Episode 41: Sunaina Sinha of Raymond James on 
How to Improve ROI with Capital Formation Strategies

Episode Transcript

 Shiv: All right, Sunaina, welcome to the show. How's it going?

Sunaina: Very good, Shiv. Thank you so much for having me. I'm excited to be here.

Shiv: Yeah, excited to have you on. So why don't we start with your background and your role at Raymond James, and then we'll take it from

Sunaina: I am delighted to talk about Raymond James. I started a boutique private equity advisory business back in 2011 called Cebile Capital. That's focused on fundraising placements and secondaries advisory to large sponsors, mid-market sponsors, low mid-market sponsors around the world. That boutique business was acquired by Raymond James in 2021. And today we are the private capital advisory business of Raymond James. We're about 60 people in six offices around the world and do exactly the same things as we've done for the last dozen years or so, but doing it at a much larger scale for sponsors around the world. Prior to this, I was in alternatives fundraising at two in-house asset managers. Before that, I was working in the Bay area in several mid-level roles. I have a bachelor's and a master's in engineering from Stanford and an MBA from Harvard Business School. 

Shiv: Excellent. And know, private capital advisory is such a broad term. So explain that a little bit further. What exactly are you helping private equity sponsors with and where do you come into their value chain or their ecosystem?

Sunaina: So we're the advisor often to the top of the house of private equity sponsors, right? Every sponsor has a business of their own that they need to run. The business of the business, as they say, the business of private equity. What is the business of private equity? It is raising capital into funds, deploying the capital, exiting those investments and coming back to raise another fund. In between, you may have a need for liquidity for some of your investors in prior funds. You may have investors who want to come out of your funds earlier than the funds' natural life comes to an end. All of those activities, whether it's capital formation of your next fund as a private equity sponsor or liquidity solutions for your investors or for your companies from your prior vehicles, all of that comes under the remit of private capital advisory. It's all about helping a GP think about its own franchise development, its own business development, as opposed to working on individual assets within their portfolio of funds. So that's private capital advisory in a nutshell.

Shiv: Yeah, and we talk a lot about value creation on this podcast where the investors have already or the GPs have already raised capital from their LPs, they're deploying it inside companies. But really the full cycle of that is in order for that PE firm to continue to exist, once that capital is deployed, they eventually need to generate a return for the fund. And then once they generate a return, like the way they make money is on carry and their management fee, but then they need to raise subsequent funds to actually be a continuing business. So there are a lot of steps along the way and what you're saying is along that journey you're advising them throughout as they're raising more capital or have capital needs.

Sunaina: Correct, they'll come to us once they're halfway through deploying their current funds saying, hey, I'm getting ready to raise my next fund. Will you please help us? That's where we'll come into play as their placement agent. Or they may come to us and say, I've got these incredible winners sitting in my last fund or fund two vintages ago. I'm not ready to sell it in the M&A markets. I'd like to hold on to it, but my investors need some liquidity. Can you please organize that liquidity through the secondaries market? There's an incredible emergence over the last five years of this deal toolkit for sponsors known as continuation vehicles, GP-led secondaries that allow sponsors to continue to compound returns in their winners while giving exit optionality to original investors. We've been doing them since 2019. So for us to step into that role, organize that liquidity for investors allows a sponsor to continue to compound value in their best performing assets. They'll call us in for that. They may call us in if there's a set of investors who want liquidity. As you know, after the Ukraine war and COVID, there has been market dislocation with interest rates being at all time highs for investors who want to think about getting liquidity back into their institutional portfolio levels in order to continue to recycle that capital into other opportunities. And they may call us too, saying hey, I'm a such-and-such endowment or such-and-such pension plan. Could you please help me exit out of some private market vehicles? That falls within the purview of our secondary's business too. 

Shiv: So let's talk about that specific scenario because you laid out a bunch of different scenarios and I'd like to go back to some of those as well. But the current environment with the high interest rates, there's lower deal flow for private equity firms, lesser investments being made now than let's say two years ago. And so in those types of instances where they're looking for alternative liquidity options, what are some avenues available to LPs and GPs and where do you come in and kind of help us understand those options and the pros and cons of each option.

