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Following Wealth Management's announcement of Gridline’s $18.5M Series A, CEO Logan Henderson shares his perspective.  Read note →

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Access to private markets has become easier to talk about.

Evergreen and semi-liquid funds are gaining visibility across the wealth channel. They often emphasize lower minimums, simpler onboarding, and more frequent liquidity windows. For many advisors and clients, that accessibility is appealing, and in some cases, genuinely useful.

At the same time, greater access to private markets can blur an important distinction. The structure used to package a private investment doesn’t change the nature of the underlying assets. It changes how the experience is framed.

Stepping back, it’s worth revisiting what actually drives outcomes in private markets, and what hasn’t changed, even as their packaging multiplies.

A Simple Reality: Private Assets Are Still Illiquid

Liquidity in private markets is typically scheduled, staged, or conditional. Capital is committed, deployed over time, and returned unevenly as investments mature or exit. That rhythm isn’t accidental. It reflects how private companies and assets are built, financed, and realized.

Research has long associated this structure with an illiquidity premium: the possibility of higher returns in exchange for committing capital that can’t be accessed at will. That relationship has been studied for decades, and it remains a foundational concept in private investing.

What varies across structures isn’t the existence of illiquidity. It’s how it’s presented, managed, and experienced.

When Packaging Becomes the Product

Many newer private market structures aim to reduce friction at the point of entry. In the U.S. alone, net assets in semi‑liquid evergreen private equity funds reached approximately $500B. More than half of those vehicles have been launched in the last four years. This illustrates how these newer wrappers are rapidly gaining prominence even though underlying assets remain illiquid. Lower minimums, smoother onboarding, and more frequent liquidity windows can make participation feel more familiar, particularly to investors accustomed to public-market mechanics.

In those cases, the structure is doing important work. It’s shaping expectations, simplifying administration, and broadening distribution.

At the same time, emphasizing ease of access to private markets can shift attention away from how capital is actually deployed and managed once it’s inside the vehicle. Liquidity features are often conditional rather than guaranteed, and their usefulness can depend heavily on market conditions.

In practice, the benefits of smoother packaging tend to accrue most clearly to distribution, making it easier to raise, aggregate, and scale capital. Whether that same structure consistently improves investor outcomes depends on how well it aligns with the strategy and the underlying assets.

What the Wrapper Can Change in Practice

Even when underlying assets appear similar, evergreen packaging introduces structural dynamics that matter over time:

• Cash drag. Semi-liquid funds often need to hold more cash or liquid sleeves to meet redemptions, which can dilute exposure to the underlying strategy.

• Adverse selection. The most capacity-constrained or highest-performing managers often remain in closed-end structures, while evergreen vehicles may concentrate in more scalable, more distributable exposures.

• Liquidity mismatch risk. When a fund offers quarterly liquidity gates or slow redemptions, advisors must manage the gap between client expectations and structural reality.

These are not flaws; they are tradeoffs. But they tend to surface later, not at the point of entry.

Structure, Experience, and the Long View

The proliferation of new investment wrappers hasn’t altered the fundamental nature of private assets, but it has profoundly reshaped the investor experience. While evergreen structures offer a sense of familiarity to those used to public-market mechanics, they often mask the enduring reality of illiquidity that defines the asset class.

In contrast, closed-end drawdown funds remain the most adaptable ecosystem for private investing. They align the capital commitment and deployment cycle with the actual rhythm of how private companies are built and realized. History reminds us that the depth and liquidity of the U.S. markets are unparalleled, yet the foundation of private markets still requires a staged, intentional approach to capital.

The bottom line is that while the world talks about accessibility, the long view requires a focus on outcomes.

One model presents private markets as a continuously evolving allocation. The other takes the shape of a defined, disciplined program. Neither approach is inherently superior, but each creates a different psychological and financial footprint for the client.

As we navigate periods of acute volatility and shifting asset class expectations, the durability of an investment strategy depends on its alignment with the underlying assets. Whether capital flows to public or private markets, the reign of disciplined portfolio construction continues.

This brings us back to the foundational question that must be answered before the next decade of market cycles. What kind of outcome are we building through these various wrappers?

The answer lies not in the packaging itself, but in seeing the forest through the trees. The most successful programs will be those where the structure directly extends the investment philosophy, rather than distracting from it.

About Gridline

Gridline is an end-to-end alternatives management platform built to set a new standard for private market investing. We work with RIAs to make private markets as easy to operate as trading stock, without sacrificing rigor or control.

Through our Custom Funds offering, Gridline helps RIAs launch and manage closed-end drawdown funds. We provide a single platform for fund formation coordination, investor onboarding and subscription processing (including KYC/AML), capital call and distribution management, fund administration and investor reporting, centralized investor / advisor communications, and ongoing fund operations. We operate as the manager and system of record for the fund. Our platform includes structured compliance workflows, custodial connectivity and downstream data integrations, and full auditability across all transaction activity. The goal is simple: absorb the operational complexity so advisors can focus on investment decisions and client relationships.

For a closer look at how Gridline supports RIAs launching closed-end drawdown vehicles, you can view the Custom Funds one-pager here.

About the Author

Carson Elmore is a member of the Investment team at Gridline, where he focuses on go-to-market strategy and client engagement across private markets solutions. Carson brings experience advising high-net-worth and institutional clients on portfolio construction, manager selection, and private market allocations.

Prior to joining Gridline, Carson served as a Senior Wealth Manager at BNY Wealth, where he advised clients on investment strategy, asset allocation, and holistic wealth planning. Earlier in his career, he held roles at Bank of America Private Bank and PwC, building a foundation in portfolio management, financial analysis, and client advisory. Carson holds a BBA and Master of Accounting from the University of Georgia and is a CFA charterholder.

Lately, there has been a ton of buzz around leveraging AI in the wealth space. As the co-founder of a tech startup, but also a product guy at heart, I feel the pressure to keep up with the conversation. Especially when nearly 60% of RIAs are planning to leverage AI in the near future ( McDonald, 2024.) When my team and I started mapping out what AI might mean for our roadmap, it forced me to pause and think carefully. What’s hype, and what’s here to stay?

Artificial intelligence often dominates the news with grand visions of reshaping industries, even suggesting it could replace human advisors. In wealth management, however, the real opportunity of AI lies not in flashy front-end features but in solving infrastructure-layer challenges. When addressed at this level, AI enables advisors to focus on their core goal: delivering trusted, personalized guidance.

