In a recent episode of The Distribution by Juniper Square, Managing Director Brandon Sedloff interviewed Meghan Reynolds, Partner and Head of Capital Formation & Talent at Altimeter Capital Management. Watch an on-demand recording of the entire conversation here.
The power of pairing public and private markets
Altimeter’s structure is highly unusual. Its $8 billion AUM is split roughly equally between a public investment effort—a hedge fund that takes long positions—and an early-stage private venture fund.
Unlike standard cross-over funds that invest in late-stage venture-funded companies about to go public, Altimeter’s combination of investments in private and public markets is critical to the firm’s competitive advantage. She says, “The insights we can gather from the private and public sides inform our decisions on both sides. If I’m evaluating an opportunity to invest in a private AI company I need to understand whether a public company, like Meta, might be about to build its own LLM and open it to public source, which might disrupt the whole opportunity. Similarly, will a private company spring up from nowhere and eat a big public company’s lunch?”
These questions and insights are shared across the 27-person team to help develop a comprehensive perspective on any opportunity.
The importance of communication
Reynolds is focused on ensuring LPs feel connected and keeping the investment team focused on deals. “For me, this doesn’t always mean sharing more information, having more meetings, or holding more events. Instead, it’s about communicating in a smart, efficient, and highly effective way.”
As she explains, “There's a lot for LPs to navigate right now, particularly around the advent of AI and the disruption that will be created from those tools and the technology, how public market companies and large incumbents play into that, what valuations look like, what the right entry point is, and if it’s a bubble. Dialogue with LPs right now is critical because they’re struggling with the value of the 2021 vintage portfolio and what it will ultimately be worth.”
What are LPs thinking about?
LPs face a widely bifurcated world in the current investing environment, particularly in venture capital. Some GPs have been able to provide liquidity to LPs through anything from continuation funds to conventional. In contrast, others can only show paper gains while other portfolios are underwater. Reynolds suggests that LPs face a complex situation because they may not have a lot of liquidity but need exposure to the current vintage. She says, “By now, many LPs know they shouldn’t try to time their exposure to alternatives. They know they need to have some exposure to the market.”
The central question LPs are confronting is the choice of GP, which means many firms are struggling to raise capital. As Reynolds explains, “LPs are struggling with how to think about sectors that are in favor and those that are not, and how to think about GPs that have strong unrealized returns versus those that have created genuine liquidity.”
Another issue she identifies is the difference between GPs with one massive success in their portfolio and those with consistently respectable returns. In Reynolds’s words, the question boils down to “What am I happier with—a consistent 2.5X or an occasional 15X?”
Succeeding in alternatives
Reynolds believes the economy is at the start of a new super-cycle, like those ushered in by the Internet, social mobility, and data in the cloud. “In each of those periods,” she says, “there was a unique opportunity where companies were developed from a standing start and went on to disrupt the status quo, creating massive value creation for investors.” Reynolds argues that the secret to success at such a point in the cycle “is to be in the small club of investors that gets access to the best deals.” She recommends that LPs consider whether technology will represent a larger percentage of GDP in the future and whether tech companies, with their ability to leverage and scale AI, will outperform non-technology companies.