- Olympus Ventures chose to make allocations into private markets through fund commitments, co-investment and secondary (i.e. resold) private equity commitments.
- Private market investments begin with many years of outflows before distributions begin. Olympus Ventures was able to largely mitigate this by adding secondaries, which return cash more quickly, to its private allocation.
- He believes direct investments can be a "minefield" and investors need to take special care in considering these opportunities.
Transcript
My name is Mike Elliott, and I work at Olympus Ventures, which is a family office for the Schultz family, the founders of Best Buy.
The primary goals of the portfolios we manage are all growth-oriented. One of the advantages of family office is that you can take the best of what investment professionals have to offer. Compare that to the advantages that the family has in terms of their investment horizon, their liquidity needs or lack thereof, and where they're able to take advantage of their unique situation and apply that to the capital markets to get returns either above-market or market returns with less risk. And that's our goal.
Five years ago, we made a really big pivot to private markets. We did it through kind of three channels. We made manager commitments, so LP commitments to funds, we started co-investing in a much more meaningful way.
In part of the LP commitments, we did a tranche of secondary private equity commitments. The advantage of the secondaries was that they return cash pretty quickly, so they have a nice IRR, their multiple is a little bit low, but you have the benefit of getting that cash flow going.
So in a private market portfolio, when you're really ramping it up, you have this five-year period where you're just feeding the portfolio and not getting much back. You end up having some concerns, or some questions on, is this doing what we wanted to do?
We're putting a lot of money in it. We see the J Curve, it's actually worth less, and we thought this was the path to great returns. And so it takes a little while to see that come out of the J curve and be comfortable with it. By adding the secondaries in with co-investments, for us, it's sped up that period. We actually avoided the entire J Curve. And then from there, we've done small direct investments, but we think that that's actually a minefield that we're pretty wary of, and we've been very selective then how we do the direct investments.
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