Wealth management is, above all, a business built on trust. Clients may appreciate sleek interfaces, but they rely on the reliability and relevance of the advice they receive. That reliability comes from strong infrastructure, systems that optimize investment diligence, portfolio aggregation, and long-term financial planning. It is in these areas that AI delivers sustainable value.

So, where does AI actually create staying power for advisors? We kept coming back to a simple truth: AI creates lasting impact when it strengthens the relationships advisors hold. These are three areas where AI can fit neatly into the infrastructure advisors rely on every day, and ultimately help them deliver a consistently positive experience to their clients.

Rethinking Fund Diligence

Recommending a private investment is a long-term commitment with high stakes. A poor choice can lock clients into years of underperformance, jeopardizing their financial goals and eroding the advisor’s credibility. Nothing damages trust more than a failed, illiquid investment. With the rapid expansion of retail access to alternatives, regulatory scrutiny is also intensifying. The SEC is sharpening its focus on whether due diligence is documented, repeatable, and defensible.

Advisors must access the alpha potential of private markets to remain competitive, yet diligence is often burdened by operational risk, compliance demands, and analytical complexity. A traditional fund diligence process can take 3 months or more, but AI can reduce much of the heavy lifting to under an hour. From performing red flag analysis, benchmarking against previous cohorts, and generating investment committee-ready diligence memos, AI can accomplish this in minutes. This helps make the process efficient, data-driven, and defensible, one that turns diligence from a burden into an advantage.

Unifying Disparate Portfolios

Once clients commit to private investments, complexity multiplies. Advisors, RIAs, and multi-family offices often manage dozens of LP interests across multiple managers, each with different reporting formats. Tracking capital calls, distributions, NAV, and performance quickly becomes manual and error-prone. Without a consolidated view, it is nearly impossible to deliver accurate oversight or timely insights.

AI-powered infrastructure within a turnkey platform can address this by extracting and reconciling data from capital account statements, delivering a centralized, accurate view of all LP holdings. With better data, advisors gain the transparency and oversight needed to serve clients more effectively and scale their practices with confidence.

Advanced Portfolio Modeling

Forward-looking portfolio modeling is central to the advisor’s role, yet traditional tools often fall short when it comes to incorporating alternatives. Traditional tools rely on static assumptions and overlook the realities of private markets, where capital calls, liquidity timelines, and vintage diversification can fundamentally alter outcomes. Advisors are looking for higher standard models that reflect these constraints while still aligning with each client’s goals, risk tolerance, and liquidity preferences.

AI can power planning tools that are both dynamic and scalable. Advisors can design and implement portfolios that incorporate real-world private market constraints, then apply those models consistently across multiple accounts. This reduces guesswork, ensures allocations stay aligned with objectives, and allows firms to manage complex cash flow dynamics more efficiently at scale.

Delivering Lasting Client Experience

Advisors have been clear: they’re looking for a better way to navigate private markets. They’ve asked for an infrastructure reset that gives them tools that reduce complexity, increase control, and give back confidence when advising clients. We listened.

At the heart of this transformation lies Gridline’s mission to set a new standard in private market investing as the industry’s first Turnkey Alternatives Management Platform purpose-built for advisors. My team and I have reimagined the infrastructure of alternatives to make private markets faster, smarter, and more accessible. We’ve built a comprehensive platform that brings AI into fund diligence, portfolio management, and portfolio modeling, turning complexity into clarity and inefficiency into precision.

By providing an intelligence layer for due diligence, a centralized dashboard for portfolio oversight, and dynamic planning tools that incorporate the realities of private markets, we’re equipping advisors to reduce risk, scale their practices, and align more closely with client goals. Most importantly, the platform empowers them to do what they do best: build trust and deliver meaningful guidance. With Gridline, AI in the wealth space does not replace the human element; it amplifies it, creating a future where transparency, intelligence, and opportunity go hand in hand, and where each client’s experience is not only more sophisticated but more human.

We’re always happy to show off our hard work. Let us show you how we can deliver a seamless alternatives experience where private markets operate with public market standards. Reach out to our team here.

What does Q4 mean to you? For most registered investment advisors (RIAs), it’s an opportunity to prove their value. Often, Q4 is a flurry of client meetings and emails covering rebalancing, cash gifts, tax payments, capital calls, and charitable giving plans.

Every conversation, from rebalancing to charitable giving, becomes an opportunity to reinforce trust and show clients how calibrated portfolio management translates into tangible after-tax value.

That’s where tax-loss harvesting (TLH) comes in.

TLH isn’t just a technical exercise; it’s a marker of professionalism. Done right, it reflects an advisor’s ability to turn market volatility into lasting advantage, both for client portfolios and the relationship itself.

The growing focus on systematic, technology-driven tax management isn’t anecdotal. According to Cerulli Associates’ 2025 Customized at Scale white paper, 82% of managed account sponsors now rank improving tax management capabilities, including loss harvesting, as a top priority for their firms.

In this piece, we’ll explore:

• Make it a system, not a December scramble
• How to implement TLH as a continuous, system-driven discipline (not a December scramble)
• Where technology and process create real efficiency gains

TLH Value isn’t Magic, It’s Math

TLH is both a portfolio management discipline and a client-relationship differentiator. As more advisory firms compete on cost and technology, tax efficiency has emerged as one of the cleanest ways to show ongoing value and create alpha. When TLH is integrated into rebalancing systems, risk controls, and personalized investment policy statements, advisors can demonstrate measurable after-tax value. Done systematically,  advisors can potentially add ~25 bps or more in annual after-tax return. Often enough to more than justify fees, while reinforcing trust through a visible, repeatable process.

The payoff depends on:

• Harvestable losses (market-driven and position-specific)
• Client tax rate (higher marginal rates amplify benefit)
• Volatility (more swings = more opportunities)
• Deferral period & compounding (losses today can defer future gains and smooth taxable income)

Over time, compounding is where TLH really earns its keep.