Sunaina: Yes, I think there's maybe three or four options that are worth considering. The first type of transaction that any sponsor can and should consider is a continuation vehicle for one or more companies in a portfolio. Now, it's important that these companies be performing companies. They should have done well for the sponsor and its investors already. It should be marked at a good level. It should be a company that the sponsor believes has the ability to compound to two and a half to three times incrementally more cash on cash multiple return from here onwards. So if that conviction exists within a sponsor, they often call an advisor like ourselves. Oftentimes, Shiv, we hear sponsors say things like, do you know how hard it is to find a gem of a company that is great grower where we get along with management. We know how to add value. The value drivers are within our control. Oftentimes the buyer of that company in a traditional M&A sale is another sponsor that comes in to return another two and a half to three X to the new sponsors fund investors. The continuation vehicle deal technology allows the existing sponsor to take that company out of its fund vehicle where it's been sitting, give liquidity back to those investors, but put it into a new fund vehicle. can be a fund of one, which is known as a single asset continuation vehicle, or it can be a fund with a few different companies known as a multi-asset continuation vehicle. It allows the sponsor to recapitalize. In some instances, these companies give them more capital for add-ons, for capex as needed, and to continue on the growth curve. It allows a reset with old investors getting a cash out option and new investors coming in for the next five year leg of the journey, four to five year leg of the journey. So that's a continuation vehicle and by far it's the most popular type that sponsors are considering.

Shiv: So before we go to option two, yeah, I want to just drill deeper there because I understood what you're saying, but I want to just spell it out. So I want to reflect back what you said. It's in a situation where let's say it's year five of a particular company in its hold period. You think it's a star and you want to continue holding it. Well, your investors in the fund that invested into that company want liquidity. And so therefore you can't hold it within that fund. So you almost have to create a second fund with potentially another PE sponsor or maybe it's just your own capital. And then that becomes separated from that first fund. The investors of that first fund get some liquidity back in that. So first I want to confirm that that's correct. And then my second question to that is, if that's the case, isn't it just kind of kicking the can down the road where it's like you're borrowing from Peter to pay Paul, like kind of like that kind of a scenario. And it's just, you're just moving the fund around. Like what is the benefit of the capital in that way, and just spelling it out for the listeners - I understand, but just just for the audience.

Sunaina: Yeah. Firstly, I think you were nearly there. The only correction I'd make is that that new fund vehicle that you set up to own the business going forward, that has a new set of institutional investors. The investor there isn't another private equity sponsor in most cases, unless they have a strategy dedicated to GP leads. And the new investor in there is often comprises of some GP co-investment from the sponsor itself, but it's rarely the entirety of the new vehicle is the sponsor. There's a standalone industry of secondaries investors that have dedicated pools of secondaries capital to underwrite and invest in these continuation vehicle funds. That's the type of investor coming in to do these underwritings and to fund the vast majority of these new vehicles that are set up by the sponsor to hold their winners, to hold their stars as you rightfully call them. 

Now, the benefit to the - we call this a win-win-win, right? It's a win for old investors, it's a win for new investors, and it's a win for the sponsors. Some people say it's four wins. The fourth win is a win for the company. But if you think about the win for the old investors, the old investors who've been the original investors in the company, as it went from first investment to becoming a star, have written this company up, right? They want their liquidity option. Now remember in finance options have value in and of themselves. You're creating an option for liquidity, not an obligation. So each investor will decide, hey, star asset A is moving from my fund where I originally invested into a new continuation fund. Do I want to sell or do I want to roll? And they can decide that on individual basis based on what's happening within their own portfolios and so forth. So it's a win for them because it's an option to get liquidity back. It's a win for new investors because they're able to back a company or a set of companies from usually a very good quality sponsor, which is the best of the sponsor's portfolio. This is for star assets only at what we call crown jewel assets only. So if I'm a new investor, I'm getting access to Crown Jewel assets where the sponsor clearly has to believe and has showed me that there's another two and a half to three times upside from here over the next five year duration of hold. And I want to be able to participate in that upside. This sponsor knows this company best. And tell me to bucket three, what's the benefit to the sponsor? It's really hard to find investments that do three times, four times, five times return. You find one, you want to hold on to them and continue to compound in them as long as you possibly can. Because there is this one big allegation against private equity is that it is on a pretty short clock. Four or five years from now, you got to sell the asset because that's what the fund terms dictate. But using the continuation vehicle deal type, you can hold on to your winners longer. You can continue to compound in them. So from the sponsor's perspective, they get new follow-on capital to back the growth of the business. They continue to hold on to their winners and participate in the upside for a new set of investors. 

