Orlando Bravo, managing partner of Thoma Bravo, addressed the growing skepticism surrounding private market investments during an interview at the World Economic Forum in Davos, Switzerland. Bravo emphasized the importance of deep sector expertise in navigating the disruption caused by artificial intelligence (AI) in the software industry. He asserted that Thoma Bravo’s focus on detailed company-level investments rather than broader stock market trends differentiates their approach and performance.
The private equity market has faced increased scrutiny as investors raise concerns over valuations and liquidity following considerable markdowns. This comes amid predictions from Morgan Stanley that default rates in direct lending may peak around 8%, a level reminiscent of the COVID-19 crisis. John Zito from Apollo Global Management criticized private equity firms for allegedly misrepresenting the valuations of their software assets.
Despite these challenges, Bravo expressed confidence in Thoma Bravo’s investor base, which includes significant U.S. pension funds and global sovereign wealth funds. He noted that their long history of transparency and successful exits continues to foster investor trust. However, he did acknowledge a miscalculation regarding the acquisition of Medallia, a customer experience software company, which he described as an overpayment due to overly optimistic growth projections.
While Bravo recognized that this specific investment has underperformed, he maintained that Thoma Bravo’s broader portfolio of companies is thriving, particularly in the context of AI. He also differentiated private equity-owned companies from publicly traded firms, highlighting that many of the latter are more susceptible to disruption from emerging technologies.
Why this story matters: Concerns about private market valuations and performance could impact investor confidence and funding availability in the sector.
Key takeaway: Thoma Bravo maintains that its sector expertise and diversified portfolio are positioned for success, despite recent challenges.
Opposing viewpoint: Critics argue that private equity firms may be overestimating their asset values and mismanaging risk, particularly in light of disruptive technologies.