What Actually Moves the Needle

1. Make it a System, not a December Scramble

Effective tax-loss harvesting goes beyond a once-a-year sale; it’s a year-round system integrated into portfolio management. Leading advisors:

• Monitor continuously: where client portfolios are scanned quarterly or even daily using algorithms to identify losses exceeding a threshold, such as 5-10% below cost basis.
• Integrate with rebalancing: use sales to realign allocations without triggering unnecessary gains.
• Lean into volatility: This proactive stance captures opportunities in volatile markets, rather than relying on December rushes that might miss earlier dips.

2. Pair it with Charitable Giving

TLH pairs naturally with giving strategies. RIAs can advise clients to use highly appreciated securities when making donations to charity, avoiding capital gains taxes altogether, while using harvested losses to offset other income.

This “gain/loss match optimization” is particularly useful when loss opportunities dwindle in bull markets. For ultra-high-net-worth clients, RIAs might employ options or derivatives to hedge positions, but this adds complexity and costs.

3. Advanced Implementation: Direct Indexing

Direct indexing is an advanced portfolio tactic gaining traction among RIAs. Instead of using mutual funds or ETFs, RIAs construct customized portfolios mirroring an index but allowing individual stock sales for losses. For instance, in an S&P 500 replica, selling a losing tech stock and replacing it with a similar one maintains exposure while harvesting the loss. Integrating AI portfolio optimization with TLH tactics into in-house portfolio management systems is becoming more prevalent. And outsourced solutions, including platforms like Parametric or AssetMark, offer turnkey solutions.

4. ETF and Core-Satellite Models

Many successful advisors employ ETF-based allocation strategies for simpler administration and lower costs. Hybrid core-satellite approaches mix individual securities with ETFs in satellite allocations. TLH works well in these constructs, but calls for extra scrutiny when selecting a replacement ETF to maintain the desired asset class exposure within a portfolio. Best practices for replacement security selection include using factor-tilted replacements (swapping total market for large-cap value indices), or using optimization algorithms that minimize tracking error while avoiding wash sale violations. Always use specific identification for tax lot selection rather than average cost methods.

5. Wash Sale Guardrails

The key consideration for TLH implementation is the wash sale rule (IRC Section 1091). The wash sale rule prohibits claiming losses if “substantially identical” securities are purchased within 30 days before or after the sale. The IRS hasn’t precisely defined “substantially identical,” but the same securities clearly qualify, different share classes of the same company likely qualify, while securities of different companies in the same sector generally don’t qualify. Index funds tracking the same index remain a gray area requiring conservative interpretation.

Where Turnkey Platforms vs. Point Solutions Help

Why TLH Is Harder Than It Looks

Even for sophisticated firms, tax-loss harvesting breaks down at the system level. Most advisor tech stacks weren’t built for daily monitoring, multi-custodian data, or real-time coordination between portfolio management and client reporting. TLH demands precision: accurate cost-basis tracking, wash-sale compliance, and seamless integration into rebalancing and trading workflows. When those systems operate in silos, opportunities get missed and execution becomes reactive instead of routine.

The push toward automation isn’t theoretical; 82% of managed account sponsors now cite tax management capabilities like transition analysis and tax-loss harvesting as top strategic priorities, according to Cerulli Associates (2025). Yet most platforms still lack the unified systems needed to deliver them at scale.

The Limits of Point Solutions

Standalone TLH tools and spreadsheets can automate trade ideas, but they rarely account for the full picture: capital call timing, liquidity management, or portfolio-level exposure shifts. They help capture losses, but they don’t operationalize discipline across accounts or teams. That’s where many firms stall: strong intent, limited infrastructure.

The Case for a Turnkey Platform

A unified, purpose-built platform connects TLH with every other part of portfolio management: trading, cash management, and real-time performance visibility.

Advisors gain:

• Consistency – standardized rules and thresholds across accounts.
• Visibility – real-time insight into harvested vs. remaining losses.
• Control – automated guardrails for wash-sale compliance and exposure drift.
• Confidence – clean, auditable execution that clients can see and understand.

Gridline’s infrastructure eliminates many of the operational friction points that make portfolio management difficult to scale. As the industry’s first Turnkey Alternatives Management Platform built specifically for private markets, Gridline helps advisors integrate alternative investments into broader portfolio oversight — linking capital calls, rebalancing, liquidity, and reporting — so advisors can maintain precision across accounts without extra manual work.

While Gridline does not execute tax-loss harvesting, its unified data and reporting infrastructure provides the clarity advisors need to align private market activity with their clients’ broader, tax-aware strategies. The result is a disciplined, scalable process that strengthens client trust and operational efficiency.

Gridline simplifies portfolio management so you can scale with confidence and set a new standard for your clients. Use the Modern Private Markets Oversight Checklist to evaluate your current oversight and see what “great” can look like when your infrastructure matches your ambition.

Logan Henderson, Co-Founder and CEO of Gridline, recently joined Avidian Wealth Solutions ($4B in RAUM) for a conversation on the future of private markets on the podcast Ask Avidian. As one of the fastest-growing boutique family offices in the country, Avidian has been a respected name in wealth management for more than two decades.

In his discussion with Avidian’s Chief Investment Officer, Jake Borbidge, Logan shared his perspective on the current state of the alternatives market, why quality matters more than ever, and infrastructure—not hype—is shaping the future of private market investing.

🎧 Listen to the episode: Spotify | Apple | YouTube

A Market Shift Toward Quality And Core Fundamentals

Logan opened the conversation with a clear read on the current market dynamics. After a long stretch of easy capital and sky-high valuations, the environment is normalizing.

“The market has broadly accepted the new rate environment. Money was free, valuations were crazy, but there has been a normalization. There are still some hype cycles… but when assessing opportunities, now the focus is back on quality of revenue and quality of earnings across the board.” — Logan Henderson

Headlines like OpenAI’s $500B valuation reflect an environment where innovation drives excitement—but also one where selectivity matters. As hype cycles flare, the question is increasingly less “Who’s raising?” and more “Who’s built to last?” The conversation framed this as a turning point: fundamentals are back in focus, and investors are seeking clarity, control, and durable strategies rather than simply chasing access.

The Dispersion Advantage Among Market Normalization

While market normalization sets the backdrop, dispersion of returns is what makes private markets uniquely powerful and uniquely challenging.

“Anywhere there’s dispersion, you can do a good job and win big. But you can obviously do a poor job and lose big.” — Jake Borbidge

Private market outcomes vary widely, especially compared to the relatively tight bands of ETF performance. Top-performing funds are often sector-specific and differentiated. Identifying the Alpha from the Fluff requires infrastructure, underwriting discipline, and informed access to elevate confidence in the investment strategy.

