Troy Gayeski on Allocating More to Private Markets for Growth and Diversification

The Case for Private Markets

• 🎯 Troy Gayeski advocates for investors to allocate more capital to private markets, including private equity, private credit, and private real estate.
• 💡 This recommendation comes despite private markets often being perceived as more expensive with higher fees.

Private Markets vs. Public Markets

• 📊 Middle market private equity is highlighted for its attractive valuation, trading at roughly 11 times EVITA, compared to the Russell 2000 at approximately 19 times.
• 📈 Private markets offer growth at a reasonable price, with revenue growth 1.5 to 2.5 times nominal GDP, at a significant discount to public market equivalents.
• 📉 The strategy aims to compete with the S&P and NASDAQ over a full market cycle, but with substantially less volatility and drawdown risk.

Middle Market Focus

• 🔑 The middle market is identified as a key growth engine of the US economy, comprising around 200,000 companies.
• 🚀 This segment provides exposure to companies with attractive, steady growth (10-15% revenue growth) in sectors like HVAC, paving, and specialty foods, often referred to as "boring is beautiful."
• 🧩 The rise of evergreen private equity structures has made this vast asset class more accessible to investors.

Economic Outlook and Nominal GDP

• 📈 Gayeski's thesis centers on continued strong nominal GDP growth, driven by robust real GDP growth (estimated at 2.5-3%) and inflation (2-2.5%).
• 💡 Real GDP is supported by a strong consumer and a significant business fixed investment boom, particularly tied to AI.
• 💰 Nominal GDP is crucial as it directly drives revenue for companies across both public and private markets.
• ⚠️ While acknowledging the potential impact of AI on broader market outcomes, the focus on middle market private equity offers a more stable investment approach.