June 16, 2021 | Webinar

Private Shares Fund Q2 2021 Webinar

CHRISTIAN MUNAFO: Okay, I think we can get started here. Welcome, everyone, and thanks for joining us for today’s webinar. I’m Christian Munafo, chief investment officer of Liberty Street Advisors, the investment advisor to the recently rebranded Private Shares Fund, formerly known as the SharesPost 100 Fund. And I’m joined by Kevin Moss, managing director at Liberty Street and president of the fund.

KEVIN MOSS: Hello, and thanks for joining, everybody.

CHRISTIAN MUNAFO: So, we will be using our screen-share function for today’s presentation. As noted in the past, our objective is to get in front of you every quarter to provide what we believe are relevant updates. We can touch on this right now at a high level, but fund inflows are essentially at record levels, and Kevin will provide more detail on that in a little while. We have continued investing actively on behalf of the fund, both in terms of increasing existing positions that the fund owns as well as adding new positions to the fund. And the portfolio overall has continued performing well with additional liquidity activity that we will also report later in this presentation.

There has been a clear increase, since we last spoke, in macro-volatility as concerns regarding interest rates, the yield curve, inflation, etc. have started creeping up, leading to some portfolio rebalancing in the broader markets. And actually we’ll learn more about this in a couple hours from now with what is a highly anticipated update from Jay Powell at the Fed. I’m sure many of you are monitoring that. And in parallel, the rotation into what are now widely called reopening trades has also continued.

We’re also quite pleased with and encouraged by progress that has been made with COVID-19 vaccine availability and the rollout. There’s been declining infection rates, declining hospitalization rates. And so we’re hoping to be able to meet with many of you in the very near future.

As always, we welcome your suggestions on future topics to cover, so please reach out to us if there are specific questions that you prefer to address offline as well. Again, we’re using Zoom today, which many of you are likely familiar with by now. So, if you would like to submit questions during the webinar, please feel free to use the Q&A box at the bottom of your screen and we’ll try to respond by the end of the webinar.

So, with that, I’m going to turn to Kevin to touch on the agenda for today.

KEVIN MOSS: Thank you, Christian. Yes, to set the agenda for today, we’ll start off by reviewing an important rebranding update that many of you might be aware of by now. We will then touch on the overview of the fund strategy and key benefits. Christian will also discuss our market perspective. We will then provide a fund update, as we usually do, and finally we will close on our thoughts on where we think the market is heading. And, of course, at the end of the webinar, we will try to answer a few questions. So, why don’t we get right into the corporate update?

As a corporate update , on April 30th of this year, the fund’s name was changed to The Private Shares Fund. The rebranding is primarily in connection with the recent investment advisor transition to Liberty Street Advisors, which did include the entire investment team. We also believe the new name and the removal of the 100 list more accurately represents the addressable market opportunity, which has grown significantly since we launched the fund back in March of 2014.

It’s important to know that the ticker symbols do remain the same, the valuation and investment process remain the same. Again, the team remains the same, the trustees, the governance, the vendors. This is primarily an update for the name of the fund. We have made some adjustments and expanded our capabilities to gain access to our portfolio companies through this process, but the mandate of the fund remains exactly the same.

So, that’s what we have for a corporate update. Christian, I’ll send it back to you for a fund overview and a discussion of its key benefits.

CHRISTIAN MUNAFO: Great. Thanks, Kevin. So, for those of you with us today who may be less familiar with The Private Shares Fund, we wanted to just take a few minutes to provide a brief overview with regards to the underlying strategy, the addressable market opportunity, distinct characteristics of the fund, etc. So, why don’t we start there and then we’ll follow, as Kevin said, with some market perspectives?

Quite simply, this fund is focused on a significant trend that has been evolving over the last couple of decades, and that trend is the number of publicly traded companies on U.S. exchanges has contracted significantly over this time period, as private venture-backed and growth-oriented companies continue staying private for longer. And just looking at this slide, what you can see is that the number of publicly traded companies during this 20-year period-plus has essentially been cut in half, while, as we’ll show you momentarily, the number of public – sorry, private companies has continued to surge.

So, the obvious question is why? Why has this happened? Particularly with regards to the surge in private companies? There are three main drivers that we believe have contributed to this trend. You know, first, as many of you know, regulatory changes and the overall regulatory environment often make it challenging and administratively burdensome for private companies to go public. So, historically there’s been at times less of a desire to go public and, rather, stay private for longer. We’ll touch on recent developments that have made it easier and perhaps more compelling to go public sooner through utilizations of new structures such as SPACs, or Special Purpose Acquisition Companies, as well as the DPOs, which are Direct Private Offerings, also called Direct Listings, but this is a more recent trend.

Another key factor is that growth-oriented companies are often still developing their business models, which means that at times it might be appropriate for certain operational in our financial adjustments to be implemented to optimize the opportunity before that company. And if these are done within the public market and the company is trying to stay true to its earnings projections, it could really result in unnecessary volatility, which, as many of us know, is not ideal if you can avoid it.