This is where Gridline’s approach comes in, pairing technical infrastructure with differentiated  investment sourcing to give advisors more visibility and confidence across the full lifecycle.

“There are really two parts to our business. One is technical… The second component is on the asset management and alternative side. Our thesis is really around finding those differentiated investment opportunities.” — Logan Henderson

He also highlighted how Gridline is increasingly leveraging AI and advanced data modeling to evaluate opportunities more efficiently and identify fund managers with consistent performance signals—bringing institutional-grade analysis to the advisory channel.

It’s the Next 10 Years that Matter: Technology’s Role

As dispersion creates opportunity, confidence elevates and often begets elevated allocation to private market investments. The dynamics of scale can creep up, exposing a structural gap that may have otherwise gone unnoticed at 10-15% allocation to alternatives, but now at >15-20% allocation to alternatives, advisors are feeling the growing pains of access without infrastructure.

Jake captured this familiar pain point for many advisors:

“We actually… see a lot of clients coming our direction that have got burn marks on them from prior things that they’ve had. It just wasn’t a good experience. And sometimes the experience isn’t necessarily the return side of it. It’s just the inability to see what you own.” — Jake Borbidge

Historically, advisors have had to navigate opaque, fragmented systems to participate in private markets. Logan emphasized that those legacy frictions don’t have to define the future.

Today, technology and more sophisticated underwriting processes are closing those gaps. What used to be manual, scattered, and uncertain is becoming data-driven, transparent, and continuously updated. Through AI-enhanced deal evaluation and real-time portfolio monitoring, advisors can now see performance and exposure across every investment as it happens, clarity that simply didn’t exist in private markets before.

Today, technology and more sophisticated underwriting processes are closing those gaps. What used to be manual, scattered, and uncertain is becoming transparent, structured, and controllable.

“Gridline is the first turnkey alternatives management platform. And our focus is bringing efficiency into the alternatives ecosystem.” — Logan Henderson

The platform pairs infrastructure (to manage and monitor investments) with asset management (to identify and underwrite quality). Together, they aim to help advisors deliver better outcomes without the operational drag. Unlike much of the industry, which focuses on front-end access and transactions, Gridline is built for the long arc:

“It’s the next ten years that matter.”  — Logan Henderson

Private Markets’ Historical Complexity

Both Logan and Jake reflected on just how operationally cumbersome private markets have been. Even after gaining access to deals, inefficiencies stack up fast.

“Everyone has made an investment and has been through the lifecycle of managing PDFs in Excel and trying to understand, ‘what do I own?’ There are a lot of inefficiencies that technology can solve for, like knowing what you own and how much it’s worth. It’s a powerful thing to be able to say the totality of your portfolio, but also what your unfunded commitments are.” — Logan Henderson

Jake summed it up with a laugh:

“That’s important. It’s almost like quantum physics at this point.” — Jake Borbidge

Gridline consolidates those scattered workflows, from subscription through reporting, into a single, integrated turnkey alternatives management platform. Instead of advisors juggling portals and spreadsheets, they get real-time visibility across the full investment lifecycle.

This is how firms shift from managing chaos to allocating intelligently.

Liquidity Mismatch and the Risks Ahead

Looking into the future of private markets, Logan and Jake discussed the mismatch between product wrappers and underlying asset classes, particularly as interest grows in semi-liquid or interval structures.

“Ultimately, it is still an illiquid product because the underlying assets are illiquid. So I think there’s going to be some innovations… but so much of that inefficiency largely comes down to what we’ve solved through technology already by building our own ledgering system.” — Logan Henderson

Logan cautioned that making it easier to get into private investments doesn’t address the structural realities of the asset class, and can create problems when markets turn. More specifically, you may not be able to get your dollars out when you want to, so does the investment strategy truly meet your near-term financial priorities?

The 401(k) Question: What’s Next?

The conversation closed with a look toward the future, including the potential integration of alternatives into 401(k) plans.

“401(k)s are a great use of capital for alternatives. It’s got a long, long holding period. So long duration on both sides. So that’s a huge benefit.” — Logan Henderson

But he also raised concerns about governance and quality control:

“What I don’t want to see is an open market for someone to take their 401(k) out of a low-cost ETF that tracks the S&P 500 and go find random opportunities that someone services to them.” — Logan Henderson

Why It Matters

For many RIAs and family offices, alternative investments remain a high-potential but operationally complex asset class. In his conversation with Avidian, Logan detailed how Gridline’s platform leverages AI for smarter deal evaluation, delivers real-time transparency across portfolios, and maintains a disciplined focus on high-quality fund managers — a combination designed to mitigate the liquidity and structural risks emerging in today’s rapidly evolving private markets.

Logan’s conversation on the future of private markets with Avidian underscores the growing emphasis on:

• Quality over hype — focusing on differentiated managers and real fundamentals.
• Infrastructure over access alone — solving for the full lifecycle, not just the transaction.
• Discipline in liquidity and structure — avoiding mismatches that can hurt long-term outcomes.

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• Curious to explore the impact a turnkey alternatives management platform could have for your firm? Let’s get to know one another further via an introductory call. Contact Gridline to schedule your complimentary consultation today.
• Listen to the Ask Avidian episode on all streaming platforms, or press play below.

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The information presented in this podcast and blog is for informational purposes only and does not constitute investment advice or a recommendation to buy, sell, or solicit any investment product or securities. The views expressed are the participants’ own and do not necessarily represent the views of Gridline or Avidian Wealth Solutions. All investments carry risk, and past performance is not indicative of future results. Private market investments are not suitable for all investors and may only be available to those who meet specific eligibility requirements. Attendees should consult with their financial advisors or conduct their own research before making any investment decisions.

What do cookies, protein shakes and high-end luxury consumer brand items all have in common?

Other than being fun and unique products to “Add To Cart” during an online or in-person shopping jaunt, they also represent a small component of the $8.3 trillion1 of annual personal consumer expenditure in retail trade and restaurants that presents a massive opportunity for consumer-focused private equity investors.  At 30% of US GDP2 and 45% of personal consumption expenditure3, this slice of the economy covers food & beverage, consumer brands, restaurant and retailer activity within the United States.