And then finally for the company, oftentimes a continuation vehicle company candidate comes from the CEO of the company upwards to someone like ourselves or through the sponsor because they say, I'm not ready for an M&A process right now. I know I've done really well for you, I'm a star. But instead of putting me through an M&A process, why not think about a continuation vehicle? We, management and company, alongside the sponsor, we have a great chemistry here together. Let's continue the journey. If you need to give liquidity back to your original investors, do so. But I'm very willing to continue the journey with a sponsor where I've got good cultural and chemistry here so that we can continue to do the next leg together. So it's this win-win-win. And if that win-win-win is not formulated, we don't run the transaction. We say no to continuation vehicles all the time, as do many other quality advisors in the market. Because unless the rationale is strong as to why a company should go into a continuation vehicle, we’re the first to say it doesn't belong, please sell it in the traditional way.

Shiv: Does this - and that's a great explanation. So appreciate that. Does this approach only work in situations - because especially with the way the market has gone and interest rates have gone up, one of the common themes in the market is that companies were overvalued or valued much more aggressively two, three years ago. And it's almost like what they were valued at two, three years ago is not what they're worth now. So does this only hold in situations with a star because that book value of that business is consistent with where it would be even today?

Sunaina: Absolutely. The company has to have performed. The trading pattern has to have been on budget or better, and it has to have compounded a return to original fund investors, otherwise there's no rationale to sell it. So I'll give you an example. If it's done north of a two and a half or three times net return to existing investors, it's a great continuation vehicle candidate. If it's only done one, one and a half, less than two times, it's a definite no to a continuation vehicle because what's the rationale? You haven't even returned enough to make the existing fund investors happy. New investors are rightfully going to ask, well, this company has been in your fund for four or five years already. Why hasn't it performed for existing fund investors? And what's to say it's going to perform for us new investors? What's changed? So the rationale has to be really strong and it's for performing businesses with good trading histories and good returns to existing fund investors.

Shiv: Yeah, a lot of PE investors have told me, you know, getting even 2X on your capital cash on cash is really difficult. So I think what you're saying makes a lot of sense is that having three to five X and the ability to have a business that can do that, that's where this makes sense. What do you do in situations where that's not the case? What's the option available then?

Sunaina: When a continuation vehicle is not a viable option?

Shiv: Yeah, or like the company just not growing fast enough to be able to justify that. But at the same time, you're at that five year period or the initial investors want their capital back or some liquidity.

Sunaina: Yeah. Yep. Well, you can always go down the traditional M&A route, but if for whatever reason the company's not ready for that, you've got another option in the secondaries market toolkit called a preferred equity financing or an NAV financing. Essentially, you can take out a debt facility across assets in your portfolio that require more follow on capital. And you can also use that facility to return some capital to existing fund investors. Now the advantage of preferred equity is that it's quite flexible and you can use it to both return liquidity and to back companies growth trajectories going forward and or a bit of both. The disadvantage is that there has to be a collateralization across a pool of assets, often across a fund's assets to create that line and it comes senior in the stack. It comes at the top of the stack of returning capital. So when you do eventually sell the company, whenever it is ready for sale three or four years from now, the first people to get their money back will be the providers of the preferred equity facility at the fund level or the NAV financing facility at the fund level. They'll get their money back first before other limited partners get their money back. So it certainly has been controversial this type of deal type with certain investors, but many others, sponsors have used this very successfully across asset pools in order to do just that shift, give liquidity back for companies that are not good continuation vehicle candidates, yet are still not ready for the M&A markets. And guess what? Because of COVID, because of the slowdown from after the Ukraine war, there's a lot of companies in that bucket.

Shiv: And in those instances, are you seeing a lot of companies take that approach by adding more debt in order to find liquidity? Is that a common use case for the work that you're doing at the moment?

