Steward Quarterly Highlights - 4th Quarter 2023

By Steward Asset Management - View as Webpage - Institutionalizing Anchor Investing Issue #15

Navigating Middle Market Innovation

Private Markets in the Second Half 

Pricing multiples are beginning to reflect the toll debt takes out of EBITDA. More realistic sellers are bringing buyers back. This has sparked a recent uptick in US merger activity, recovering from its mid-year slump. $3+ trillion of dry powder has been sitting on the sidelines, ready to flow as valuation levels become more attractive. In addition, the high cash balances held by institutional investors support increased commitments and direct deal activity in 2024.

The revival of dealmaking in technology, industrials, and healthcare sectors was supported by a number of debut Middle Market fund managers exceeding their Fund I targets. The rotation to resilient Middle Market companies has been a hallmark of 2023. Differentiated from the large buyout universe, Middle Market portfolios provide US investors with a broader set of exposures to opportunities targeting more fragmented and smaller market share companies that present an easier base from which to double profits. In this tight fundraising environment, fund managers forming strategic partnerships are topping expectations.

The reluctant optimism of 2023 has moved prices into more rational territory. As 2024 dawns, teams face increasing pressure to put dry powder to work. Deal culmination may also be propelled by any relief from 2023’s rate hike and better debt availability. With inflation tapering, the Federal Reserve is finally reining in rate increases and considering cuts in 2024.  

Looking Forward to 2024

Short of an exogenous shock, nothing is fundamentally broken in the global economy. Globally Japan and the United States have led the recovery, a rotation to developed markets as global growth engines. With many important elections looming in 2024, geopolitics may increase uncertainty.

Despite deep credit markets, companies of all sizes face pivotal moments as the refinancing dates approach. Creditors are increasingly playing gatekeeper. Investors are keenly watching credit activity in order to confirm valuations. US banks have cleaned up their balance sheets and are ready for the next wave after losing ground in 2023 to competition from private credit fund managers.

The IPO window continues to crack open. In addition to portfolio companies, many of the largest private equity managers, short of capital, are preparing filings for their firms. Moderating rates and strong public market returns are emboldening IPO candidates.

As we turn the corner into 2024 and hope to see the resolution of geopolitical tensions, the counter-balancing strength of the US consumer and labor market is expected to support pricing power and revenue growth. The US unemployment rate has remained below 4% since December 2021. The surge in labor force participation is creating a secular wave of inclusion and pressuring companies to backfill labor needs through upskilling educational programs.  

Debut Fund Launches

2023 & 2024 vintages have the potential to yield some of the most attractive returns in recent decades, as many investors rationed and reduced their capital commitments by more than 25% when compared to 2022, reverting to 2016 levels, as reported by JP Morgan. The ability to transact and refinance efficiently in 2023 was a stress test that helped drive investors’ recommitment rates. Those able to improve their DPI (Distributions to Paid In) stood out. 

“I think in an environment where fundraising is tighter, both founder expectations

and founder discipline for starting companies are actually better.”

Alexander Band, Partners Group

Wall Street Journal

It isn’t surprising that a number of best-in-class debut Middle Market firms flourished in 2023. Impressive Fund I first closes were noted at Coalesce (Business Services), 3 Boomerang (Healthcare) and Excolere (Education). In addition, Buyouts recently reported that Astira Capital (Tech Services) and Fvlcrum (Business Services, Government, Healthcare) were among those that exceeded their Fund I final close targets. 

Many of these firms engaged strategic anchor or seed capital partners, and also included their prior team members among initial limited partners. Our team recently penned a primer discussing why some investors prefer first funds and their advantages: Steward GP Stakes Primer – Debut Fund Opportunity.

Sector Notes

Healthcare and Consumer sectors appear to be burning off creditors' reluctance to move forward. This resolution will unlock a wave of appetizing opportunities. We are in an unprecedented era of progress in science, technology, health and wellness, transforming traditional industries with scalable and innovative solutions. For 2024, our pipeline includes growth opportunities tied to economic growth that are underpinned by solid fundamentals and driven by secular tailwinds.

With the advancement of technology and scientific exploration, innovation in healthcare is on an unstoppable roll. Although the customization of therapies for populations as well as genetically targeted solutions is increasing the cost of discovery, it is also improving their efficacy. Post-pandemic desire for country self-sufficiency drives the explosion of in-country specific research, development, and production. We have noted a rapid increase in remote-use devices for ultrasound, blood testing, and monitoring to provide a wider service platform. At all major science-enabled universities in developed markets, commercialization and biotech labs are ramping up efforts to create and own the next wave of intellectual property. 

The consumer sector is also advancing DTC (direct to consumer) engagement to not only build brand awareness but also drive loyalty. Through direct contact, companies are developing product market fit that results in better-informed and actionable data. For consumer products and sports, engagement includes fractional ownership, exclusive brand access, immersive experiences, and celebrity endorsement as part of the new direct relationship.

