Andrea Auerbach

Andrea Auerbach would say her career in private investments chose her. After graduating with an economics degree from Smith College, she landed her first job in Prudential Insurance’s Leveraged Buyout Group, where she worked on LBOs and led efforts to benchmark Prudential’s $5 billion buyout portfolio.  She found her work “addicting” given the access to information when working with private companies, given that, “there’s no area of inquiry out of limits that couldn’t be answered by a privately held company.” 

She continued on to Cambridge Associates, where she has spent the past two decades building and leading a 50-person team as the head of global private investments. Her team sources and underwrites private equity, growth equity, distressed, and venture capital funds, co-investments, and secondaries transactions, resulting in upwards of $10 billion in investment annually. In any given year, roughly 30% of the funds she and her team underwrite for client investment are brand new funds, which she is particularly proud of. “Over the course of my career, it is the work we do with first-time funds, guiding those teams in ways that have resulted in very positive returns for our clients that I feel, is second to none, to be honest,” she said. 

Auerbach expects the next decade for private investments will be especially interesting. For investors concerned that the persistence of return will diminish in private equity, she agrees that it will get increasingly challenging to earn old school returns in the sector. She said the incredibly diverse global investment arena will also continue to result in significant dispersion around the median return. “While mega funds exhibit less return dispersion around a median than smaller funds, there is still meaningful variability and opportunity to outperform a public market equivalent. There is no ‘index hugging,’” she said. 

That’s exciting for Auerbach, who continues to find the private investment space incredibly dynamic. “In some ways, I blinked and suddenly here I am 20 years later,” she said. “There’s always something different happening and the next 10 years, I think, will be very interesting.”

CIO: What (actionable thing) have you learned over the course of your career that has proven itself this year?

Auerbach: It’s a classic one: rely on data and analysis to “prove your gut.” One benefit of being a career private investment practitioner at a firm known for having reams and reams of private investment data is that I and my global team can run deep analyses on past cycles to see what patterns may match up with what we are currently experiencing. As Mark Twain said, “History doesn’t repeat itself, but it often rhymes.” As time carries us through these current crises—in fact, even though it feels like years, it’s only been six months in the US—it remains difficult to forecast the depth and breadth of their effects on private investing. Examining how past recessions impacted the supply of and demand for private equity (PE) and venture capital (VC), various operating and valuation metrics of PE- or VC-backed companies, and performance across vintage years, sectors, and fund sizes, combined with our accumulated experience, informs how we advise clients regarding private investment portfolio construction and investment selection today. 

CIO: What investments (specific securities or sectors) look good to you now? And why?

Auerbach: Private investment managers who have built a sustainable, competitive differentiation are never out of style. In this day and age, 30-something years into the institutionalization of private investing, old school approaches to generating competitive returns are no longer effective, having long been commoditized, in my view. Investments/fund managers worth considering today are focused entirely on one (or two) sectors, organized around a specific strategy such as growth equity, have built a better mousetrap to find the companies they want to invest in or to add value post-investment, or better yet, are a combination of all of the above. Sector-focused private equity funds of interest to me include those targeting enterprise software, health care, or select consumer businesses. Additionally, teams pursuing growth equity, operator-led private equity, or deep value are interesting sub-strategies.  

Aside from committing capital to funds, investors can also pursue co-investments or secondary transactions to further shape their private investment programs and calibrate exposures. Both require additional processes and rigor, but both can be incredibly additive, as we have seen firsthand at Cambridge Associates.

CIO: What ones don’t? And why?

Auerbach: The private investment arena is still growing and capital flows to the various asset classes continue to climb. We track over 5,000 managers and 20,000 funds globally. It’s only going to get more competitive for managers to generate compelling returns. Managers who fail to evolve their organizations and resources, institutionalize their strengths, or become the ‘firm of the future’ all concern me. It can be that simple and it can be demonstrated in myriad ways. Take incorporating ESG, for example, which can be done in any private investment strategy. When managers defiantly state they don’t see a need to do so (and several have to me!), I see a red flag.