Sunaina: Well, at the company level, debt is often used for all sorts of financial engineering and for funding growth. So that happens all the time in concert with the sponsor. Sponsors do use debt all the time at their fund levels too. They put these credit facilities in place, lines of credit as they're called at the fund level to help smooth capital calls to their investors. That's very common in the market. And certainly, quite popular in the market is using preferred equity facilities and NAV financing facilities for pools of assets where you want to growth. But less popular is using that line of that new facility to return distributions to investors. It's certainly been something that's been tried by a number of sponsors, but they are limited partners. As you can imagine, they don't like being subordinated in the waterfall of returns. They don't want to go second behind a lender that comes in above them. So that can sometimes cause consternation. So when a fund sponsor is contemplating this option, whether its PREF or NAV financing, often has a series of conversations with its largest limited partners to make sure that if this is put in place, the rationale is clear and those investors feel comfortable with the sizing of the facility, that it's not too onerous as to impact their overall returns in that fund.

Shiv: Yeah, have you seen sponsors almost go the route of traditional M&A because they don't want to be lower on the preference stack there in order to just return their capital or whatever they can in the current scenario?

Sunaina: Certainly, especially if we are going back to the case study you laid out, that the company is not necessarily a star, right? But it certainly has done enough of what it needs to do for the fund. Then M&A is the path if you're looking to sell and return liquidity for investors, for sure. But certainly you've got to get creative when you've got companies that are not ready for M&A. They are not necessarily your best performers. They're not in your A-star categories, but they're doing all right, but they're not ready for an M&A process, or they need follow-on capital to boost their growth. They're looking for follow-on to do more add-ons. They're looking for follow-on capital to invest in organic or capex-related growth. When you're looking for more capital to boost returns, one that's become very popular because of where interest rates are at is raising these facilities at the asset level in order to pay down debt because the interest rate financing costs have become very high. And when they are high, it is actually might actually be cheaper to borrow at the fund level to de-lever a business than for the company to de-lever itself. So that's a very interesting use of financial engineering available at the fund level to help support companies that are over levered in the portfolio, been used by a number of sponsors in the last few years as interest rates have gone up.

Shiv: Have you seen sponsors and GPs take a more patient approach versus doing a lot of this financial engineering work? And what I mean by this is that, yes, you need to return the fund and there's like an ongoing pressure with that. But with the current market dynamics, it's almost, it feels like you could, and I might be wrong here, it's just spending time optimizing existing companies and through more organic value creation approaches, can then give you an opportunity to do more financial engineering in a year or two years when the market dynamics are a little bit better? Or is that not an option just because they're under pressure to return their fund?

Sunaina: No question, Shiv, that this market environment has forced private equity players to go back to the basics. You've got to actually add value in these businesses and grow them. The organic plans have to be solid. The add-on plans have to be buttoned up as to how you're going to originate and execute on those follow-on if your strategy is a bolt-on play. You've got to go back to adding deep value as a sponsor and growing these businesses rather than just riding the momentum of the market. Gone, unfortunately, are the days where you kind of bought something at 10 times and then the market has traded up to 12 and you haven't really done much to the business, but suddenly you can market it 12 times and you've made some money. You can't allow yourself to rest on the laurels of multiple expansion anymore. You have to go back to the basics of private equity, which is buy low, sell high, and add value along the way to get it to become a bigger, better business. And that absolutely means that if you've done that right, you're likely to have a start. Then you've got lots of options available to you. Problem happens in that middle zone and in the struggling zone, the financial engineer is not going to help you anyway. But it's in that middling zone where you can't exit because it's not quite there. Do you know the problem we're seeing in portfolios right now? A number of our sponsors and sponsors around the world that we meet with bought companies at 2020, 2021 multiples and the multiples have degraded and selling them means selling them at a much lower multiple to where they entered at. And that's a problem. So that's why they're holding on and hoping that the company grows into that value. And so they're able to sell without taking much of a write down. That's become a bit of a challenge in the industry. It will flush through, it always does. But that is definitely a tight spot that some sponsors have found themselves in with some of their businesses.

Shiv: Yeah, and what you just described there, like whatever price you came in at versus where you can exit today, it doesn't work. The math just doesn't compute so you cannot sell. But I think investors understand that. But do you think enough of them understand that they actually need to invest more time into optimizing their existing companies? And just some context, we work with a ton of private equity investors and the best ones that we work with are doubling down on growing their existing portfolio companies and consciously being more involved with management teams and trying to find those organic growth drivers. But then there's other ones that I would say don't get as involved or still staying at the financial level. And I would say that they're creating less value. So I'm just curious from your perspective, are you seeing a similar pattern as well?