And, third, perhaps most importantly, there has been a significant amount of capital made available to the private markets over the last decade alone with roughly 6 trillion committed across this private asset class during the last ten years, of which well over a trillion has gone into venture and growth stage assets. And so what this capital does is basically provide the private market companies with more runway to stay private for longer. And we also continue to see more and more, what we refer to as, nontraditional private market investors being active here. Mostly public crossover investors that are seeking access to these types of high-growth companies in advance of public listings as well as large sovereign wealth players, and also family offices have become quite active in recent years. So, you know, those are the main reasons we think why this trend has essentially proliferated. And here we can see some interesting data behind these trends as well.

So, back in 1999, your typical venture-backed company took roughly four years from its inception to go public, whereas if you compare it to last year’s metrics, that time period has essentially more than tripled. So, a very significant obvious trend. You could see where these private companies are staying private for longer.

And perhaps what’s even more important than them staying private for longer is the fact that there is significant value appreciation that’s taking place during this protracted life cycle, which is all happening in the private market. The data here tells us that that increase overall has been roughly 800 percent compared to these metrics back in the late 1990s. And we can all think of companies that are familiar to us, such as Microsoft, and Oracle, and Amazon, etc. that went public at valuations far less than valuations we see companies coming out at today. And so for these types of household name companies, most of the value appreciation occurred while they were public, which means that practically all investors who invest in the public markets should have been able to access this growth.

The problem, however, in today’s environment is when you have all of this growth now happening with these private companies staying private for longer in the private market, it makes it a lot more difficult for investors to be able to access this growth because there’s no universal exchange that exists today to easily buy private company securities like we have with our public exchanges. And also it’s worth noting that, historically, most of the private companies that exit, exit through M&A, which means they actually never become available to the public market.

And the last point I would note on this slide is that shareholders in these private companies that are staying private for longer, many of them have different investment timelines. And so while the values of the company may be appreciating, the extended lifecycle ad holding periods can often create quite a bit of friction and motivation for liquidity, and because again there is no universal exchange for them to seek liquidity, it provides really interesting opportunities for sophisticated investors like ourselves to take advantage of some of the information asymmetry and efficiency to get us and our clients attractive entry points.

And so when we factor all of that in, it should not be a surprise that we continue to see a surge in the numbers of private companies that have reached very significant valuations. And so this slide essentially represents what are called unicorns, which are companies – private companies that are valued at least $1 billion. And so we can see when this fund was formed in 2014, there were roughly 40 unicorns, versus over 700 now on a global basis. So, the addressable market opportunity for this fund has grown dramatically simply by looking at the number of unicorns.

And while our strategy is to invest in these multibillion-dollar companies, we also invest in companies that we believe are on a trajectory to hit that type of scale. So, the universe is actually much larger than the 700 companies that you see on this page. And that contributed, quite frankly, to some of the rebranding that we recently did, to make it clear that there is a much larger opportunity for this fund to invest in private company shares.

Kevin’s going to walk through our portfolio shortly. Just visually, these are examples of some of the digital transformation trends that involve our portfolio, which essentially involves a variety of different technology and innovation being applied across a broad range of sectors, ranging from e-commerce to fintech, to data analytics, cybersecurity, education technology, digital health and different forms of healthcare technology and even agricultural technology, which is an area that we’re increasingly spending time on. Now, many of these trends were well underway pre-COVID, but the COVID environment clearly, from our perspective, accelerated the adoption of a number of these different areas, and we expect this to continue in the post-COVID environment.

And so, in summary, what we just covered is exactly what this fund was designed to focus on. It’s essentially designed to serve as a key for access to private technology and private innovation trends. And, again, you will see this more in connection with our rebranding campaign, as Kevin touched on earlier.

I’m going to turn it back to Kevin to discuss some of the key benefits of the fund.

KEVIN MOSS: Thanks again, Christian. And a lot of you have seen this slide before. We like to revisit it, especially for those that are new to the fund. In short, The Private Shares Fund is an SEC-registered ’40 Act fund. We use the interval structure and that really allows us to democratize access to this asset class, which is involved in late-stage, high-growth companies for all investors, and that’s quite disruptive as private market strategies like this have historically only been available to institutional investors.

So, with the interval structure we essentially remove the typical accreditation requirements that come with private market products. In addition, the structure of this product allows for up to 5 percent of the fund NAV to be redeemed on a quarterly basis. And, of course, we think that this really gives the financial advisor flexibility in managing liquidity for their clients. Furthermore, investors can simply invest in the fund with a ticker and it’s available on most platforms like TD, Schwab, Fidelity, Pershing and others. And this fund has been around for nearly seven years now. We have a highly experienced team that’s been investing in the asset class for several decades, in aggregate, and we do follow a rigorous institutional-grade investment process. We have about 70 companies in the portfolio diversified across numerous innovation-oriented sectors, and we believe we got in at very attractive prices and they are late in their development. When we invest in a company, we believe that we’re investing in companies that could have an exit anywhere between two to four years, whether it be by M&A or public offering.

And as we have discussed with many of our shareholders, when a company does exit, we try to reinvest those proceeds back into new opportunities. If it’s a public exit, we’ll exit those positions once they come off of lockup. And we will then continue to invest in companies we already own or obviously try to invest in new companies into the portfolio.

So, that’s the key benefits. Christian, I’ll hand it back to you again.

