Episode summary
Episode 34: Unlocking Value in Middle Market Private Equity with Guest Matt Katz, Fiduciary Trust...
Alternative Allocations
· · Hosts: Tony Davidow · Guests: Matt Katz
Summary
Matt Katz argues that middle market and lower middle market private equity offer a structural edge because there is more capital chasing larger deals than there are quality large companies to buy. In the 10 million to 250 million revenue range, he says managers can often source proprietary, off-market opportunities, buy at lower entry multiples, and create value through operational improvements at family- and founder-owned businesses that often lack professional management layers.
He says the exit environment has been sluggish since the 2021 peak, but he is seeing early green shoots in both deal activity and exit activity, especially in 2024 to 2025. Even so, he notes that smaller deals are moving more quickly than the larger end of the market, where sponsors are leaning on continuation vehicles, NAV loans, and dividend recaps to provide liquidity. Katz also prefers sectors with long-term secular growth and complexity, including healthcare, financial services, and aerospace and defense.
On manager selection, Katz emphasizes a deep diligence process built around people, process, performance, and references. He says advisers should look for aligned teams, durable sourcing and operating capabilities, consistent above-median returns, and real deal-level value creation rather than excess leverage. He also sees secondaries as the highest-conviction tool in private markets because they can speed up deployment, reduce blind-pool risk, and deliver distributions sooner.
Key takeaways
- Matt Katz says middle market private equity has less competition, lower entry multiples, and more room for operational value creation than larger-cap buyouts.
- Katz sees signs of improvement in exits and deal activity, but says the larger end of the market still needs a fuller reopening before the flywheel really turns.
- He favors sectors with secular growth and complexity, especially healthcare, financial services, and aerospace and defense.
- Katz says advisers should evaluate managers on people, process, performance, and references, with an emphasis on alignment and durable sourcing advantages.
- He calls secondaries the highest-conviction idea because they reduce blind-pool risk and can accelerate both allocation and distributions.
Notable quotes
“there's this sort of asymmetry where there's not as many large companies for which to invest but there's much more capital that's been raised and so that increases competition for those assets”
“There's over a 100,000 companies that are ripe for the picking for private equity to partner with, but there's not as much capital and there's not as many funds”
“we think there's a structural capital availability and opportunity imbalance”
“We're looking at 20 25 years because if we're partnering with these groups we want to partner with them not for this fund that they're raising now but for fund three, four, five going into the future”
“Secondaries are structurally different in many ways than traditional private equity”
How the episode opens
This is Alternative Allocations by Franklin Templeton, a monthly podcast where we share practical, relatable advice and discuss new investment ideas with leaders in the field. Please subscribe on Apple, Spotify, or wherever you get your podcast to make sure you don't miss an episode. Here is your host, Tony Davidau. Welcome to the latest episode of the Alternative Allocations podcast series. I'm thrilled to be joined today by Matt Katz from Fiduciary. Welcome, Matt.
Great to be here. Thanks for having me. — Let's start with the basics. Talk to us a little bit about your background. What drew you to the industry overall and your current role at Fiduciary?
Currently at Fiduciary, I'm a manager director and I lead our efforts on private markets, diligence, research, underwriting, portfolio management. I started my career right out of school. I was a finance major.
I knew I wanted to be in asset management like many folks. You know, I wasn't sure really what direction I wanted to head in. So, I got a role as a generalist research analyst at a consulting firm, investment consulting firm, underwriting and analyzing mutual funds for large institutional clients to invest.
And it was a great learning experience to really understand the industry, the people that are in it, but importantly, the different asset classes in which institutional investors invest, including private equity. As I started to get more ingrained in the space, I really started to gravitate towards the private markets. So this was 2008 postGFC era where you could really see an inflection point of the growth of the number of private companies in the US and relative to stagnant even dropping public companies.
And so I was really curious to sort of understand why that was the case. We had a small group of analysts that were focused specifically on private markets and private equity.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- middle market private equity
- private market fund selection
- secondaries
- due diligence
- exit environment
Companies and tickers mentioned
- BEN
- Fiduciary Trust International
- Segal Rogerscasey
- Franklin Templeton Private Markets
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from Alternative Allocations
-
Solving the Operational Challenges of Private Markets | Ep. 43 -
The Goldilocks Zone: Finding Value in Venture & Growth Secondaries | Ep. 42 -
The World Rewired: AI, Private Markets & the Future of Investing | Ep. 41 -
How Geopolitical Risk Is Reshaping Markets & Private Investing | EP 40 -
Separating Noise from Reality in the Private Credit Market | EP.39 -
Episode 38: The Model Revolution: Scaling Private Markets Access Through Technology and Education...
Alternative Allocations, this episode and its artwork belong to Franklin Templeton. Octagon is not affiliated with the show; this page is an independent summary.
