No politically correct or sanitized corporate jargon can ever rival the pure candor and usefulness of “off the record” or “informal” conversations, also known as “water cooler talk”. There is nothing better than getting a few allocators together to discuss the state of affairs without pretentiousness or judgment. The investment world is full of landmines, most of which can be avoided if the unadulterated collective wisdom of a group willing to be vulnerable is applied. The problem is that many investors believe they have uncovered a secret investing formula that will be tainted or diminished if shared. I have always believed that showing vulnerability is a strength, and daring to ask seemingly stupid questions not only gets you answers but also reveals that many others harbor similar curiosities.
In my recent dealings with GPs and LPs in the private assets ecosystem, I have noticed that certain broad topics consistently arise. The constant resurfacing of these topics may be driven by the news cycle, ongoing entity-specific portfolio or business issues, or just general curiosity, but regardless of the reasons, I believe it’s important to take a closer look at them. Based on my belief that further scrutiny is needed, I decided to create a periodic series that discusses pertinent subjects that seem to have hijacked the private assets investment zeitgeist. I hope it will be interactive so that curious people can learn from one another. This first chapter explores three broad subjects that I have been hearing about the most from LP peers.
- Exposure to AI: Even if you have been living under a rock for the past few years, you likely still have not been able to escape the tsunami of AI rhetoric. Everything seems to have been touched by the warm embrace or the terrifying talons of AI. LPs are ultra cognizant of the AI phase the world seems to be in right now, but no one seems to know its full ramifications as it relates to investment due diligence, its tangible value-add capabilities within GPs, and which AI investment opportunities will yield the highest returns (if at all). Perhaps AI is so embedded (or said to be embedded) in almost everything that all generated alpha will inevitably have a component of AI attribution. LPs I speak to heavily depend on GPs to inform them on how AI is playing out in their portfolios. AI usage (or claims of usage) transcends asset classes; almost all managers will mention some use of AI in their internal processes or within their portfolio companies. However, it is when talking to venture and growth managers that you will be compellingly pillow-talked and also feel a little mentally assaulted by the promise of AI. “Large language models this”, “Nvidia chips that”, “agentic this”, “data centers that”, “artificial general intelligence this”, “artificial super intelligence that”, “vertical applications this”, “AI tools that”, “OpenAI this”, etc. etc. There is obviously money to be made in the space, but an investor cannot help but feel dizzy in the whirlwind of prospects. It reminds one of the dot-com era, when people were scrambling to secure a catchy or everyday URL, while unpredictable winners like Amazon, eBay, and Google eventually emerged from the bloodbath. GPs need to provide LPs with clear explanations of why they are focusing investments on a particular AI sector or how they are intelligently diversifying their bets to avoid ending up overly supporting a Pets.com rather than an Amazon.com.
- Portfolio liquidity ramifications: LPs are currently immersed in solving the complicated puzzle of ongoing private investing that involves reduced capital distributions, heightened investment selectivity, a barrage of continuation vehicle decisions, a reemergence of stealth zombie funds, increased market uncertainty, the explosion of deal-by-deal inbound investment opportunities, etc. Many LPs are rethinking their whole philosophy on private markets investing. Is there really an illiquidity premium? Can the prospect of portfolios eventually becoming self-sustaining (distributions eventually covering capital calls) be trusted? Will sponsor organizations survive extended fundraising periods and being forced to raise smaller funds? Answers to these existential questions have the potential to significantly change private investing going forward. Some LPs point to the availability of credit funds, with their relatively more liquid profiles and their evolution into becoming remarkably assorted in choice, as the likely successors to the traditional private investing throne. I beg to differ. Although many attributes of private credit investing are desirable, its relatively lower target returns (from a MOIC perspective) and its limited dependence on operational, hands-on company improvements to enhance value hinder its ability to replace traditional private equity investing seamlessly. For now, LPs seem to be playing it by ear, hoping that a catalyst, such as lower interest rates, the opening of the IPO market, increased certainty around tariffs, or other factors, will turn on the liquidity faucet. However, we all know hope is not a viable strategy, so since LPs are currently in a buyers’ market, we will take advantage of longer fundraising cycles (using them for higher GP scrutiny and possibly investing in portfolios that provide more visibility), redeem capital when appropriate through continuation vehicle options, seeking investments in less efficient markets, and rebalancing through secondary markets when viable (when market prices have decent proximity to NAVs).
- US versus international exposure: The US has always felt bulletproof from an investment standpoint. This is not to say that the US has been immune to market downturns or recessions; it has not. However, historically, despite some significant market gyrations that eventually affected the rest of the world, the US usually led the way back. As the largest economy, with the most eager consumers and a currency that lubricates global commerce, the US’s economic leadership role is indisputable. For these reasons, and many others, it has not been historically surprising to see investment portfolios be unabashedly overweight or heavily allocated to the US across various asset classes. In the private investing asset class, the US plays a significant role, boasting the deepest markets, the most innovative ecosystem, and the most risk-seeking mentality. Nevertheless, in the past several months, I have heard LPs openly voicing concerns about the amount of their US exposure. Despite the seemingly strong stock market, the seemingly robust labor market, and inflation seemingly heading in the right direction, investors are feeling a sense of unease that, from experience, often signals something dreadful. Although still in a state of flux, the ongoing air hockey tariff games and the US’s current global stance, which leans relatively isolationist, are causing many investors to take a closer look at their geographic exposures. Of course, investors are aware of the interconnectedness of the global economy, the myth of greener pastures, and the need to avoid a ‘frying pan to fire’ situation; however, these investors are still examining future investments and current portfolio rebalancing to either reduce US exposure or, at the very least, increase global diversity. Many LPs have mentioned seeking managers who have global (or multiple geography) on-the-ground teams with the ability to adjust exposure to different geographies depending on investment opportunities, market conditions, and investor appetite. I am watching this phenomenon with bated breath.
Anthony Kwesi Hagan
Founder and Head of Research, FreedomizationTM
July 27th, 2025