Announcements & Congratulations

Steward welcomes Operating Partner, Amir Rafizadeh. Amir brings 30 years of experience working in an array of marketing strategy disciplines, both within the industry and as a consultant. His consulting has accelerated sales growth, product fit, and customer acquisition strategies for privately held companies. Consulting clients include Morgan Stanley, TriState Capital Bank, Charles Schwab Institutional and GlaxoSmithkline. Amir is the founder of 678 Partners, an advisory network and community of over 600 family offices and institutional allocators. He also serves as an advisor to Shearman & Sterling, Lw3, Family Office Summit and Sutton Capital. Amir will now advise the Steward team and support our strategic partnerships with portfolio investments.

Grata Webinar: Debut Fund Preparation. We are thankful to Grata for hosting the October LP Lens Series where Sheryl Mejia of Steward was joined by Aggie Rzamek Praczuk of MetLife and Jackie Tilton of Grata to discuss the environment for emerging private equity fund managers and GP stakes. A replay is available on demand. Grata is an innovative deal sourcing platform for the private equity industry. Over 250 attendees tuned in to hear about the initial considerations for planning the leap from a large firm and the transformation to becoming a founder. Topics included which questions to ask LPs as well as the importance of a track record for new fund launches.

FinCity.Tokyo - Building an Emerging Manager Community in Japan. We are thankful for the inspiring forum hosted by FinCity.Tokyo in New York. It’s Different This Time: Why Japan is a buy. The increasing private fund industry in Japan is seeking to support a new breed of asset managers in the untapped deep universe of small and midcap companies in Japan. This will identify hidden gems and help them make further progress and eventually develop into global firms.

Johara Global, New York Forum –Technology Impact Panel. We are thankful to Johara Global, a social enterprise membership organization that provides female leaders and the next generation’s change-makers with a trusted support network. Johara leaders Seem Kahn and Katie Partridge curated an engaging event. Donna Parisi, Global Head of Finance with Shearman & Sterling, chaired a panel to discuss technologies that will impact our lives in the next ten years. The panel including Sheryl Mejia of Steward, Kimberly Smith of Techstars, and Shrina Kurani of SNØCAP reviewed AI, life sciences, fractional ownership models for art and the industrial transition.

What We Are Reading

Wall Street Journal. Laura Kreutzer. Partners Capital Investment Chief Still Sees Promise in Newer Fund Managers. Partners sees more disciplined, stronger startups making for better investment prospects.

Buyouts. Chris Witkowsky. Most interesting first-time funds. An engaging survey reporting that 75% of 69 institutional investors respondents said they were interested in exploring new firm spinouts.

Institutional Investor Allocator Intel. Michael McGirr, Director of Private Equity, MassPRIM. Recently, PRIM’s private equity portfolio was ranked Number 3 in 2022 among 178 U.S. public pension funds based on 10-year performance.

Behind the Deal. Thoma Bravo’s Carl Press & Circle Cardiovascular Imaging’s CEO Greg Ogrodnick. How Circle CVI - a Niche Category Leader in Healthcare - Has Grown with Private Equity. Behind the deal provides how this life saving analysis for cardiac patients grew with Thoma Bravo’s strategic partnership to build on their impressive momentum.

Mike Bloomberg. LinkedIn. Celebrating National Entrepreneurship Day. Reminds us that there’s never a perfect time to start a business. The most important decision I made was the first — hiring an incredible team. After that, we made it up as we went, always staying flexible and never being afraid to fail.

Bloomberg Wealth. David Rubenstein Explains the Lack of Private Equity Deals. Buyers and sellers are in a tug-0-war of spreads. There are always pockets of concern and many are trying to figure out what the Fed will do. 

Wall Street Journal. Ben Cohen. He Built a Trillion-Dollar Company. He Wouldn’t Do It Again. CEO Jensen Huant commits that building Nvidia turned out to have been a million times harder than I expected.

Billion Dollar Moves with Sarah Chen-Spellings. Melinda French Gates $1Bn for Women with Erin Harkless Moore, Pivotal Ventures. Erin discusses challenging the status quo within her investment strategy. & Pivotal Ventures. Melinda French Gates. It's Time to Change the Face of Power in Venture Capital. By investing in women-led funds and early-stage companies, Pivotal wants to help transform the way that the venture capital industry looks at women of all backgrounds and unleash more market-based solutions to overlooked problems.

Steward Asset Management uses a strategic partnership approach to building diversified portfolios of primary fund investments. Our aim is to institutionalize anchor investing and capture excess return drivers available in smaller funds. Our lens focuses on next-generation innovation and growth in the Middle Market's healthcare, consumer, industrial, service and technology sectors.


Steward's strategy provides investors with early access to debut funds at an influential moment. Using control-oriented strategies, our capital is a multiplier for large-scale economic growth and progress. Steward's active sourcing identifies exceptional teams with sector capabilities that form a repeatable competitive advantage to win deals and bring value-creation levers to propel companies.


Our consultative partnership approach influences a newer manager's investment process, policies and human capital strategy. Our engagement helps to improve the risk-reward framework with GP stake participation and downside controls.


Headquartered in New York City, Steward is differentiated by a deep pipeline, GP stakes approach, unique assessment tools and extensive relationships within the emerging manager community. The team has an accomplished track record of propelling smaller and diverse asset managers.