CHRISTIAN MUNAFO: Great, Kevin, thanks for touching on that. Yeah, and for the audience, we hope that was a helpful introduction. To those of you who are newer to the fund and for those of you who have been with us for a long time, we appreciate your patience. So, why don’t we move on to cover market perspectives? So, this is the list of topics that we’ll move through as quickly as we can, and then I’ll turn it back over to Kevin to touch on some of the fund and portfolio level updates.

So, this slide essentially shows volatility that we’ve been seeing in the broader markets. Again, we’ve touched on our perspectives regarding the COVID environment. By no means are we intending to dismiss the fact that COVID and the variants continue to remain a concern and will likely be with us for some time, but we are very pleased with progress that has been made across the board and are also pleased to see a structured reopening of the economy with what appears to be overall better visibility on the path forward. Clearly, there’s been improving market sentiment and we’ve been seeing the shift within the public markets towards, what I’ll refer to as, the reopening trades, including areas like travel, leisure, restaurants, gaming, etc., which many of us knew were just a matter of time. And we’re continuing to see strong earnings reports throughout most of the economy during the first couple quarters of this year, which is also encouraging.

From a stimulus standpoint, it’s unclear if there will be additional stimulus issued, but the multiple trillions that have already been provided, just looking at the markets, have clearly been well-received. And I touched on this at the outset, you know, the rising interest rate and concerns around inflation have definitely created some spikes in volatility this year while this historical tug-of-war between value and growth investing has led to active portfolio rebalancing.

And, look, it’s historically been true that growth versus value and vice versa runs in cycles. The growth trade has essentially been trouncing value for well over a decade, so it’s not unusual to now see momentum shifting back towards value. However, if you look at equity inflows over the past couple of weeks, there’s actually been a bit of a reversal course back into growth, which is something certainly to keep an eye on.

And, you know, again, there is this highly anticipated update a couple hours from now from the Fed which should provide more visibility on some of these methods but, regardless, we have to remember that we are long-term investors and the private markets require a long-term commitment. And while the macro is always important, the underlying fundamentals are also important. So, we can’t lose sight of that. And the underlying fundamentals continue to look strong.

There also continues to be focus on an infrastructure bill. Hopefully, we’re able to come to one and both sides can come together. And, obviously, there’s also a lot of talk about significant changes to tax treatment, which could have a variety of different impacts in behavior this year. So, those are all interesting things that we’re keeping a close eye on.

While any number of these can create short-term pain in the markets, we continue to believe that high-caliber technology and innovation companies will continue performing well. And the fundamentals will remain strong both in the public and the private arenas. That doesn’t mean that macro events can create friction and volatility but, again, we believe that the fundamentals will continue to be strong. And there’s always a lag effect with regards to how the private market reacts to things in the public market. It doesn’t happen overnight, right, which is a benefit to some degree.

And so, as we’re going to show momentarily, what is clear is that investing in U.S. venture-backed companies while they are in the private market can generate significantly higher returns compared to waiting to access them at what are much higher valuations in the public market. And so a different way to say that is, you know, our data validates the case for accessing technology and innovation in the private markets, particularly for investors with concerns around volatility and valuations in publicly traded tech and innovation companies. So, we’ll pull that momentarily.

So, what does this all mean for late-stage venture-backed companies, which again is the focus of our strategy? We can say with confidence that the late-stage market has been quite resilient throughout this COVID pandemic and, again, technology adoption has been propelling from everything ranging, as we’ve talked about, from e-commerce to teller-health, to cybersecurity, etc.

In terms of overall investment activity, as we talked about last quarter, 2020 set a record for late-stage venture capital investment volume despite what was essentially a slowdown if not a near shutdown in March and April of last year at the outset of COVID-19. And this trend has very much continued into 2021. While the magnitude of investments in later-stage deals has very clearly grown over the last few years, this segment of the venture capital market has actually been growing consistently over the last decade. As we have companies, as we’ve discussed, staying private for longer, there has been a divergence trend where investors in this asset class have been allocating more capital away from earlier-stage companies in some situations and directing that capital to later-stage , viewing it essentially as less risky and also, quite frankly, using it as an opportunity to double down on what they believe are their perceived winners.

From a valuation standpoint for late-stage venture-backed companies, we continue to believe that overall there should not be a material impact from here. Of course, as we’ve discussed, there are going to be companies that experience valuation pullbacks in future rounds or exits that disappoint, particularly if these companies are unable to sustain their growth rates and margin profiles. And we also have to be honest that there are a number of companies that benefitted from the rising tide of valuation spikes over the last 12-18 months, some of which perhaps didn’t warrant those types of valuations.

But, as noted earlier, there is significant dry powder that’s continuing to chase high-caliber tech and growth-oriented innovation in the private markets. And so we continue seeing assets getting priced up, not only in our portfolio, which Kevin will touch on, but also in the broader private market. And as we’ve discussed before, private companies tend to involve far less short-term volatility compared to public companies – not implying that they’re immune from the same macro risks that publicly traded companies face, but that they’re affected less in terms of short-term idiosyncratic market volatility. You’ll see that also when Kevin picks up momentarily.