Sunaina: Absolutely. The name of the game if you want to go fundraise for your next fund as a sponsor today is DPI. This ratio called DPI, distributions to paid in capital. It's your ability to return capital back to investors given what they gave you. So if they gave you $100, they want at least $100 back before they'll consider investing in your next fund, or they want more than $100 back, that cash on cash return matters now more than ever because it is a liquidity constrained market on the private investing side. A lot of institutional investors have just not seen the same level of distribution activity, liquidity coming out of their private market's portfolio than they once did. After the Ukraine war started in mid ‘22, there's been a huge slowdown in M&A. Now it's coming back, but slowly. It's not a V-shaped recovery in 2024. So a lot of institutional investors are underwater when it comes to the amount of money they have to give private equity versus what they're getting back. So actually their mantra to private equity is get me capital back if you want me to look at your next funds in all seriousness. So private equity has gone back to the drawing board, like I said, back to basics of I got to grow these businesses. What are the growth levers in each business? I have to play those out, whether it's organic, whether it's inorganic. How do I add value to the people strategy? How do I value the professionalization strategy, to the digitalization strategy? All of that really matters because that's how you're going to sell these companies. You can't just rely on the multiple expansion trade or the hey, the market's flush with cash, everything will sell. M&A bankers, you know we sit at Raymond James, the preeminent mid-market investment bank. We see all the time that the A assets are still selling, but the B or the C assets are not. They're not trading. So you've got to make the B asset into an A or an A minus asset to get it to trade. And that's where our sponsors are really focused in terms of the value they're creating.

Shiv: Yeah, that's awesome. In terms of the work that we're seeing, used to be, so the first book I wrote is called Post Acquisition Marketing. And the reason I wrote that book is the number one use case that we were being brought into companies for was when they bought a business, they wanted to make a value creation plan in the first 100 days. And then we'd end up supporting that. In the last, I'd say year to year and a half, the number one use case that we actually see is an existing portfolio company. The PE firm has actually owned it for two to three years. And now they're like, well, we want to take this to market eventually, but we need to optimize this thing because we don't have as much deal flow as before. So our existing portfolio is getting more of our attention. So it definitely resonates with a lot of what you're saying is that this is kind of where they are. And given that there's less deal flow, where else are they going to put their attention?

Sunaina: Indeed. And you know, it's become even more vital in this environment because of fundraising pressures. It's a key metric on fundraising. Secondly, it's also a very key metric when it comes to ensuring that they are able to incentivize the management teams that they brought alongside their journey in these companies. These management teams want to make good on their management incentive plans as well. And so that value creation helps them grow into the value that they thought would be a win-win here when they did a deal with the sponsor to begin with as part of the sponsor's reputation and ecosystem that it creates around itself. But really it's very important for the limited partners who diligence these sponsors and decide whether they're gonna give them capital or not. So completely agree that the focus has shifted on the existing portfolio. 

The other thing I'd say is, focus has shifted back in 2024 to new deal deployment, right? A lot of folks didn't do a new platform investment or didn't do a lot of platform investing in 2023 and this last quarter of 2022. Well, private equity shift works on a clock. The clock goes four to five years investment period, four to five year harvest period, exit period, and onto the next fund. Tie the fund in a bow and move on. So you can go on hold when it comes to deploying and doing deals for six months, 12 months, you can't go on hold forever. So we're starting to see the M&A market starting to come back again in 2024 because investors are looking to their private equity funds saying, I pay you management fees and carry to go put money to work, to go take my money and put it into good companies and make them better. Go do some deals. So you are seeing some new deals. That's one. And I think the second one is that you are seeing investors saying, okay, do some deals and add value existing portfolio. And while you absolutely should do your top asset or assets into continuation vehicles, the rest of your company is going to sell the regular way, M&A or capital markets exit. So it's not like the M&A and capital markets exit world is not relevant. Maybe a star, maybe a couple of star assets can go into a continuation vehicle, the rest have to be sold in the regular way and show us that you can do that in this new environment with interest rates at all time highs and so forth. So it's a very unique time in private equity because there was a 15 year bull run at interest rates of zero where it was easy to show value at, now much harder.

