Private Equity at a Crossroads: Trends, Valuations & What’s Next with Matt Wolf of Elliott Davis 4-29-25

Summary

Becker Private Equity & Business Podcast Summary

Episode: Private Equity at a Crossroads: Trends, Valuations & What’s Next with Matt Wolf of Elliott Davis
Host: Scott Becker
Guest: Matt Wolf, Senior Market Analyst and Valuation Analyst at Elliott Davis
Release Date: April 29, 2025

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Introduction

In this insightful episode of the Becker Private Equity & Business Podcast, host Scott Becker welcomes Matt Wolf, a senior market and valuation analyst from Elliott Davis. Matt brings nearly two decades of experience in the private equity deal space, focusing on middle-market transactions and leveraging industry-specific and technological approaches to solve client challenges.

Matt Wolf and Elliott Davis Overview

00:36 – 02:49

Matt Wolf provides listeners with an overview of his background and the operations of Elliott Davis. Based in the Southeast but serving a national clientele, Elliott Davis specializes in middle-market deals, offering services in audit, tax, consulting, and advisory. Matt emphasizes the firm's commitment to industry and technology-driven solutions, highlighting the dynamic environment for middle-market deals both nationally and globally.

“It’s an exciting firm, exciting time to be an advisor to these middle market deals nationally, globally.”
— Matt Wolf [00:56]

Current Trends in Private Equity

02:49 – 04:21

The discussion shifts to the evolving trends in private equity, particularly changes in allocation ideologies among limited partners and institutional investors. Matt observes a significant pullback from public equities towards high-yield credits and even gold, as investors navigate a shifting geopolitical and macroeconomic landscape.

“We’ve seen a pullback from public equities into high yield credits into gold of all things as people try to navigate this sort of changing geopolitical, changing macroeconomic regime.”
— Matt Wolf [01:48]

He cites recent news, such as Yale's decision to divest up to $6 billion from its private equity holdings, signaling a convergence in returns between private and public equities.

Changing Value Proposition and Returns

04:21 – 07:54

Scott Becker probes whether private equity remains a vital asset class or if it faces challenges that could undermine its position. Matt responds by addressing the shifting value proposition of private equity. He references a Bain study indicating that the premium private equity historically offered over public equity benchmarks has diminished from an average of 29% (2014-2017) to about 11% in recent years.

“Bain actually came out with this really interesting study that showed the sort of premium to private equity returns above those public equity benchmarks. It fell pretty significantly over the past few years to about 11% from an average of 29% between 2014, 2017.”
— Matt Wolf [05:10]

Despite these changes, Matt remains bullish on private equity's future. He believes that as private equity sponsors adapt their strategies—focusing on niches, optimizing deal execution, and leveraging talent—those who succeed will restore the asset class's traditional value proposition.

“I’m very bullish on it because I think going forward as sponsors and firms sort of arrange their talent and kind of figure out what does it mean to source and execute and optimize on deals going forward because that’s looking different now than it did in the prior cycle.”
— Matt Wolf [06:10]

Future Outlook for Private Equity

07:28 – 09:54

Scott raises concerns about the broader investor base in private equity, contrasting large institutions like Yale with high-net-worth individuals who may view private equity as a status symbol. He questions whether private equity can maintain its critical role or if it’s facing an existential threat.

Matt responds by reiterating his belief in the adaptability of private equity. He suggests that while the industry is undergoing significant changes, those firms that successfully navigate the new landscape will continue to attract diverse investor categories by demonstrating sustained returns over public equity.

“There will be some sponsors that figure it out and they can sustain an advantage and demonstrate and sustain returns above public equity in such a way that some investors will want to lock up their money with them to access that return.”
— Matt Wolf [06:50]

Discussion on Valuations in Private Equity

07:54 – 10:58

Scott transitions the conversation to the topic of valuations within private equity, questioning the reliability and long-term significance of the reported valuations of stakes in PE and VC funds.

Matt offers a nuanced perspective, advising that investors should focus more on the direction of valuations rather than the absolute numbers. He emphasizes evaluating the qualitative factors driving valuation changes, such as the underlying business performance and market conditions.

“It’s not so much the level of the valuation, but the direction of it. Right. So okay, if you’re invested in a position and it’s been held at cost for four years, well, why is that? What’s the story there?”
— Matt Wolf [08:15]

He cautions against over-reliance on numerical valuations without understanding the context behind them, suggesting that consistent valuations at cost over extended periods could warrant skepticism.