In terms of overall exit activity in the market, clearly there was a surge in the second half of 2020 following – again, which was a slowdown early in 2020 during the peak of COVID – and public offerings hit levels last year that were not seen since 2014. Similar to investment activity, this momentum not only continued into 2021, but we can see unprecedented levels getting hit just in the first quarter of 2021 alone. But we have not yet finished the second quarter, which is why we don’t yet have that data, but once we have it, we will also make it available.

Again, private companies with less robust business models, you know, in an uncertain macro environment can clearly not fare as well and it could be more challenging for them to exit; but for companies that are better situated with strong operating models going after large markets with healthy balance sheets, we continue seeing strong support from the market, especially the public markets. And SPACs, which we’ll touch on momentarily, were incredibly active during the first quarter this year. We’ll talk about why we think that’s slowed a little bit in the second quarter. And SPACs are actually included in this data on this slide into the M&A definition due to how SPACs operate through their merger structure.

There are going to be instances, though, where the macro can result in a delay in a decision for private companies to wait – and wait for an opportune time. And we’re actually seeing that. So, we’re seeing more companies now that had been contemplating pursuing SPACs or potential public offerings taking a step back and making decisions to just raise another round of private capital and to wait to see what the overall macro environment looks like.

So, we’ll continue monitoring that. But overall we remain very optimistic about the exit environment. The first half of this year, it has been very strong. Kevin will touch on positions we’ve had in the fund that have benefited from the environment, and we expect this environment to continue. So, why don’t we move on there to SPACs?

So, first, we just wanted to show some data from last year to set the picture. And, again, SPACs are Special Purpose Acquisition Companies that are also called Blank-Check Companies, and they are essentially – the easiest way to think about them is a shell company with no operations that goes public for the purpose of acquiring or merging with a target company and utilizing the proceeds raised from that SPAC offering to finance that transaction.

And so 2020 brought us unprecedented levels with over 250 SPACs representing roughly 80 billion in proceeds. In parallel with that, we’ve also seen the proliferation of PIPEs that have become increasingly active – and PIPE is Private Investment in a Public Equity – and those have been used essentially in parallel with SPACs to not only facilitate these SPAC deals but also to provide additional operating capital for the companies once they become public.

And to some extent we saw situations where these PIPEs were potentially pulling forward exit timing in combination with the SPACs for certain companies that may have otherwise raised additional private capital through a pre-IPO round. But, you know – and so that’s something that we continue monitoring. But net-net, as long-term investors in this asset class, we are quite happy to have more options for our portfolio companies, not only to get liquidity but also to have different competitive PIPEs of liquidity options in addition to traditional IPOs.

So, let’s look at year to date SPAC activity. Again, it’s hard to believe some of this data, but in the first two months of 2021, we exceeded all of the SPAC activity in 2020, which is quite remarkable. When we spoke with you last time during our first quarter webinar in March, we indicated our view that SPAC activity would likely slow, and it has, primarily due to some regulatory questions on topics ranging from warrant treatments to utilization of forward-looking statements. And those are two hot topics that are actively being discussed right now. And there are valid arguments around both of them as well as, you know, particularly why forward-looking statements are relevant, particularly for companies that have more predictable subscription-based revenue models with multiple-year type contracts. But there is general consensus that there have been some unusual patterns. And so, we’re pleased that the regulators are looking into this. And, overall, we think it’ll have a net positive impact.

But, again, this slowdown in SPAC activity and some of these regulatory concerns has also resulted in SPACs, to some degree, trading below their $10 price per share. And so that’s also something to monitor. That aside, right now we’re looking at a SPAC market which has roughly 400 of these sitting on 200 billion-plus of capital, seeking merger partners. And if we look at some reports put out by investment banks, what we can see is that there’s a view that SPACs and PIPEs may actually have 700 billion to potentially even 1 trillion of buying power.

So, while it’s unclear whether SPAC activity is going to resume the rates that we saw last year into the first quarter of this year, what we know is there’s a lot of capital seeking partnerships out there and these SPACs typically have two years to find their merger partners – or else they have to give the money back. And we know that the last thing they probably want to do is return capital. So, we think that SPAC activity is going to pick up once there’s a better handle on the regulatory questions that have been raised.

And this is the last slide before I kick it over to Kevin, and I referred to this earlier. We also put this out through blog posts. But, essentially, what this data shows is that investors who are able to access these late-stage venture-backed companies while they are still private can potentially generate significantly higher returns, rather than waiting to invest them at the IPO or the first trade. And behind this analysis what we did is we essentially went back ten years and we looked at all companies, venture-oriented, that had IPOs above 100 million valuation, and we used the last private round valuation that was made to set the basis for this data.

And so, even though certain investors like us, The Private Shares Fund, in many instances can buy well below the last round valuation through secondary discounted transactions, we set the hurdle a bit higher to just using the last round valuation. And we think that data is quite compelling and justifies why it’s important for all investors to be able to have access to this asset class while these companies are still private.

And, again, the information asymmetry in an efficiency in this market as well as the protracted holding periods, it really does create a lot of friction that investors like us can benefit from when investing on behalf of the fund to try to get access to high-caliber assets at attractive prices.