Shiv: And how much do you think the PE model of, you know, management fees from funds, because from what I understand, and you can give some more specifics on this is as the longer a fund goes, the less the firm earns as a form of management fee from that fund. So they kind of have to constantly raise capital for subsequent funds to generate whatever their earnings would be outside of carry, right? So how much of that plays into emergency of like these funds, because we've seen private equity funds and even VC funds go under in the last 18 to 24 months where they just weren't generating enough of a return or generating enough of a growing enough companies to be able to exit them. So how much of that plays into the motivating factors here?

Sunaina: I think that it depends on the strategy. Now, it is very rare for a buyout fund to go under. That would take really dismal returns. Most private equity buyout funds are able to clock a good enough return to raise the next vintage of fund and go on and so on and so forth. Now, what you are seeing is more consolidation. As fundraising becomes harder, see news that we, I think there was news just this week of Blue Wall buying Atalaya Capital, a credit firm. You saw BlackRock buy Global Infrastructure Partners. So you are seeing consolidation as the fundraising market becomes tougher for all private markets players. But it does, the answer to your question depends on the strategy. Buyouts, infrastructure, you those are, you have to do something very wrong to do something completely franchise destructive there. Growth and venture, very different stories, especially venture. With growth, it depends on your definition of growth. If you're doing EBITDA positive growth, then there's absolutely a place for you in the ecosystem. But for venture players or those who are doing highly unprofitable businesses, taking tech risk, et cetera, the game is completely different. The market for funding, venture funds, and early stage investments has dried up in a meaningful way, much more dramatically than for other constituents in the market. And also, there's this question from investors saying, venture funds do all these deals, loss ratios are so high, they're hoping for the one or two unicorns. What value is that firm actually adding on any one business? Are you just riding momentum when momentum is available to be ridden? And now that there's no momentum, you can't exit these companies anymore and you don't control the exit. So I can't get my capital back. It's been a huge source of constraint flow from institutional investors' intervention.

Shiv: Are you seeing a lot more distressed assets in the market? I ask this because we've met a bunch of private equity investors that have almost specialized in taking on distressed assets from other investors that maybe overvalued them in the past and just want to get them off the books. So I'm just wondering, are you seeing that as well on your end? 

Sunaina: There are some players who do focus on, they call search funds, they look for assets where they can come in and be the management team. Those funds certainly have a place in the ecosystem as well. There are some players who like what I call special situations investing, which includes distressed, that are looking for companies that have good fundamentals, but maybe have stress on the balance sheet or have stress due to financial engineering that's been put on by current owners so they're to cap, they're able to clean up the cap table and become new owners and fund the growth further. So yes, we do see those certainly opportunistic buyout and opportunistic special situations or deep value players are seeing a real moment to your point. There's a moment for them right now because there are a lot of those companies sitting in private equity portfolios that they can try to pick out of and find a play for their funds. So for sure, they're seeing a resurgence of interest across investors for that reason. 

Shiv: Right. I know we kind of have gone on this entire tangent in terms of these companies and figuring out these continuation funds. What are some other scenarios that you're coming in and working with these firms and limited partners on? 

Sunaina: Yeah, so a couple of the things that we'll do apart from raising their fund or being the advisor on a continuation vehicle or on a financing preferred equity or NAV financing is helping the investors in the fund get out of their private market holdings, whether it's in that sponsor's fund or in other funds as well. So we'll get a call from an endowment or a family office or a foundation saying, I've got a portfolio of private equity investments or venture investments. Can you help sell them for me? So we'll advise the institution itself and organize the liquidity on that portfolio. Sometimes sponsor will bring us in and say, actually, I've got quite a few investors in this fund that are clamoring for liquidity. I don't have a continuation vehicle I want to do right now. I don't want to put financing lines in place. I don't have a use case for those. In that case, we will organize what's known as a tender offer on the fund to give a liquidity option to those investors. Again, option, not the obligation. And so that's another type of transaction in the secondaries market that can be highly additive to a sponsor who's getting calls for liquidity from investors, but don't want to be forced to sell assets before their time, sell companies before their time in order to do so.

