Peter Lacaillade on Selecting Managers, Co-Investment and Liquidity

Peter Lacaillade, managing director at SCS Financial, joins Harry Stebbings to discuss selecting private-market managers, building a diversified portfolio and managing liquidity. He is an LP in funds discussed, including 20VC, so both speakers have a direct financial relationship. His returns, valuations and market expectations are his own accounts from the December 2023 interview.

After investment banking and a role in HarbourVest’s secondary group, Lacaillade joined SCS in 2011 to build a private-investment program. He says the firm then managed roughly $7 billion and one client was investing approximately $250 million annually in private equity. He chose the opportunity to build a program over joining a larger existing team.

The aftermath of the financial crisis made managers more willing to meet new allocators, he recalls. He chose to seek emerging managers rather than settle for established firms he viewed as less compelling when the most sought-after names were difficult to access. He credits colleagues at SCS for supporting unconventional decisions.

He cites early commitments to Founders Fund, Andreessen Horowitz and Thrive as examples of that approach. The relationships have since become valuable in his view, but his retrospective account does not establish that any strategy will identify the next successful fund. He has an investment interest in the managers he praises.

Stebbings asks why a pension allocator would take a chance on a young manager when an established name is safer for a career. Lacaillade says his compensation and personal capital align him with investment results. He contrasts that with large institutions facing rules, compensation and political constraints.

For example, a pension limited to 10% of a fund and requiring a $100 million minimum commitment cannot invest directly in a fund below $1 billion. He suggests that a specialist fund of funds or separate mandate can provide access, though the arrangement has its own costs and trade-offs.

Stebbings worries outsourcing may weaken relationships needed for direct investments. Lacaillade agrees co-investment can be valuable but notes that governance and meeting schedules can make rapid execution difficult for large institutions. He believes an allocator must match its process to the opportunities it wants to pursue.

He recalls a co-investment where an allocator complained after failing to respond in time and objected to carried interest. Lacaillade argues timely responses and reasonable economics can help a manager keep its main fund appropriately sized. The anecdote is his account of a particular process, not a judgment on every fee arrangement.

He aims to be responsive and creative with managers rather than rely on a checklist. For diligence, he seeks references beyond names supplied by the manager, while recognizing that negative comments need context. Stebbings offers a question about what skills a supporting hire would need as a way to uncover weaknesses.

Track record matters, but Lacaillade ranks it behind team quality, the opportunity, competitive advantage, fund sizing and alignment. He says an LP is investing in the next fund, not buying the last one. His ordering is an investment philosophy rather than proof that historical performance is unimportant.

He looks for ambitious, hardworking managers with a compelling reason to pursue their market, whom he calls forces of nature. Having evaluated many funds, he believes experience has sharpened his intuition. He acknowledges that such judgment is difficult to articulate and depends on further diligence.

He describes passing on a second fund after behavior and portfolio observations made him uncomfortable, despite positive references and prominent new LPs. He says problems later emerged, without naming the firm. The unnamed story illustrates his decision process but cannot independently establish the facts of the case.

For diversification, he uses a barbell of established franchises and focused managers. Ten or more concentrated funds can hold a comparable number of underlying companies to a few broader funds, while diversifying manager risk. Fund count alone does not tell an allocator how diversified the actual company exposure is.

He says that in a group of ten carefully selected funds, roughly three to five have exceeded expectations, three to five met them and one to three underperformed. These are his observed ranges across his own program, not a probability distribution or a promise that all funds will make money.

It may take four years to distinguish winners from laggards, he says. During the 2020–2021 boom, many managers deployed funds much faster than planned. He adjusted commitment size where a rapid pace was clearly disclosed, but admits he did not fully anticipate the implications of compressed deployment.

He expects the 2020–2021 vintages to be less attractive than the best years because companies must grow into high entry valuations. A co-investment he hoped might return four to six times capital might instead return two or three times, in his illustration. These are expectations, not realized results.