So, to summarize, we continue to be pleased with how resilient the venture market and late-stage ecosystem has been, we’re pleased with the ongoing financings and liquidity activity. Valuations have certainly become frothy, which we continue to monitor and be very disciplined around, while deploying capital in a prudent way. But we are very excited about this environment and about the coming quarters ahead.

So, with that, I’m going to turn it over to Kevin, who’s going to discuss the fund level update, and he’s also going to try to tie in some of these trends I’ve talked about with regards to valuations, investment activity and exits into our underlying portfolio itself.

KEVIN MOSS: Thanks again, Christian. Well, I’m happy to say that we are off to a good start the first half of this year. We’re working off some good momentum as well in 2020, but we did have positive performance. We had record inflows and, of course, the activity around the transition to the new advisor. So, we’ve continued that momentum into 2021.

So far this year we’ve added seven new companies. The portfolio, which I’ll mention in a minute – we’ve deployed $33.3 million into those companies. We have also added to nine existing companies that are already in our portfolio. We always do this in an effort to continue to increase our existing positions, especially if they’re performing well. And to that end, we’ve added $21.8 million to those existing companies. We also had seven companies where we’ve made some sales, both in the private and the public space, and we generated about $40.8 million proceeds for those things.

The new companies that were added were Betterment, which is in the fintech space, Collective Health and Crossover Health, both digital health companies. We invested in a company called Invaio, which is agriculture technology; Domino Data and Pavilion Data – these are both big tech data. And Beta Technologies we also added. This is EBITDA . So, as you can see, we continue to build a bench of companies across a variety of sectors and obviously we hope these will drive returns in the years to come.

One of the major surprises – we’ve talked about this in past webinars from last year – was how many financings we saw in our portfolio companies. But, more importantly, the number of financings we saw at a higher round of valuation. And this trend has continued into 2021. And so far this year we’ve seen 13 of our portfolio companies raise capital this year, with 11 of those rounds being in higher valuations and two having flat rounds. So far, we’ve seen no down rounds yet this year. If you move to the next slide, Christian...

This slide outlines the companies that have raised capital with some of the detail. I’m not going to go through each of these companies but some names of note would be SpaceX, which had a large capital raise at a $74 billion valuation. This is in line with the frequency of their capital raises that they’ve done in the past, so it wasn’t a huge surprise but it was obviously a nice bump for us.

Some of the more impressive up rounds would be Blend Labs, Dataminr, Exabeam, all these had rounds with over 3x previous round valuation. And these, of course, have really helped with our returns. And we’re hoping to continue to see this in our companies. They raise capital, the add value and, of course, this really helps in our returns and in moving our NAV.

If we move to the next slide – this is a new slide we put together that gives you a good snapshot of our exits, which included 2020 and 2021. And, as you can see, in 2020, we saw only one M&A exit with Optimizely. This trend for our portfolio companies continues, which is that the M&A exit environment has been very low for us. It’s starting to pick up in the general market this year, than last year, but for our portfolio companies it’s been fairly low. We’ve only seen Optimizely go out. And we had three IPOs last year with one medical, which certainly benefitted from the pandemic. And we exited that position toward the end of last year.

We also saw PubMatic and Palantir go public, PubMatic with a traditional IPO and Palantir with a direct listing. And these also thrived during COVID. And we’ve been optimistically selling these positions this year, as we do with all our portfolio companies once they come off of lockup in the public markets. And so far this year we’ve seen three IPOs, which Marqeta, which just happened actually last week and now has become our largest position. We also saw Digital Ocean IPO in March and Dark Trace in April, which had its exit on the London Stock Exchange.

Additionally, we’ve seen SoFi, Hims and ChargePoint exit into the public market via a SPAC, and ChargePoint actually has become freely tradable and so we will look to sell that opportunistically. And then 23andMe, which is not on this slide, but it’s another portfolio company that will be de-SPAC-ing and becoming a public company starting tomorrow.

If we move to the next slide – here’s a good look at our current portfolio. Obviously, every time we show this slide it gets bigger and bigger. As you can see, Marqeta has moved to the front as our largest position, especially with their most recent IPO. This is followed by SpaceX, which was helped out by their round of financing earlier this year. We then have Dataminr and that obviously got a bump given their recent round of financing, and SoFi with their entry into the public market and its positive performance has moved it up as a top position.

It does look like a lot of companies but you will see some of them disappear from this list this year due to the exits and the fact that we do exit these positions over a 30-60-90 day period. So, companies like Palantir, PubMatic, ChargePoint, 23andMe, Marqeta, Hims, Digital Ocean, Dark Trace and potentially other companies will be coming off of – out of our portfolio. And this is really how our portfolio is supposed to work. We build up our positions, we let them mature in the portfolio, and then we hopefully have a positive exit. And so you will see the amount of companies ebb and flow over time as our fund continues to grow. It happens that right now we’ve had a nice buildup of companies and we do feel fortunate that we are getting some good exits, which are now helping drive our returns.