Shiv: How do the dynamics of the tender offer work in an instance like that? 

Sunaina: Yes, so the sponsor will hire us. We'll go out to a set of investors that we know are secondary market investors that like to buy fund investments through tender offers. There's again, standalone, deep standalone market for that. They'll price the fund and then come back and we'll have a full and fair price discovery auction process of these investors who will come back with prices and volumes that they want to purchase of that given sponsor's fund, may the highest price win and the highest price and the best terms are then offered to investors. Investors get what's known as a liquidity notice and an election package where they get to elect in a check the box election form saying, I want to sell and if I'm selling, going to sell the entirety of my stake or half my stake if that's an option that's offered to them or I want to do nothing, I want to stay. No, thank you, I don't need the liquidity. So they get a choice and that's usually over a period of a month, they get a choice to make that election. And at the end of the election, the transaction closes. It's a great way for the sponsor to replace investors that want more liquidity with new investors who are happy to be patient while the sponsor does what it needs to do in the portfolio and exit companies in the more organic way.

Shiv: So it's almost like an alternative to the continuation fund, but it's like way more on an individual level.

Sunaina: Yes, exactly. It can be on an individual investor by investor level or it can be for all the investors in the fund can be offered liquidity through the tender offer.

Shiv: Do you see a lot of firms taking this approach?

Sunaina: You know, it comes and goes, Shiv. It depends on, again, the use case. Some funds have a good use case for a tender offer. If they have a lot of investors that are no longer going to be investors with them going forward, it's a good use case to think about a tender offer. If there are no portfolio companies that are right for continuation vehicles, good reason to think about alternative liquidity solutions. So it depends on a case by case basis if the sponsor has a, is a good rationale. In this market, I keep repeating the word rationale. It's another way of saying alignment of interest. The new investors that come in from the secondary's market need to see a strong thesis for why are you contemplating this transaction? What is the alignment of interest for us, the new investors coming in today for the upside that remains in your portfolio, whether I'm participating as a tender offer investor or a continuation vehicle investor, or preferred equity investor or giving you new money in your new fund. It's all the same. Sort of what is your skin in the game, Mr. or Mrs. sponsor, and show that to me. 

Shiv: We're almost up on time here. So as we part, I just want to give you a chance - there are a lot of PE investors that listen to the show. What would be your advice to them in terms of how to look at capital formation or look at their different investments and how should they go about getting through some of these times where there's more uncertainty and risk and higher interest rates in the market?

Sunaina: Yeah, I would say three things. Number one, educate yourself. If what I'm saying is new to you or confusing to you, do your homework. There's a lot of material out there on continuation vehicles, on tender offers, on NAV financings. Educate yourself on what the options are out there in addition to those traditional M&A sale processes. So get smart. Number two, when it comes time to making a decision, do I sell this company or do I put in a continuation vehicle? Or how do I raise my next fund and what are the ways to best ways to do that? Get some advice. You know having a conversation for the first few hours is always, ,there's no charge for it from best advisors in the world and you get ideas. There's many many ways to skin the cat these days, and ways that are perhaps better than the more traditional ways that you might be used to because the market has evolved and changed. The deal types have come a long way and there's new types of investors who might be willing to back here on your strategy going forward. So have a conversation after you get smart, have a conversation before you make decisions. And number three, never ever give up the opportunity to meet new types of investors. So if you dabble in one of these four types of transactions, the fund raise, the continuation vehicle, the financing or the tender offer, it's an opportunity to meet a new universe of investors you may not have met before, or you may not be as familiar with as you were before. So, never a bad idea to open and expand your network using one of these deal types as a precursor to doing so.

Shiv: That's great advice. And if anybody listening wants to get in touch with you, what's the best way to get in touch with you or Raymond James in general?

Sunaina: Yes, you can look me up on Raymond James's page. Just search for me, Sunaina Sinha, or on LinkedIn under Sunaina Sinha and contact me on there. Would love to have a chat.

Shiv: Awesome. And with that said, Sunaina, thanks for coming on and sharing your wisdom. was a really different episode. And I think a lot of the listeners will take a ton away from it for their companies and how they think about capital formation and how to get a return for their, for their investors. So appreciate you coming on and sharing your wisdom.

Sunaina: Thank you for having me, Shiv.