He says several large venture managers had proactively marked down companies, though practices varied widely. Stebbings raises incentives that may discourage markdowns; Lacaillade says interim marks matter but realized distributions ultimately matter more. A paper valuation and distributed cash are distinct, and neither speaker independently audits the marks discussed.

They discuss endowments’ resource constraints and the denominator effect, which can leave less room for new private commitments. Lacaillade thinks a difficult fundraising market can offer a chance to build relationships with strong managers. His view in late 2023 is a market-timing judgment, not a guarantee of access or returns.

He recommends a mix of established and emerging managers, while Stebbings notes that the most sought-after firms may still be inaccessible. Lacaillade acknowledges his relationships give him an advantage and says an allocator without them may need to find the next generation rather than assume access to current leaders.

He can be an early backer of a manager and also decide not to recommit when a fund becomes too large, the team changes or another opportunity ranks higher. He says that judgment often applies in buyouts. Maintaining long relationships does not mean every successive fund is automatically suitable.

For venture, he estimates his allocation at roughly 70% established franchises and 30% emerging managers at the time. Some managers he backed as emerging had become large, later-stage franchises, so he added seed-focused managers to restore early exposure. The percentages are his program’s approximate allocation, not a universal model.

He hopes a diversified basket of small seed funds could return around 5x, while he frames established franchises at roughly 2.5x to 3.5x net, with considerable variation. These are forward-looking portfolio expectations rather than realized fund returns. Stebbings points out how many large outcomes a big fund needs to achieve a high multiple.

Backing emerging managers also creates the option to deepen commitments as they grow and provides insight for future co-investments. Lacaillade says he sometimes sees a later round led by a larger manager in a company already known through a seed fund. His ability to use those relationships depends on selection, access and available capital.

SCS periodically compares existing relationships with new alternatives rather than continuing solely out of loyalty, he says. A large increase in fund size can change the underlying strategy. He values candid communication with managers, while admitting that oversharing can sometimes backfire.

Co-investments matter to SCS partly because of lower aggregate fees and partly because they deepen knowledge of companies and managers. He estimates roughly 130 direct positions and describes a blended fee and carry profile for his program. These are his approximate program figures, not terms available to every investor.

He stresses building a portfolio rather than treating every co-investment as a sure winner. An investment in a travel business suffered during COVID, an example of unexpected risk. Management quality and diversification are lessons he draws from that experience.

He estimates co-investments at around 20%–25% of a vehicle, with individual positions typically around 0.5%–1% and a maximum around 2% of the whole. A higher-conviction position can be a much larger share of the co-investment sleeve. These are illustrative allocations from his program, not recommendations for all investors.

Lacaillade says SCS co-invests alongside high-conviction managers in their areas of expertise, rather than independently recreating every GP’s underwriting. He looks for an acceptable base-case return and potential upside, while acknowledging actual losses have occurred. Modelled downside protection is a goal, not a guarantee.

His diligence advantage is a network that can provide quick external insight. He emphasizes confidentiality and says he seeks the manager’s permission before contacting others where needed: an LP that leaks information could jeopardize a live transaction. Speed and care must coexist.

SCS changed its approval process so a co-investment memo can go to the investment committee with a 48-hour response window rather than wait for a standing meeting. He says rejections have been rare, but views the committee as oversight and accountability. Faster approval does not eliminate the need for scrutiny.

He estimates the program accepted around 35% of co-investment opportunities, though the rate varied with the market. He wants to improve selection and access while staying within the program’s criteria. The figure describes an acceptance rate, not a success rate or investment return.

Lacaillade argues a diversified direct co-investment program needs substantial scale. He says SCS was investing roughly $250 million annually when he joined and around $1.5 billion annually by the interview. His view that hundreds of millions may be needed reflects his own desired diversification and access, not a threshold applicable to every investor.

He sees a gap in wealth management between large institutions that may have product-distribution incentives and small advisers with limited investment resources. He also acknowledges that SCS is a multifamily office and benefits commercially from the model he favors. His claims about particular distribution platforms are opinions, not an audit of their products.

