Public/Private: HarbourVest's Scott Voss on Idiosynchronicity and AI's Wild Ride

Scott Voss (0:00)

The balance sheet was under-optimized, so you bring in your capital markets folks, and you optimize the balance sheet, you borrow, you use leverage to lower your cost of capital, and then you optimize on the sell.

SPEAKER_2 (0:17)

Scott Voss, thanks a lot for joining. Great to see you again.

Scott Voss (0:20)

Thanks for having me here. I appreciate it.

SPEAKER_2 (0:23)

So you guys just recently published your Mid-Year Report for 2026 You have some really interesting themes, but there was a lot of different topics.

So thank you for joining. But I think the big thing that you talk about is that the market is synchronous in cause and idiosyncratic in consequence. So maybe talk a little bit about what that means and some of the things that you came up with in terms of your thesis there.

Scott Voss (0:48)

Yeah, absolutely. As we were coming up with this outlook, we were trying to pick one word that described this very complicated moment that we're living in and trying to invest into.

We couldn't find that one word, but we found two words. One was synchronicity, the other one was idiosyncratic. We combine those two words to create the word idiosynchronicity. What it means is, when we think about what was happening in the macro, what the headlines in the macro were, and this probably takes us back into 2025, the narrative was dominated by tariff policy, interest rates, inflation, geopolitics, this thing called artificial intelligence. But as we moved into 2026, all of a sudden there was this very awkward handoff between the macro and the micro. But the macro, when you think about all those things I mentioned, they seem to be moving in combination with each other. Whether they were related or not, they seemed related. So there was this synchronicity about the macro. But as you move to the micro and think about the beginning of 2026, there was this fear of software business models and AI disruption.

There was this fear of a potential private credit contagion. Then there was a war in Iran and oil prices all of a sudden spiked. All of a sudden, we had to translate the macro to our portfolio.

It wasn't like everything behaved the same. It was very idiosyncratic. So that's where the word came from. The irony here is my colleague, Mindy Larman likes to say the handoff is between the macro and the macro is oftentimes never clean. If we just look at the headlines right now, the Fed is raising interest rates, oil is at $106 a barrel, and then 10-year bond yields are at 5 percent. The macro has turned its head again. So that's the philosophy. We try to connect seven themes throughout the outlook, and we talk about a through line that connects them. I like to use the metaphor of a tether that's tightly wound on one end, which is the macro, but highly frayed on the other end, which is the idiosyncratic nature of what's going on in our portfolios.

SPEAKER_2 (3:00)

Right. And if those outcomes are, if everything is connected, why are the outcomes becoming more dispersed rather than more correlated?

Scott Voss (3:09)

So, let's pick two examples.

Think about how we allocate globally. It used to be that we could say we had geographic diversification by having a portfolio full of multinational companies that might be located in jurisdictions around the world, but they're sourcing from the world and selling to the world. It's not so much the case anymore. The world is moving into blocks. And if you're allocating to the United States, or you're allocating to Europe, or you're allocating to Asia, there's probably different themes that you're investing into related to those various blocks. So, that's kind of higher level. When you look into specific sectors, to pick technology and software, there is this fear of business model disruption through AI. But I think the reality is whether it's innovation capital or mature technology companies, AI is going to create winners and losers for different reasons. And that's kind of why you see this dispersion of outcomes that we call the idiosyncratic.

SPEAKER_2 (4:09)

Got it. So, the kind of the kind of takeaways, you know, the headline is very macro, but the consequences become very micro.

Scott Voss (4:16)

Yeah. And I think increasingly the outcomes within our private market portfolios will show greater dispersion than they have in the past. And therefore, as we build portfolios, we need to be really thoughtful about asset allocation. Diversification is critical, but not just to add more things, to invest in things that are non-correlated.

But probably most important today is the underwrite of the individual assets, the business models you're underwriting, the prices you're paying, how you're capitalizing those companies. That becomes increasingly important.