So, speaking of returns, let’s look at the next slide and see where we stand on this. Again, we won’t go through every metric here, and you’ll get a copy of this presentation. But as a quick look back on 2020, we finished the year up 23.97 percent versus the Russell with 19.96 percent, and our annualized since inception was 11.79 percent, versus the Russell at 10.9 percent. And this year, again, we’re pleased that we continue our momentum. And we finished out our first quarter up 12.33 percent, versus the Russell at 12.7 percent. And as of the end of May, we were up 14.75 percent year to date, versus the Russell 5.3 percent. And we’re actually even up another few percentage points as of yesterday from that, which you’ll see on our next quarterly update. But you can obviously see that quoted in our price quotes.

So, we are obviously pleased with these returns. They are primarily driven by positive developments in our portfolio companies, the upward rounds of financings, the positive exits we’ve all seen, and we hope that you’re pleased as well.

We’ll also comment on this slide, which is an update on our flows of capital in and out of the fund. Again, very happy with the momentum we’re seeing here coming off of a record 2020 in inflows. Last year, we raised $100 million. And this year, we’re already ahead of that with $125.5 million of inflows. And May was a record month, actually at $33.2 million. So, in half a year we’re ahead of last year’s inflows by 25 percent.

And redemptions remain low. You know, the redemption rate was less than 2 percent last quarter and we’ll have to wait and see what happens next week, but we don’t anticipate any large redemptions. We’ve deployed $55 million so far this year, and we have almost twice that amount in potential deals in the pipeline, so you can just see how active we are in deploying our cash. However, we do remain disciplined and we continue to look for value in our investments.

And, finally, as I mentioned earlier in the presentation, we’re having many exits and as a result, producing return of our capital. And so far we’ve seen $40.8 million in exit proceeds for the year.

So, that’s a pretty good update on the fund, Christian. I’ll just hand it back to you as we wrap things up.

CHRISTIAN MUNAFO: Thanks, Kevin. Yeah, all great stuff. Thanks for taking us through that. So, just quickly, this slide here is intended to essentially represent the portfolio construction, if you will, since inception of the fund. And so, what you can see is, in terms of key takeaways, of the 112 companies that have been invested in since inception – it’s actually more than that now because we continue actively investing, as Kevin said – roughly 40 percent of those have been realized or exited from the portfolio. What we would note is that this excludes some of the companies Kevin was talking to you about that recently listed via an IPO, SPAC, direct listing, etc., if we continue to hold shares which are either in lockup period or in the process of exiting freely tradable positions, those are not reflected here as being exited.

So, the actual number is higher. And so you’ll see that grow this year and we’ll report to you next time. Another key takeaway is if you look at the active companies and the vintages in which they were invested into, roughly 70 percent of the active portfolio has been added over the past few years. And so what that implies is that the portfolio, as it exists today, is fairly young, with what we believe to be significant growth and capital appreciation potential from these current marks as these companies continue scaling at their high growth rates. And we also clearly have companies that are more than a few years old and, you know, we’re hoping that a number of these will be well-positioned for liquidity events before the end of this year.

In terms of deployment pace – and Kevin touched on year to date activity – you know, 2020 was obviously behind 2019, and 2019 was the fund’s most active year. But we did close 2020 very strong with nine new deals closed in the fourth quarter alone. And a number of those deals we had been pursuing either got [ROFERED?] away from us or the pricing, quite frankly, just go above our comfort level.

We did enter 2021 with a very strong pipeline. As Kevin said, we’ve been consistently deploying capital, having already exceeded 2020 levels, and we’re also on pace to exceed 2019. So, if things continue on this trajectory, this will be our most active deployment year since inception. We have a very robust pipeline right now, which we are actively working through, and we’re excited about the opportunity. We are also leveraging, as Kevin noted, some different tactics to continue to execute on the opportunity before us, and in some situations try to navigate around some of the challenges to closing these private market deals that can also take longer to close due to information asymmetry and overall inefficiency in how the private market operates. But we’re very excited about the way the pipeline looks.

And, furthermore, as Kevin said, we are actively increasing position sizing across the existing portfolio where we think it’s attractive through both secondary deals and new primary financings. So, we’re very pleased with the deployment case as well as the capital inflows which are at record levels, which is also very exciting.

So, that essentially wraps up the main part of the presentation. You know, in terms of the fund outlook, we will continue to actively monitor the existing portfolio, as we always do. We’re going to continue to maintain discipline and seek price dislocations where possible and high-quality assets. You know, we have an environment, as we’ve discussed, that has been priced up due to a variety of factors, and we will not chase overpriced assets, particularly during periods where it may be prudent to take more of a defensive posture.

We are continuing to actively deploy capital but we will not be forcing that deployment. We know this from our experience – that never works well. It’s paramount, now more than ever, that we gain proper visibility around the operations of the business, the financials, the balance sheets, the burn rates, as well as the caliber of the syndicate around the table to make sure that these companies have adequate funds to continue to execute on their operating model in both the current environment and what can potentially be, if things go a different direction, a more challenging environment.

Again, we saw last year how important it was for companies to have strong balance sheets, controllable burn rates and also very committed investors. And so we’re keenly aware of the macro environment, as we touched on. We’re pleased by the continued activity we’re seeing in terms of liquidity events. And, you know, we’re just reminded again that historically investments that are made during vintages which could have more dislocation volatility and friction – those tend to be years where there are stronger performance across many asset classes. Not just our own. And so we think we have a very well-balanced portfolio with broad exposure across a number of these technology and innovation-oriented sectors and we think it’s very well positioned.

