Orlando Bravo pushes back on private markets criticism: 'Everybody's extremely comfortable'

• Bravo acknowledged overpaying for Medallia's $6.4 billion take-private deal in 2021, stating the equity 'has been impaired for a long time,' but claims the firm's other 77 portfolio companies are 'absolutely crushing it'
• Morgan Stanley expects direct-lending default rates to hit approximately 8%, nearing Covid-era peaks, while Apollo's John Zito warned that private equity firms are broadly misstating software holdings valuations
• Bravo argues that AI-driven disruption will accelerate challenges for many public software companies, while Thoma Bravo's investor base including major pension funds and sovereign wealth funds remains 'extremely comfortable' due to transparency and track record

Summary:

Orlando Bravo, founder and managing partner of Thoma Bravo, defended private markets against increasing criticism, emphasizing his firm's deep sector expertise in software and strong portfolio performance amid growing investor scrutiny of private equity valuations and liquidity.

Key Points:

Bravo's comments address mounting concerns over private-market valuations following widespread markdowns and redemption pressure across private credit and equity funds. Morgan Stanley projects direct-lending default rates could reach approximately 8%, approaching COVID-era peaks. Apollo Global Management's John Zito recently claimed private equity firms are broadly overstating software holdings values.

Company Performance:

Bravo acknowledged overpaying for Medallia in a $6.4 billion take-private deal in 2021, admitting the firm overestimated the customer experience software company's growth trajectory. He confirmed the equity has been "impaired for a long time" but stressed this information isn't new to investors. However, he emphasized that Thoma Bravo's remaining 77 portfolio companies are "absolutely crushing it," particularly benefiting from AI developments.

Market Implications:

Bravo distinguished between private equity-owned software companies and public market peers, warning that many publicly traded software firms face accelerating AI-driven disruption. He believes recent public market valuation declines are "very warranted."

The firm maintains strong investor confidence from major U.S. pension funds and global sovereign wealth funds due to its transparency and established track record. Bravo expressed comfort with Thoma Bravo's private credit portfolio, attributing success to specialized sector knowledge rather than broad-based stock investing.

Bottom Line: Despite sector-wide concerns, Thoma Bravo positions itself as well-positioned through specialized expertise, though acknowledges specific portfolio mistakes.