The public market is shrinking as companies stay private for longer, experiencing greater capital appreciation in the private market.
Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors and the role your fund could play in an investor's portfolio? How do you structure this fund?:
The GAM LSA Private Shares strategy provides investors access to high-growth, late-stage private companies across various sectors. These companies leverage technology to disrupt industries, including but not limited to technology, healthcare and finance. Typically, they are at their final non-public funding stages, offering investors the opportunity to capture value before they enter public markets. By focusing on companies with proven market share and established business models, the strategy minimises early-stage ventures technology risks and allows investors to benefit from the innovation ‘super cycle' and companies are more focused on execution.
Over the past decade, there has been a significant shift from public to private markets. High-growth companies now stay private longer, scaling under private ownership with limited investor accessibility. As a result, public equity investors often miss out on the growth potential of these disruptive companies during their most exciting development phases.
Our focus on later-stage private innovation companies with proven business models and strong governance helps pave the way for attractive risk-adjusted returns. We invest with a long-term perspective, focusing on late-stage disruptors positioned to exit within the next three to four years.
What do you see as the big opportunities and risks for your strategy?:
The public market is shrinking as companies stay private for longer, experiencing greater capital appreciation in the private market. Currently, 75% of US companies generating more than USD 100 million in revenue are private, representing a greater portion of the overall economy than ever before (Source: Liberty Street Advisers). Private markets are structurally illiquid with information asymmetries that often allow sophisticated investors to gain access at attractive entry points.
The GAM LSA Private Shares strategy capitalises on significant opportunities arising from the private innovation economy. Key trends include the rapid growth of sectors like artificial intelligence (AI), fintech, cyber security and healthcare technology, which are transforming industries globally. The strategy targets companies leading innovation in these areas, benefiting from a surge in demand for digital solutions and advanced technologies. These firms are typically in their final stages of private funding, providing investors access to high-growth companies with established market positions.
While private markets carry inherent risks, such as liquidity constraints and valuation fluctuations, we mitigate these through a disciplined, multi-factor selection process. By focusing on companies with proven business models, solid revenue growth, sophisticated investor base, and strong management teams, we reduce exposure to the volatility often associated with early-stage ventures. Furthermore, the strategy offers quarterly redemptions, providing a degree of liquidity that is uncommon in traditional private equity investments.
Our portfolio is also diversified across sectors, vintages and geographies, minimising concentration risks. Through careful selection of companies with strong fundamentals, we aim to deliver superior risk-adjusted returns. The experience and deep relationships of our investment team enable us to navigate potential challenges effectively, ensuring a robust approach to managing both opportunities and risks.
Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level:
Our investment themes centre around technological innovation and sustainability. Key sectors include space economy (8.2%), security (4.8%), AI (7.8%) and analytics/big data (3.2%), as at 30 September 2024. These sectors are critical for digital transformation, offering growth opportunities as businesses increasingly rely on AI for decision-making, data analytics and security.
The space economy, forecast to generate USD 1 trillion by 20401, presents a significant market opportunity with advancements in space travel, satellite technology and logistics. LSA investments include Axiom Space and Relativity Space.
In the security sector, there is extraordinary demand for protection against cyber threats at all levels. The proliferation of the digital economy necessitates advanced AI and machine learning solutions. LSA investments include Arctic Wolf, Contrast Security and Snyk.
AI has the potential to revolutionise industries. Continued increases in processing power will likely enable exponential growth across various commercial AI-based applications, driving innovation and disruption across traditional industries. Current LSA investments include xAI and Nanotronics.
In analytics/big data, businesses need efficient solutions for managing large data sets. Innovations cloud and connected devices are essential for competitiveness. LSA investments include Dataminr.
Kevin Moss is Managing Director and Portfolio Manager at Liberty Street Advisors (LSA), Inc.