So, Kevin, before we kick it over to questions, let me give it back to you to see if there’s anything you’d like to add.

KEVIN MOSS: Obviously nothing more than that. I’d love to get to the questions. But, of course, want to always reiterate our appreciation for our shareholders. This has been a really exciting time for us, especially with the transition to Liberty Street and the momentum we’ve seen coming into 2021. So, let’s get to the questions. And, obviously, as we’ve talked about before, Christian, any questions we can’t get to right now, we will follow up directly with anybody whose questions are not answered.

CHRISTIAN MUNAFO: Yeah, sounds great, Kevin. So, why don’t we move right over to the questions? So, let me go to the first one. “The fund has had a great year. What do you believe will drive returns going forward?” Do you want to take that, Kevin?

KEVIN MOSS: Yeah, sure, I’ll take that question. I think it continues to be the same. There are a lot of companies in our portfolio that are having nice exits, a lot of companies that have had rounds of financings that are at higher valuations. We continue to anticipate that that’s going to continue to happen. We know that there are companies in our portfolio that have come out publicly, that have said that they look to have an entry into the public markets at much higher valuations. So, these are the types of things that we believe are going to continue to drive our returns. Same as what we saw last year and what we’ve seen so far this year.

CHRISTIAN MUNAFO: Thanks, Kevin. Next question: “How would an increase in inflation affect the portfolio?” And then an add-on to that: “How would an increase in interest rates affect the portfolio?”

So, I think we tried to touch on this early in the presentation. We’ll do it again briefly. Again, we’re going to learn more about, I think, the environment in the next couple hours with the Fed announcement. But for those of us monitoring these types of things, you know, the Fed overall has been describing this period of inflation as transitory, essentially meaning that it should be a brief or short-lived period. And some of this is backed up by data supporting that most of the inflation being seen is in areas that were impacted by the pandemic.

So, you know, the expectation at least is that we’ll have several months, potentially, at elevated price increases that can drive up, you know, what is essentially pent up demand as well as a series of bottlenecks across supply chains but it should not materialize from there. And, look, if they’re wrong, we’ll likely see some policy changes.

But to the question raised – again, we hit on some of the trends we’ve been seeing in terms of capital inflows – we don’t see a significant impact to our late-stage private technology and innovation portfolio which has broad exposure across many sectors, many of which are playing a vital role in changing our lives.

And so, if anything, we’re observing a lot more activity from public market investors looking for access and alpha in private markets while also, to some degree, seeking shelter from public market volatility. While this demand can and, frankly, has driven up valuations, as we’ve talked about, our larger view is that it’s essentially providing an additional safety net and more expansion capital for our portfolio in the market that we invest into.

And so, very good questions. We understand the questions. We’re not saying we’re not going to be impacted but, overall, as a long-term investor in this asset class we remain very bullish on the opportunity that we’re focusing on.

Let me go to another question. “How much cash do you currently hold? And what is typical...?” There are some other questions in here that we can address separately. So, I see some questions, Kevin, around cash. I think why don’t you touch on that and just talk about how substantial the pipeline is, which a lot of folks can’t see.

KEVIN MOSS: Yeah. Just keeping in mind, this is not a leveraged fund. So, when we take in cash, we actually set that cash aside for deals in process. So, what you see is a headline number. Once you look underneath, actually it’s a lot different.

So, right now, we’re running at about 23 percent cash after today, but once you take into consideration the amount that we have in the pipeline, that number – and as you also have to remember, we also set cash aside for redemption, which is 5 percent. Once you set that aside, our cash level is closer to about 13 percent. And that’s been around the average since the inception of the fund, somewhere between 10-13 percent. And so that’s what you’re seeing net of the deals in process.

And when we do enter into a transaction, we set the cash aside. We also lock in that price at the time so that if anything does happen in the period of time that we’re working through the transaction, we’ve got that lock – that price is locked in. Hopefully, that answers your question. I do see, like you say, Christian, a few other items within that capital that we can address directly to the questioner.

CHRISTIAN MUNAFO: Yeah, no, I think that’s right, Kevin. And I think just to add onto that, the private market is not like the public markets in which we get, you know, an inflow of cash and then we immediately press a button and allocate that cash. That’s one of the attractive attributes of the private market, is the inefficiency. Because sellers on the opposite side of the table don’t have the ability to press a button and sell the positions that they want to sell.

And so the private market is its own animal, to some extent. We are, as Kevin said, always working on a variety of opportunities. You know, we see tens of billions in flow per year. We are very disciplined. So, our objective is not to force deployment of this capital. At any given time, we are looking to upsize existing positions with new flows that come in, we’re looking to optimize on new opportunities that we’re coming across. You know, and so this is a long-term strategy where you deploy capital as those opportunities are identified, due diligenced, negotiated and then executed. And these deals can take weeks, if not months, to close. So, hopefully, that also answers some of the additional questions on that topic.