Scott concurs, highlighting that investors should use valuations as directional indicators rather than definitive measures, advising against making significant financial decisions based solely on reported valuations.

“Don’t bet the farm based on the valuations you’re getting until the cash is in hand.”
— Scott Becker [10:24]

Conclusion

The episode concludes with Scott thanking Matt for his valuable insights into the current state and future of private equity. Matt reaffirms his optimism about the asset class's ability to adapt and continue providing value to various investor groups.

“Thank you, Scott.”
— Matt Wolf [10:58]

Scott wraps up by congratulating Matt on his role at Elliott Davis, underscoring the depth of expertise Matt brings to the conversation.

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Key Takeaways:

• Evolving Landscape: Private equity is experiencing a shift in investor allocations and return dynamics, partly due to macroeconomic and geopolitical changes.
• Value Proposition: The traditional premium of private equity over public equities has decreased, necessitating strategic adaptations by PE firms.
• Future Outlook: Despite challenges, private equity remains a significant asset class. Success will depend on firms' ability to adapt, specialize, and demonstrate sustained returns.
• Valuation Focus: Investors should prioritize understanding the direction and qualitative aspects of valuations over absolute figures to make informed decisions.

This episode provides a comprehensive analysis of the current challenges and future prospects of private equity, offering valuable perspectives for investors and industry professionals alike.

Transcript

[A]

This is Scott Becker with the Becker Private Equity and Business podcast. We're thrilled today to visit one of with one of our most listened to guests. We're joined by senior market analyst, valuation analyst and brilliant person Matt Wolf. Matt is at a firm called Elliott Davis, a terrific firm. He's going to tell us a little bit about Elliot Davis and then he'll tell us what he sees with trends, with M and A. Is it, is it almost ready to bounce back? What's he expecting and what's he seeing? Matt, can you take a moment, tell us about yourself, tell us about Elliot Davis and then let's talk about, you know, what you're seeing and, and what's going on.

[B]

Yeah, happy to Scott, thanks. I guess quick background on myself spent nearly 20 years in sort of the, the valuation private equity deal space at now at Elliott Davis which is a firm sort of based in the Southeast, serving clients nationally. Again very focused on middle market deals, audit, tax, consulting, advisory and heavily leaning into industry and technology based approaches to solving our clients problems. So exciting firm, exciting time to be an advisor to these to middle market deals nationally, globally. And it's just been a wild ride the past few months or so as I'm sure all your listeners can also attest to. And you know what I've been really looking at lately, Scott, is just some of the changes to allocation ideology from limited partners and other sort of institutional investors. Right. We've seen a pullback from public equities into high yield credits into gold of all things as people try to navigate this sort of changing geopolitical, changing macroeconomic regime, I guess for lack of a better word and more specific to private equity, you saw big news a few days, maybe a week ago now of you know, Yale selling up as much as $6 billion of its private equity holdings. We've seen this convergence in returns between at least historically now between private equity returns and public equity returns. And you know, just thinking about what, what does that mean going forward for institutional investors and limited partners allocation to private equity. But what does that mean for the actual sponsors and how to think about deals, how to go forward, how to source deals, execute deals, what does that mean for hold periods as the global financial system works through this regime change And a lot of investors take another.

[A]

Look at private equity and talk about that because there's multiple different types of investors in private equity. There's obviously the big institutions such that you're talking about like Yale, like the pension funds that have made private equity a core part of their portfolio over the years. And then you've got sort of what I would call moderate to higher worth, that high net worth. Individuals that increasingly over the last bunch of years made PE and VC part of their portfolios. And for the institutions that are adults in the room, you know, at least to an extent, they take the ups and downs with a grain of salt. I feel like some of the high net worth individuals finally felt like they arrived and can invest in PE and VC and felt like it was almost like a status symbol, like the richest of the rich by sports teams, the next richest by, you know, joined 10 golf clubs, the next riches that are often pretending to be rich by really fancy cars. People could see that they're doing well. And then there's all cadre of people that felt like, oh my God, we made it. We've invested private equity funds, we've been invited to the dance, only to see that we felt like the dog who caught the car. The dog that was chasing the car and catches the current things. Well, this isn't as great as I thought. So, so what's your sense of this? Where does this go from here? Is private equity can remain, you know, this critically important asset class or are we all in trouble on this and what we all hope for, like the dog catching the car is not as good at cars we wanted to catch.