Take for instance, the “consumer brand investing success story”4 that is Tate’s Bake Shop, a well-known gourmet cookie brand that is widely available at Publix and Costco. As part of their methodical research surrounding evolving consumer tastes, Riverside honed in on the shifting consumer preference for all-natural and gourmet dessert options5. Riverside gave Tate’s the resources they needed to expand and enhanced Tate’s distribution, production, and manufacturing efficiency.4

Riverside fostered Tate’s strong relationships with retailers – enabling Tate’s to understand changing customer needs and preferences – and develop unique products like snack-sized “Tiny Tate’s” and on-trend flavors like Ginger Zinger and Coconut Crisps. Riverside also enabled Tate’s to be able to meet this demand through cultivating strong relationships with Tate’s distributors. Tate’s was sold to Mondelez International (an international food conglomerate) for $500MM,4 a great outcome for Riverside’s investors and for Kathleen King who first opened the roadside cookie stand.6

Within this opportunity set, private equity investors conduct significant research surrounding changing consumer preferences and deploy capital in companies which are poised to capitalize on one or many of these consumer trends at various sizes and stages. Private equity investors take a “treasure-hunt” approach, sometimes honing in on a small upstart at the intersection of multiple compelling themes or finding a highly recognizable brand with deep customer affinity and empowering them to grow in new sectors through expansion capital and strategic oversight. At each stage of a consumer-focused company, private equity aims to bring operational improvements, industry insights, and best-in-class partnerships to the table.

In addition to demand for all-natural and gourmet dessert options, consumer preferences highlight an increased focus on wellness. Only What You Need (OWYN), a plant-based protein beverage, was founded by two former professional athletes in 2017.8 Catering to a health and wellness focused demographic, OWYN’s ready-to-drink protein shake excludes sugars, syrups, and saturated fats,9 as well as the top eightallergens.9 Initially launched via e-commerce, OWYN received patient capital and strategic guidance from Purchase Capital in 2022.10 OWYN continues to experience double-digit revenue growth and is expected to have $120MM of net sales in 2024.10 OWYN now outsells legacy brands like Muscle Milk and is carried in Kroger, Target, Publix and Whole Foods nationwide. It was recently acquired by Simply Good Foods, a developer, marketer and seller of branded nutritional foods, for $280MM in cash.11

The wellness trend has also expanded to beauty, where it accounted for an extra $46B or 30% of market value to the overarching US beauty sector, which presently stands at $148B.12 Beauty is a small component of the overarching consumer brand sector, which includes clothing, footwear, pets and more. Clothing and footwear alone represented $1.4T of economic activity within 2023.7  Within the consumer brand sector, luxury brands have outperformed market indices, while non-luxury brands have lagged – which has increased caution amongst investors for the non-luxury category.13 This rings true within beauty as well, with North American luxury beauty sales growing 15% in 2023.12

All of these metrics highlight how highly recognized brands with deep affinity amongst their customer base have been able to pass along cost and price increases to consumers, without suffering a dip in demand, relative to less differentiated counterparts. Unlike their commoditized counterparts, unique consumer brands capitalizing on key consumer themes and trends require a well-developed network of relationships to source, as well as deep understanding of the sector to implement operational improvements and long-standing partnerships.

Despite a slowdown in consumer M&A activity in recent quarters due to softened consumer sentiment from rising rates, KPMG projects that 2024 consumer-focused M&A is set for an upswing. Private equity investor confidence in the consumer sector has increased, driven by the first of many forecasted rate cuts from the European Central Bank and other global central banks, larger deals and rising IPO activity.12

At approximately $18.6 trillion14 and representing nearly 68% of the U.S. GDP, consumption is the primary driver of the U.S. economy and presents a massive opportunity for attractive growth investments. Real* personal consumption expenditure experienced an average 3% year-on-year growth rate over the last decade.15 Investors would do well to consider dedicated consumer allocations within a diversified portfolio, as missing out on a large and steadily growing slice of the economy might prove costly over the coming years.

*Real personal consumption expenditure is adjusted for inflation

Sources

1. Retail Sales: Retail Trade and Food Services (MRTSSM44X72USS) | FRED | St. Louis Fed (stlouisfed.org)
2. United States | Data (worldbank.org) (GDP)
3. Personal Consumption Expenditures (PCECA) | FRED | St. Louis Fed (stlouisfed.org)
4. Mondelēz International to Acquire Tate’s Bake Shop | Mondelēz International, Inc. (mondelezinternational.com)
5. Tate’s Bake Shop – Growth Story | www.riversidecompany.com
6. Founder Kathleen King’s Story | Tate’s Bake Shop (tatesbakeshop.com)
7. GDP by Industry | U.S. Bureau of Economic Analysis (BEA)
8. The Plant-Based Protein Drink That’s Changing the Game – Corporate Essentials (drinkcoffee.com)
9. OWYN’s President Mark Olivieri On How Successful Brands Are Built On Great Culture | ForceBrands Newsroom
10. OWYN Announces Funding Round Led by Purchase Capital to Accelerate National Expansion | Business Wire
11. The Simply Good Foods Company to Acquire Only What You Need (OWYN) | The Simply Good Foods Company
12. Potential for an upswing: Q1’24 M&A trends in consumer & retail (kpmg.com)
13. The State of Fashion 2024 report | McKinsey
14. Personal Consumption Expenditures (PCECA) | FRED | St. Louis Fed (stlouisfed.org)
15. Real Personal Consumption Expenditures (PCEC96) | FRED | St. Louis Fed (stlouisfed.org)

When IBM chairman Thomas Watson was selected to serve as ambassador to the USSR in 1979, he had a problem. Ethics norms of the time dictated he needed to dispose of his personal stakes in several VC funds he’d accumulated over years of investing in the early computing industry. Watson tapped Dayton Carr to help market the fund interests. After significant effort, Carr was able to find willing buyers in the nascent private markets ecosystem to complete the sales. This convinced Carr to set up the world’s first dedicated secondaries firm, Venture Capital Fund of America, to pursue the strategy full-time.1 Carr ended up nurturing several industry luminaries, including Jeremy Coller (CEO of Coller Capital) and Andrew Isnard (CEO of Arcis Group).

