With deal flow picking up, private equity begins to shine again

Note: This interview was taped on Wednesday 19 February 2025.

Private equity continues to present compelling investment opportunities despite broader market volatility, according to Gabriel Ng of Neuberger Berman. In the following conversation with Livewire, Ng highlighted how strong deal flow, strategic sector focus, and a disciplined investment approach have positioned Neuberger Berman well in today’s evolving landscape.

Ng noted that despite market fluctuations, his firm has been "busier than ever" due to robust opportunities in private equity. He attributes this to two key factors: Neuberger Berman's extensive network of general partner (GP) relationships and its proactive approach to sourcing deals. 

Neuberger Berman operates across three primary private equity strategies - primary fund investments, co-investments, and secondaries - which allow them to navigate different market conditions effectively.

One of the most significant trends Ng pointed out is the extended fundraising cycles in private equity. This dynamic creates an opportunity for investors to step into partially funded portfolios before final close, thereby reducing blind pool risk. 

"Oftentimes the fund might be about 20-30% invested, there might be four to five portfolio companies, so that helps partially mitigate that blind pool risk," said Ng.

In terms of value creation, Ng emphasised a shift toward skill-based levers rather than reliance on financial leverage or multiple expansion. With interest rates stabilising, firms are increasingly focused on driving operational performance. 

"We’re still targeting the same level of returns as we were, but how we get there is slightly different," said Ng. 

"There’s a lot more emphasis now on skill-based levers - growing top-line revenue, maximising EBITDA margins, and pursuing accretive M&A."

Sector focus remains another critical component of Neuberger Berman’s strategy. The firm continues to lean toward resilient and defensive industries such as education, healthcare, software, and business services. 

Ng stressed the importance of not just identifying strong sectors but also backing companies with mission-critical products, strong competitive moats, and experienced GPs who can drive value through growth initiatives and market expansion.

Check out the video above or read the transcript below for more insights about how Neuberger Berman is navigating the global private equity landscape. 

Edited Transcript

Chris Conway: Hello and welcome to Livewire Markets, my name is Chris Conway. Today I'm sitting down with Gabriel Ng from Neuberger Berman to talk about what's happening in the private equity markets. Gabriel, it's great to see you again. Thanks for sitting down with Livewire today.

Gabriel Ng: Thanks for having me, Chris. Always a pleasure to be here.

Chris Conway: Of course. Last time we spoke, in September, the thrust of the conversation was that you believed private equity was really well placed to navigate what might be coming for markets. We've seen a lot of change since then. What do you make of the current conditions and how are they impacting your opportunity set?

Gabriel Ng: I would say, in summary, we have been busier than ever. Our deal flow has continued to be robust, so we do see a lot of opportunities in the private equity market. It's a function of two things. I think number one, just the extensive network of GP relationships that we’ve built over time. And second of all, I think we've been proactive in creating some of these opportunities for ourselves. As a recap, our private equity business really revolves around three main strategies; primary fund investments, co-investments, as well as secondaries. On the primary side, we continue to back established GPs, so re-upping to funds and also creating new relationships. At the same time, we've seen an interesting dynamic come through; given a tougher fundraising cycle, funds are taking longer to be raised, and as a result, we have the opportunity to step into a partially funded portfolio before the end of the final close. That's good because it gives us a bit of visibility into the platform. Oftentimes the fund might be about 20-30% invested, there might be four to five portfolio companies, so that helps partially mitigate that blind pool risk. On the co-investment side, deal flow continues to be very robust, particularly in the co-underwrite space as well as the midlife opportunities. And last but not least, on the secondaries front, as you know, it's been a busy year for the asset class; a good mix of both LP portfolio interests as well as GP led continuation funds. So on the whole, I would say we've been keeping busy in spite of the market volatility. The one thing that I would comment is that the bar is certainly a lot higher, and we're very cognisant of the general uncertainties and geopolitical tensions, so the bar is certainly high.

Chris Conway: Gabriel, in that same conversation last year, you talked about seeking the same level of return, but via a slightly different path, given that rates had changed dramatically from where they were 10 years prior. With rates now rolling over again, do those return paths change once again in this new environment?

Gabriel Ng: Pre 2022 we were certainly investing in a very different environment. Rates have come down slightly, but it's arguable as to how much further they'll go down. I think it's going to be probably steady to maybe a gradual, couple more cuts at the back end of this year. But regardless of that, I think our fundamental approach has always been about operating performance. We're still, as you said, targeting the same level of returns as we were, but how we get there is slightly different. So there's a lot more emphasis now on skill-based levers. For example, being able to grow top line, being able to maximise EBITDA margins, to maximise profit. And there's another dynamic around accretive M&A for some of the co-investments that we invest into, or some of these GP led continuation funds. It revolves around a platform asset that has the opportunity to go out there and pursue a creative tuck-in M&A. So that has been another important lever of value creation. So I would say that there's less dependence now on financial leverage. If rates do come down, that's probably an upside for us. And in terms of multiple expansion, we always assume the same multiples buying in and exiting. Sometimes we are a bit more conservative, assuming multiple contraction, and the returns need to stack up in those cases. So, in summary, still underwriting to the same returns, but more focused on skill-based levers rather than market-based levers.

Chris Conway: Gabriel, the firm strategy last time we spoke was leaning more towards resilient and defensive sectors - education, healthcare, software, business services. That mix was a product of both the bottom up and the top down approach that you apply. Again, has it changed since we last spoke? And if so, why?

Gabriel Ng: We continue to like those sectors for its resilient characteristics and defensive nature. So I would say that the bulk of the deal flow that has come through in the last year or so have been focused around these sectors that you mentioned. But I think additionally, besides liking the sector, which we need to see strong secular tailwinds, I think an asset based view is also super important. Bottoms up underwriting, it has to be a market leader with mission critical products and services that it provides, strong moats, and strong financial profile. And then the other, I would say, critical factor for our investment making decisions is really the GPs that we partner with. So we will need to have conviction that the GP has a good track record in the space, in the sector, and the ability to drive the operating levers that we just talked about: top line growth, market expansion, accretive M&A and, importantly, position the asset for an exit

Chris Conway: Deal activity - you referenced it at the top. It has moderated since the peak in 2021, but you said Neuberger Berman in particular is going OK, but just broadly, do you expect it to bounce back this year and moving forward?

Gabriel Ng: From a market perspective, as you rightly mentioned, it has certainly moderated, but as we look at the first three quarters of 2024 at least, we do see deal activity on a private equity site ticking up quarter and quarter. So there is some encouraging signs that deal momentum could be positioned for a return this year. And there are a few factors that lend itself to some cautious optimism: rates have come down slightly, there is a more pro-business administration, and over time buy and sell expectations have converged. Importantly there is a large number of assets that need to be sold. As we look through the statistics, about half of the private equity portfolio companies have been held for more than four years, so there is a need to drive those exit events. So we do see M&A private equity volumes coming back, but in spite of the market moderation, at least from our perspective at Neuberger Berman, deal flow has been stronger than ever. This is a function, as I mentioned, of our relationships and network and also us being proactive in creating some of these situations for ourselves.

Chris Conway: Fantastic. Gabriel, thanks for sitting down with Livewire.

Gabriel Ng: Thanks for having me.

Chris Conway: If you enjoyed that video as much as I did, make sure to give it a like, and don't forget to follow our YouTube channel because we're adding lots of great content every single week.

Managed Fund

Neuberger Berman Global Private Equity Access Fund (AUD)

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