[B]

It's a trillion dollar question. It's a great question. And you know, I guess for additional context at least the way that I think about and the way a lot of observers think about it is, you know, private equity, the, the value proposition was, okay, invest through my fund. Your money will be locked up, but you'll get a rate of return higher than, you know, market index. Pick an index, right? Sort of like CD at the bank, which are also coming back into vogue now that we have positive real interest rates. But yeah, lock up the money for a time period and you'll get a higher rate of return. But Bain actually came out with this really interesting study that showed the sort of premium to private equity returns above those public equity benchmarks. It fell pretty significantly over the past few years to about 11% from an average of 29% between 2014, 2017. And so now that value proposition is changing and going forward, I'm still ultimately, private equities just serve an allocation tool. It's an asset class. And I'm very bullish on it because I think going forward as sponsors and firms sort of arrange their talent and kind of figure out what does it, what does it mean to source and execute and optimize on deals going forward because that's looking different now than it did in the prior cycle. And the firms that figure that out, they're going to be able to go back to that sort of tried and true value proposition and tell those investors whether they are high net worth individuals or otherwise accredited investors, or large pension funds, large institutional investors and say, look, we know that private equity went through this sort of difficult time of constricted returns as we all tried to figure out how do we now do deals in this period of real positive interest rates that we haven't experienced for 15 plus years. But we figured it out, right? We are, you know, focusing on these niches, we have these operating partners, we have this model that we follow followed and I can point to the last fund and show how we outperformed and you should try us again. So I think that's a long way of saying that I think the sort of private equity sponsor model is going through its own changes and there will be some sponsors that figure it out and they can sustain an advantage and demonstrate and sustain returns above public equity in such a way that some investors will want to lock up their money with them to access that return. And there will be some, some fund, some sponsors that, that struggle to do that. But it's still at the end of the day, private equity is an asset class just like others. And I think there will be space for that as an asset class across various investor categories.

[A]

So I'll ask you a question and again you can answer this. There's probably only one answer you can get every quarter from the private equity VC funds I'm invested in. I get the valuation, the updated valuation of my stake in it, you know, you know, and, and how much can I trust those valuations that that really feels like long term the reality of it or is that just it doesn't really matter because they're not being sold at this point. So it doesn't really matter.

[B]

So yes, I am at a very unique cross section or overlay of skill sets to be able to answer that question. And, and the guidance I would give give you or anybody else is it's not so much the level of the valuation, but the direction of it. Right. So okay, if, if you're invested in a position and it's been held at cost for four years, well, why is that? What's the story there? Does that story make sense? How do you feel about that? Or if it's increased 100% in two years? Well, what's the, what's the story behind that growth, does that make sense? And so, yes, there's a lot of quantitative information that goes into these valuations. And you and I have talked at length about, you know, EBITDA multiples and interest rates and, you know, SOFR curves and things like that, but also really pay attention to sort of the qualitative story. And does it make sense that this mark is still at cost or that this mark has increased or, or that this mark has, has come down? Right. And that's, that's the, I think that's the telltale sign. And if you're looking at some valuations and say, wow, all of these things have, you know, we've been this, we've been in these positions in this fund for somewhere between two to five years on all of these, and they're all still held at cost. You know, that, that, that might be a sign to be, be skeptical, for example, but just, you know, don't worry so much about the level of the valuation or what that implied EBITDA multiple is or isn't. But how has that value changed since investment? And does that change make sense with the sort of overall market story, the qualitative information that, you know about the market, about the company? Does that, does that change in value makes sense? That's what I would focus on.

[A]

Yeah, no, I think that's Right On. I think that's literally great advice. It's directional more than absolute. I think that's right On. I, I just love that. Absolutely. 100%. I think that's Right On. Like, you know, it's not gonna be exact. You shouldn't go out. I shouldn't go out and mortgage the house based on what my fund says that it's up, but I should look at his directionally. Does it make sense? Does not make sense, and so forth. I think that's Right on is great.

[B]

Absolutely. Yeah, yeah. Don't, don't go and buy those Ferraris quite yet, Scott.

[A]

It's already bought. No, I'm just kidding. I won't, I won't do so. And I wouldn't do so anyways. Not because I wouldn't think it's cool to have a Ferrari just because. A little ostentatious, but it's okay. But the concept of the maintenance and the insurance and the headaches that come with a Ferrari leads me away from going down that direction. But the bigger point is don't bet the farm based on the valuations you're getting until the cash is in hand. That's how I really look at it. Matt, thank you so much for joining us on the Becker Private equity and business podcast. And congratulations to joining great firm Elliott Davis. Just fantastic. Thank you very, very much.

[B]

Thank you, Scott.