Today, the industry Carr helped birth transacted $112B of volume in 2023 and has spread into every private asset class.2 Whether because of competitive returns, diversification, or quicker cash conversion cycles, secondaries have become an increasingly important arrow in the quiver of private market allocations available to investors. This article will walk through two common types of secondaries deals, recent trends in different corners of the market, and things for investors to keep in mind before jumping in.

Types of Secondary Deals

LP Stake Sales

Watson’s quandary is an example of the original form of secondaries transactions, LP stake sales. These involve Limited Partners (LPs) looking to sell private fund interests and secondaries managers hoping to acquire them for less than their intrinsic value. LPs might be looking to sell because of shifting strategic mandates, idiosyncratic personal factors, loss of conviction in a manager’s strategy, or to free up liquidity. Buyers are tempted by typical discounts to Net Asset Value (NAV) at purchase, a shorter runway to liquidity as typical sales take place in the latter years of a fund’s life, and a mostly known and well-diversified portfolio.

Strategic Considerations

Many private fund contracts require General Partner (GP) consent before interests are transferred, which means the GP must approve LP stake purchasers before any sale. This is especially true for Venture managers, who can be sensitive about allowing new investors into the partnership who might publicize portfolio company information. These dynamics help existing LPs in a fund get a leg up when purchasing stakes, as they can be trusted not to circulate information and are knowledgeable enough about the portfolios to ascertain their true value. Because that pool of LPs is often smaller than buyout funds, bidding for venture portfolios tends to be less competitive.

GP Continuation Vehicles

As secondary markets developed, a pattern of LPs looking to unload interests in long-dated funds emerged. Because fund interests might be a bit small by that stage of a fund’s life, LPs might not get great asset pricing. GPs became aware of this dynamic and introduced continuation funds, where LPs would be given the option to sell their interests in one large block and hopefully fetch a better price. GPs are quite enthusiastic about the prospect as it allows them to reap significant carry when LPs extinguish their fund interests and restart the clock on fee income (which GPs receive from new purchasers in exchange for continued management of the assets).  Less cynically, they can also allow GPs to pursue more long-term value enhancement plans rather than forcing assets to market prematurely.

Strategic Considerations

From a purchaser’s perspective, continuation vehicles offer the chance to purchase significant exposure to a concentrated portfolio. Because managers typically run a bidding process for the right to participate, secondaries purchasers can get an opportunity to learn more about the assets they’re purchasing, particularly if they are less familiar with the manager. In the words of one market participant, “Managers can sell these assets to any number of people.”3 This same broadly marketed process usually means more competitive pricing, requiring purchasers to be spot on when forecasting portfolio company growth.

Why Now?

Whether on the LP or GP side, this market environment has been conducive to significant secondaries volume. Jefferies estimates that 2023 was secondaries’ second-largest year behind 2021, with volume fairly evenly split between GP continuation vehicles and LP stake sales.2 LP volume was dominated by Pensions and Sovereign Wealth Funds, which is perhaps unsurprising as they are the largest individual pools of capital. On the GP side, higher rates made the traditional exit routes of IPOs, M&A, and dividend recaps scarce, creating a strong opportunity for continuation funds to provide liquidity. Continuation funds reached an all-time high of 12% of global sponsor-backed exits, more than double the average for the previous 3 years.2

The thirst for liquidity has had a knock-on effect on pricing. Below, you’ll find a graph of annual pricing on LP deals across asset classes, where eagle-eyed readers will note that every asset class priced below its pre-COVID average in 2023. However, this was far from evenly distributed as buyout deals rebounded to 91% of NAV while venture pricing remained depressed at 68% of NAV. Part of this spread is due to differences in valuation policies, as buyout managers are often slower to write up portfolio companies than VCs, who typically write up portfolio companies every 1-3 years as they raise additional rounds of capital.4 Those external VC rounds are usually a strong anchoring point for venture valuations, which means that venture managers are slower to write down the value of their portfolios in a downturn.

source: Jeffries2

Beyond technical pricing differences is a supply and demand mismatch. Jeffries pegs the dedicated capital available to pursue secondaries at an all-time high of $255B or 2.3x the market’s volume.2 Most of this dry powder has been raised to pursue buyout opportunities, including $23B for Lexington Partners’ latest fund5 and $25B for Blackstone’s most recent vintage.6 By contrast, the closed nature of many venture secondaries opportunities, smaller opportunity sets, and the higher bar on the diligence of rapidly changing venture-backed companies makes it more difficult to deploy capital at scale. This shows up in the fundraising figures, with the largest secondaries fundraises dedicated to venture Industry’s recent $1.7B vintage7 or StepStone’s $2.6B 2021 close.8

Finally, investors should consider how private secondaries compare with public markets. In the past year, the S&P 500 is up 28%, and the NASDAQ-100 is up 50%.9 Cambridge Associates’ most recent one-year buyout performance was pegged at 6.4%, while venture turned in a -10.4% return.10 So while private company valuations might have looked stretched relative to their public peers in 2023, the growth of public comps mainly fueled by multiple expansion makes the concern less salient in 2024.11

So What?

There is strong evidence that more niche secondaries managers engaging in less competitive bidding processes can produce outsized returns. Phil Huber at Cliffwater recently put out a note that segments the secondaries landscape into generalist firms with larger fund sizes and broader remits and specialist firms focusing on a narrower slice of the market.12 He found that Specialists outperformed by ~5% per year across a 250 fund dataset. This makes sense, as we would expect excess returns to be eroded in markets with more dry powder outstanding.

Prequin & Phil Huber’s Calculations, Vintages 1982-2019, Data as of 6/30/2023 12

Bringing it all together, investors can benefit significantly from secondaries funds due to a faster payback period than primary investments, increased diversification, and competitive returns. Now is a particularly advantageous time to tap the secondaries markets with discounts to NAV above pre-COVID averages across asset classes and even further above average in more niche spaces like venture. Higher prices for public stocks make these entry points more valuable on a relative basis. When considering how to play the space, investors should consider the degree to which specialization gives a manager they are considering partnering with a relative advantage.

