11: Leaving a Mark: How Lincoln Sets The Standard for Private Valuations

SPEAKER_1 (0:01)

This is Evercore's Flow of Funds with Glenn Schorr. Sharp perspective on private markets, wealth and the forces driving change.

Glenn Schorr (0:15)

Hi, everyone. Welcome to another installment of Evercore's Flow of Funds. I am Glenn Schorr. And today with me, I have my partner Ben Rubin, who's a senior financial analyst that covers Lincoln International. And we are very happy to have Brian Garfield from Lincoln in studio today. He's an MD and he also is the global head of portfolio valuations for Lincoln. So it's interesting, we want to do this for a while because we cover all these private market firms and they get valued and no one really knows how. So today we're going to dive into that. For those of you who don't know, Lincoln is a global investment banking and advisory firm, but they also have one of the largest private market valuation teams. We'll get into it, they do thousands of valuations of private equity and private credit. They have a great proprietary database that helps them do this.

And as more capital moves into private equity and private credit and other private markets and more products are reaching individual investors, people start to ask questions about transparency, how the marks are done, and we're getting more frequent valuations. So what better time to talk to the leaders in the space, find out how it all works. So that's the goal. I like this talking about what our goal is. Our goal is to figure out how it all works, and why Lincoln's great at this, and what their competitive advantage is. So, Brian, thank you very much for being here.

We're going to get right into it. So, how's it all work? No, just let me...

So, look, most listeners have never been inside of how evaluation works. In public world, we just look on the screen and there's the price. Or someone makes a reasonably tight market. Well, we don't have that benefit, so maybe get into it. You value maybe a third of the industry's securities. Maybe walk us through the mechanics. Who's the buyer inside a firm that's employing you, and what exactly are they buying? What do you do for them?

Brian Garfield (2:13)

Well, first off, thanks for having me. It's a pleasure to be here. Very excited about this discussion today. And you're right, Lincoln values about a third of the US LDO market. So we're really getting a very great perspective on the health of the private capital markets. And as I talk today, a lot of what we do is gonna be taking that information that we do on a valuation basis and collecting it, aggregating it, and then looking at what the insights are behind the data set. And it allows us to really think about and report on what we're seeing in terms of the health of the private capital markets. But to answer your specific question, Glenn, as you think about it, Lincoln International is focusing on the private capital markets. We are, our goal is to become the best investment banking advisory firm specifically focused on the private capital markets. And our valuation and opinions group and the portfolio valuation business is working with alternative asset managers, so that's our client.

They are the underlying holders of these liquid investments that we value. And what makes these investments different, to your point, is they don't trade.

And if they do trade, it's episodic in nature, and as a function of it being episodic in nature, and with the goal of bringing transparency to the market, there's a need for more independent valuations. And the process of independency really started back when some of these firms went public, and then there was the wave of the BDCs that were going public, and it was viewed as a best practice to bring a third-party valuation firm. And as the space continued to grow, and the private elements and the private funds continued to accelerate, many of them have goals of becoming public one day, or they just really want to follow best practices, and best practices really align with using a third-party valuation firm.

Glenn Schorr (4:13)

So not very different than the way Moody's or S&P or Fitch do for the public markets at its basic level?

Brian Garfield (4:23)

Yeah, I mean, they're really more rating underlying companies, and we're valuing investments, so it really depends on what type of investment we're valuing in terms of the actual analysis that we're doing. So for example, if we're engaged by private equity to value their interest in a particular private company, we'll be valuing the enterprise value, looking at the waterfall, and the distribution of that enterprise value through each of the instruments in that capital structure to value what would likely be common of referred equity in that case.