After a correction, Lacaillade thinks allocators who retreat entirely may miss strong future vintages, as he says some did after the financial crisis. At the interview SCS was itself capacity-constrained, but he wanted to make exceptions for exceptional managers. The attractiveness of any vintage cannot be known in advance.

He sees opportunities in secondary transactions, including liquidity for LPs and employees facing a longer wait for an IPO. A partial sale at a discount can give a holder cash while preserving some upside. He discusses a proposed secondary platform as a market opportunity; transaction prices and eventual results remain uncertain.

He says private-market marks had been reduced after unusually strong prior years and estimates his program’s venture portfolio at around 29% net IRR after those reductions. That is his reported, partly unrealized program figure at the interview, not a cash distribution or a forecast. He expects further losses could still appear.

His largest liquidity regret involved a company entered around a $200 million valuation that later received offers at roughly $6 billion. He did not sell after hearing a higher IPO expectation and observing other holders stay invested. He now says he would accept a much lower valuation to sell some; the later outcome and ultimate loss were uncertain.

He also recalls selling older fund interests in 2021 and now seeks portfolio pricing periodically. He considers himself a buyer rather than a seller at unattractive current prices. The goal is to make liquidity management a practiced discipline rather than decide only when a banker appears.

In another unnamed holding marked up fourfold, he says he asked the GP whether a sale was possible because the price felt full and liquidity had value. He also sees possible further upside. A mark, a theoretical buyer price and actual proceeds are different; he says a sale was not assured.

Lacaillade sees secondary markets as useful tools for long-lived private funds and believes private equity can plan over longer horizons than public companies. He describes a lower-middle-market buyout model: buy a smaller business, improve operations and sell to a larger buyer. The multiples and returns he sketches are an illustrative strategy, not guaranteed outcomes.

Managers should evaluate the people behind an endowment, not just its name. Capital may be institutionally durable while a new CIO or team turnover changes relationships. He warns that several LPs with similar networks can behave alike, so diversity of investor type and judgment can matter.

On LP concentration, he suggests that at scale a single LP near 20% is already substantial, though SCS itself exceeds that in some funds. He favors a manageable group of meaningful commitments plus smaller strategic investors. His own exceptions show the guideline depends on the relationship and circumstances.

He advises emerging managers to select long-term partners thoughtfully, looking for stable capital, responsiveness, integrity and people they want to work with. A fund relationship may last well beyond a fundraising cycle. He wants managers spending their time with entrepreneurs rather than satisfying unnecessary LP bureaucracy.

He offers examples of single-family allocations slowing after serious family events. A multifamily office can have more varied sources of capital, he argues, but he explicitly recognizes his bias: SCS operates that model. Even diversified allocators can face their own constraints.

He questions whether relatively small fortunes can support a full standalone family office with institutional access and diversification. Stebbings and Lacaillade walk through an illustrative allocation from a $100 million fortune, spreading private commitments across years and strategies. The arithmetic is a rough example, not personalized allocation advice.

He recommends targeted fundraising and introductions from trusted sources rather than indiscriminately taking meetings. For buyout funds he often favors specialist placement agents; for venture, he and Stebbings express skepticism about using them. These are their preferences and may not fit every manager or market.

Looking back, Lacaillade would put more weight on managers being good long-term partners as well as brilliant investors. He also reiterates the need to seek contrary references. In quick fire, he describes managing dozens of private-equity relationships with a team and choosing carefully which meetings to attend.

He speaks warmly about family and credits his wife for enabling him to balance a demanding job and parenting. He sees track record as informative but believes venture brands can have more persistent advantages than some buyout strategies. His ranking of diligence factors remains his personal approach.

Asked which firm he would most like access to, he names Benchmark. He chooses Winston Churchill and Island Records founder Chris Blackwell as people with whom he would like to dine, citing resilience and a creative life. These are personal preferences rather than investment recommendations.

Ten years ahead, he hopes to remain near Boston and continue the LP work he enjoys, potentially with more time for travel as his children grow. He sees the allocator role as one he could sustain for decades. That is an aspiration expressed in 2023, not a commitment to a particular future role.