1. Secondaries Investor, The Man Who Spawned a $88B Industry ↩︎
2. Jefferies Global Secondary Market Review, January 2024 ↩︎
3. Wall Street Journal, Sequoia Heritage Backs Private Equity Firm with Taste for Complexity ↩︎
4. Goldman Sachs Asset Management, Unpacking Private Equity Valuations and Returns ↩︎
5. Lexington Partners Press Release ↩︎
6. Blackstone Press Release ↩︎
7. Industry Ventures Press Release ↩︎
8. Stepstone Investor Deck , page 37 ↩︎
9. Figures from the Wall Street Journal as of 2/29/23 close ↩︎
10. Cambridge Associates LLC US Venture Capital Index & US Private Equity Index as of 9/30/2023 accessed February 29, 2023 ↩︎
11. Multpl pegs S&P 500 PE at 27.66 as of February 2024 and 22.66 as of February 2023, access after 2/29/2023 close. That is 22% annual growth, and rolling one-year earnings per share are slightly down by comparison. ↩︎
12. Private Equity’s Second(ary) Act, written by Phil Huber for Cliffwater on February 21, 2024 ↩︎

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Similar to how a buyout manager would provide capital and expertise to a portfolio company in exchange for equity in the business, GP Stakes investors provide capital and expertise to General Partners (GPs) in exchange for a minority stake in the underlying management company and its GP entities (their funds). The GP Stakes Investor receives a share of future cash flow from net management fee revenue and profits, incentive fees, GP co-investments, and balance sheet realizations. GPs use the capital to help grow the firm by meeting co-investment requirements for upcoming funds, succession planning, or developing new strategies.

There are some unique aspects to GP Stakes investing that set it apart from other private equity strategies:

• Yield: This is perhaps the largest differentiator from typical buyout or growth equity investments. While most private equity funds do not return capital until investments are exited, investments in GPs can produce cash flow by contractually collecting a portion of management fees from the GP.
• Diversified exposure: Just as one can diversify through investing across asset classes, GP Stakes funds often offer investments in GPs across various private asset classes, as well as firms that focus on larger, middle-market, or smaller managers.
• Downside protection: GP Stakes investing offers downside protection because management fees from the underlying firms are locked in for 10+ years on closed-end funds. The risk-return tradeoff for GP Stakes funds is often more similar to real estate or mezzanine strategies than to buyout or growth equity.

Ultimately, the investors in this strategy are rewarded when GPs and their funds perform well – raising larger funds, returning to market sooner, achieving better results, and charging higher fees. If you want to learn more about the ins and outs of GP Stakes investing, read our blog post on the topic.

Gridline enables you to invest with top-tier fund managers across private credit, venture capital, private equity, and real assets. Book a time to speak with a member of our team to learn more, or sign up in minutes by clicking the button below to gain access to the platform.

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In 1969, a team of researchers at UCLA sent the first message between two computers to Stanford on the Advanced Research Projects Agency Network (ARPANET). Often known as the forerunner of the internet, ARPANET was funded by the Department of Defense to link research institutions with government grants to speed technological development.  It only took a few years for one of the academics, Bob Thomas, to create a program named Creeper that could track network activity and report back its findings.  This was quickly followed by Ray Tomlinson’s Reaper antivirus software, which chased and deleted Creeper wherever it was found.

This tit-for-tat between Bob and Ray is the first example of cybersecurity in action, and for the past five decades, the battle between those looking to penetrate online networks and those erecting defenses has continued to escalate.  In 2023, end-user spending in the market for information security from cyber attacks was projected to reach $188B, which would represent 11.3% growth from 2022.  Estimates for how large this market can get vary widely, but a study by McKinsey pegged the top end at $2 trillion.

Why does such explosive growth appear likely?  One way to approach that question is to consider how much cybercrime costs today and how that’s likely to change.  The team at Cybersecurity Ventures estimated that cybercrime would cost $8 trillion in 2023 and $10 trillion by 2025 due to a host of costs, including data destruction, stolen money, IP theft, and reputational harm, among others.  Another barometer includes surveys of top executives purchasing cyber defenses as they are the ones writing the checks.  Morgan Stanley asked 100 Chief Information Officers in early 2023 about which programs would receive the largest spending increase, and Security Software came first.1  More revealingly, when asked which programs are most likely to be cut, none of the CIOs mentioned Security Software.

Not only is explosive growth possible, but there are reasons to believe startups will have an outsized role to play in defending against the next generation of attackers.  One is that entrepreneurs can structure their firms to prevent today’s threats.  Cyber professionals have already started to see Generative Artificial Intelligence (AI) contribute to cyber attacks by making it cheaper for groups to run spear phishing or automated customer support scams.  The US government has noticed, setting up an AI Security Center within the National Security Agency (NSA) to guard sensitive information that can’t always be addressed with third-party software.  Similarly, advances in quantum computing threaten to make many current encryption methods obsolete.  Companies built to stop these new vectors of attack stand to benefit if they can outperform legacy players, and historically, incumbents have struggled to innovate on new products while staying at the cutting edge of their existing products.  This is especially easy because experienced cyber operators can offer consulting services independently to generate revenue while developing the next software program to productize their insights.

Why Entrepreneurs Need Venture Capital

Considering the size and growth of the cyber market, you might expect the venture industry to be rushing headlong into cyber.  TechCrunch’s data disagrees, and they estimate Security startups only raised $2.7B in funding over the first quarter of 2023, down 58% year over year.  Beyond a general funding malaise, VCs also might be reacting to the difficulties in investing in the space as a generalist.  Cyber-specific VCs enjoy advantages on the sourcing side because their relationships with executives purchasing cyber solutions can help startups get a foot in the door with potentially huge clients.  They are also advantaged with investment diligence because extensive experience allows them to more easily separate overhyped players from true security breakthroughs.  This is crucially important in an industry where companies can grow revenue before the flaws in their security solutions manifest.

Cybersecurity is an industry ripe for continued growth and disruptive innovation.  As investors consider how they want to position portfolios against potential disruptions from AI or quantum computing, it would be wise to consider how cybersecurity investments could function as an (imperfect) hedge.  We are excited to see how the space develops in the years ahead and hope that those building protective walls outpace bad actors seeking to scale them.

1. Source: AlphaWise 1Q23 CIO Survey (n=100), Morgan Stanley Research. ↩︎

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The escalating U.S. debt crisis shrouds the economy in uncertainty. With the U.S. national debt soaring past $32 trillion as of Q2 2023, and the debt-to-GDP ratio near historic highs, this explosive potential looms large. Raising the debt ceiling, as was done in June, only delays the inevitable need for sustainable solutions. Raising the debt ceiling does not address the root cause of the problem: the persistent mismatch between spending and revenues.

