David Lyon – Hybrid Capital Solutions for Private Assets (EP.471)
From Capital Allocators
David Lyon•Managing Director and Head of Capital Solutions, Neuberger Berman
Executive Summary
David Lyon of Neuberger Berman discusses the growing need for flexible, hybrid capital solutions to address the significant unrealized NAV and liquidity challenges within the private equity ecosystem.
The strategy focuses on providing junior capital and 'return of capital' solutions to premier sponsor-backed companies, targeting returns of 1.5x to 2.5x MOIC.
Neuberger Berman's scale ($500B AUM), collaborative platform, and deep industry relationships are key competitive advantages, enabling speed and certainty of execution on large, complex deals.
Lyon offers a strong critique of traditional investment metrics, particularly the focus on IRR, arguing that it can be misleading and that investors should prioritize compounding capital and MOIC.
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Concerns Raised
Over-reliance on IRR as a performance metric can mislead investors and incentivize poor capital management.
Highly competitive environments where sophisticated PE firms, if given enough time, can negotiate away excess returns.
Market environments with very low interest rates and high valuations (like 2021) are challenging for generating attractive returns in this strategy.
Opportunities Identified
The ~$3-4 trillion of unrealized NAV in private equity creates a massive, addressable market for liquidity solutions.
Structural inefficiencies in the private equity model, such as fund lifecycles and GP incentives, create predictable needs for flexible capital.
Leveraging a large, trusted platform to source proprietary deals and provide speed and certainty of capital to sponsors.