A key escalation point in the U.S. financial landscape was a $1 trillion increase in the national debt within a month, a direct consequence of Congress’ decision to lift the borrowing ceiling. Prior to this, during the 2008 financial crisis, the U.S. debt increased by almost $1 trillion over the span of a year. The accelerated pace of debt accumulation today is a red flag for investors.

High levels of national debt could lead to increased financial market volatility and potential tax hikes, both of which can significantly impact investment returns in the public markets. Plus, the need to service this growing debt might prompt cuts in public spending, indirectly affecting sectors dependent on government contracts and subsidies.

For private investors, this necessitates a shift in strategy. Assets tied to stable government spending may no longer be safe bets. Conversely, businesses and sectors resilient to such cuts, or those that may benefit from potential tax hikes, such as certain green technologies or healthcare services, may present attractive investment opportunities.

Consumer Savings Evaporate

Simultaneously, the post-pandemic phase has seen a dramatic decrease in excess savings, dropping by about $100 billion each month. These savings, accumulated in part due to reduced consumer spending during the pandemic, acted as a financial cushion for households and a potential catalyst for future consumer spending.

Their steady depletion, combined with a still-uncertain job market, could impact consumer behavior, leading to reduced discretionary spending and consequently impacting industries such as travel, hospitality, and luxury goods. Understanding these consumption trends will be crucial for private investors as they reassess their portfolio allocations.

The personal savings rate declined to a mere 4.6% by February 2023, far below the decades-long average of 8.9%. For historical context, the U.S. personal savings rate had dipped to a similar low ahead of the 2008 financial crisis, suggesting that current low savings rates could be a precursor to economic turbulence.

Reduced savings may lead to a decrease in overall consumer spending, which could in turn impact corporate profitability across sectors. For private investors, this calls for caution in sectors heavily reliant on consumer spending. Diversification into defensive stocks or countercyclical sectors like utilities, healthcare, or certain technology services, which historically tend to perform well during economic downturns, may be prudent.

After a two-year expansion in consumer spending, 2023 marked a contraction, with overall real spending growth declining in April. This shift could suggest consumer sentiment or behavior changes, perhaps driven by uncertain market conditions or changing demographic trends.

A Global Domino Effect

Should the U.S. default on its debt, the fallout would be far-reaching, potentially triggering a global financial crisis that could surpass the severity of the 2008 financial crisis. As history has shown, crises of this magnitude can be devastating for investments, causing a downward spiral in global markets.

Given the interconnected nature of global financial market disruptions, private market investors need to evaluate the extent of their exposure to potential global economic shocks. Diversifying your alternative investments across geographies and asset classes can be a key risk mitigation strategy, along with investing in businesses that have demonstrated resilience despite slowed economic growth.

Historically, private markets outperformed during downturns compared to public markets, with less significant drawdowns and faster recoveries. While US consumer savings and spending are dropping, private equity dry powder remains sky-high. This presents a potent opportunity for mergers and acquisitions, as private equity firms “buy and build” during downturns, allowing portfolio managers to acquire assets at a discount.

With their long time horizons and low correlation to public markets, private investments like venture capital, real estate, private equity, and private credit are becoming increasingly attractive. With Gridline’s digital private market infrastructure, individual accredited investors can access top-tier private investments.

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The appeal of private market investments for high-net-worth individuals (HNWIs) and accredited investors is clear. In fact, 75% of private capital investors are keen on increasing their allocation to private markets due to their potential for higher returns and portfolio diversification.

This results in up to $12 trillion of capital on standby from accredited investors. However, there are significant obstacles: high administrative costs, illiquidity, a complex collateral process, and steep minimum investment sizes. The key to unlocking this latent demand is digital infrastructure.

The challenges

The current private market landscape is strewn with operational bottlenecks. A survey conducted by Intertrust Group found that 30% of private equity firms are entirely or primarily using manual processes for fund administration, a legacy issue that originated from an era when significant institutional investments primarily drove private markets.

These manual processes extend the administrative time for transactions in several ways while also increasing management fees and fund operating fees.

Individual investors, too, are confronted with their own set of challenges, namely prohibitive entry barriers. Private markets have traditionally been constructed to accommodate large-scale investments, historically with a standard minimum investment of $25 million. This naturally narrows down the potential investor pool to the very affluent or institutional investors, restricting access for a large part of the population and subsequently limiting the market’s liquidity and growth potential.

A recent Preqin report further underscores the prevalent opacity in private markets. According to the report, 60% of surveyed investors declined to participate in a fund due to a lack of alignment in the terms and conditions.

Investors, in essence, are often operating in the dark, unable to access essential information about investment opportunities, deal terms, and performance data, thus exacerbating the risk inherent in these types of investments.

Plus, the 2023 Private Markets Investor Sentiment Survey found that 40% of investors are somewhat-to-very concerned about transparency in private equity investments. This lack of transparency not only restricts investment flow into the private markets but also impedes informed decision-making, thereby reducing the overall efficiency and performance of the market.

Digital innovations

The current challenges facing the private markets—archaic manual processes, high entry barriers, and a lack of transparency—clearly indicate the urgent need for modernization, especially in the form of digital infrastructure. Integrating technology and increased transparency could significantly enhance operational efficiencies, lower entry barriers, and improve investor confidence, thus leading to a more robust and dynamic private market.

Many wealth management firms employ in-house models to carve an accessible path for their clients through the labyrinth of private markets. However, this model’s scalability can be a stumbling block, limiting its overall impact.

At the other end of the spectrum, some firms are forging ahead with digital direct-to-consumer platforms that can potentially reach a broader audience. However, these platforms face fierce competition from established wealth managers who control a significant portion of high-net-worth clientele.

In the middle ground, a partnership model is emerging, with firms allying with wealth managers to curate a diverse set of private investment options. Early birds adopting this model report promising outcomes, highlighting the potential synergies this approach can foster.

By partnering with top-tier fund managers, Gridline allows investors to build an institutional-grade portfolio of alternative investments. Our digital workflows simplify the investment process by automating back-office tasks like treasury management, capital call distributions, performance reporting, and tax reporting. This enables investors to access digital private market investments with lower capital minimums, transparent fees, and greater liquidity.

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