There’s another question, Kevin. Maybe I can hit on this quickly. It looks like it has to do with SPACs and (indiscernible). So, look, we touched on, I think, the surge in SPAC activity during 2020 and through the first part of this year, which definitely had an impact on continuing to support high valuations and allowing the acceleration of exits in certain situations. And, frankly, it’s not just a late-stage market. The early to mid-stage market, if you look at some of these companies that were pre-revenue that completed SPACs – five-plus year forward-looking guidance, you know, let’s see what happens. We would not be surprised if some of those companies are taken private in the coming years as the public market determines it’s not a great place for them to be.

But, you know, SPACs and, more specifically, PIPEs, which are often raised in tandem, they have served as a proxy in some situations for pre-IPO financings. And so, again, while this has created some froth and in some areas increased competition, as investors with long-term views of this asset class, we’re net-positive on the benefits that SPACs are providing to the asset class as well as to our portfolio. And we have a number of different origination channels that we’re leveraging to get into these companies in advance of them having – whether it’s an IPO, a SPAC, a direct listing, or an M&A event. But it all gets back to being disciplined, deploying capital into high-caliber assets and getting them at the right prices.

So, I think that covers, Kevin, most of the questions. If there’s any ones that we didn’t hit, we will be happy to get back to you about that. We’re running out of time here and so we just want to thank everyone for not only your participation in today’s webinar but for all of your ongoing support which we’re very grateful for.

Kevin, let me turn it back to you for sign off. And we look forward to speaking to you guys next quarter. But, Kevin, I’ll turn it back to you.

KEVIN MOSS: Yeah. And just to reiterate to the listeners – because there have been a few questions about a copy of the presentation – we will have a copy. It is being recorded. But thank you. Again, thank you very much for all your support over the years. These are exciting times for us. I think the fund is at an absolute inflection point. We’ve seen incredible growth over the last year and a half. A lot of the hard work that we’ve put in in the early years is bearing fruit and we thank you very much for all your support in the past and all your support right now. So, thank you very much for listening and have a great rest of the week.

Private Shares Fund

Top 10 Holdings as of 07/22/2021*
*Represents 26.33% of Fund holdings as of July 22, 2021. Holdings are subject to change. Not a recommendation to buy, sell, or hold any particular security. To view the Fund’s complete holdings, visit privatesharesfund.com/portfolio.

RISKS AND OTHER DISCLOSURES

AS OF DECEMBER 9TH, 2020, LIBERTY STREET ADVISORS, INC. REPLACED SP INVESTMENTS MANAGEMENT, LLC (“SPIM”) AS THE ADVISER TO THE FUND. AS OF APRIL 30, 2021, THE FUND CHANGED ITS NAME FROM THE “SHARESPOST 100 FUND” TO “THE PRIVATE SHARES FUND.” THE FUND’S PORTFOLIO MANAGERS HAVE NOT CHANGED. Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus with this and other information about The Private Shares Fund (the "Fund"), please download here. Read the prospectus carefully before investing.

Investment in the Fund involves substantial risk. The Fund is not suitable for investors who cannot bear the risk of loss of all or part of their investment. The Fund is appropriate only for investors who can tolerate a high degree of risk and do not require a liquid investment. The Fund has no history of public trading and investors should not expect to sell shares other than through the Fund's repurchase policy regardless of how the Fund performs. The Fund does not intend to list its shares on any exchange and does not expect a secondary market to develop.

All investing involves risk including the possible loss of principal. Shares in the Fund are highly illiquid, and can be sold by shareholders only in the quarterly repurchase program of the Fund. Due to transfer restrictions and the illiquid nature of the Fund’s investments, you may not be able to sell your shares when, or in the amount that, you desire. The Fund intends to primarily invest in securities of private, late-stage, venture-backed growth companies. There are significant potential risks relating to investing in such securities. Because most of the securities in which the Fund invests are not publicly traded, the Fund’s investments will be valued by Liberty Street Advisors, Inc. (the “Investment Adviser”) pursuant to fair valuation procedures and methodologies adopted by the Board of Trustees. While the Fund and the Investment Adviser will use good faith efforts to determine the fair value of the Fund’s securities, value will be based on the parameters set forth by the prospectus. As a consequence, the value of the securities, and therefore the Fund’s Net Asset Value (NAV), may vary. There are significant potential risks associated with investing in venture capital and private equity-backed companies with complex capital structures. The Fund focuses its investments in a limited number of securities, which could subject it to greater risk than that of a larger, more varied portfolio. There is a greater focus in technology securities that could adversely affect the Fund’s performance. The Fund is a “non-diversified” investment company, and as such, the Fund may invest a greater percentage of its assets in the securities of a single issuer than investment companies that are “diversified.” The Fund’s quarterly repurchase policy may require the Fund to liquidate portfolio holdings earlier than the Investment Adviser would otherwise do so and may also result in an increase in the Fund’s expense ratio. This is not a complete enumeration of the Fund’s risks. Please read the Fund prospectus for other risk factors related to the Fund.

Companies that may be referenced on this website are privately-held companies. Shares of these privately-held companies do not trade on any national securities exchange, and there is no guarantee that the shares of these companies will ever be traded on any national securities exchange.

Alpha: is a term used in investing to describe an investment strategy's ability to beat the market, or its "edge." Unicorn: is a term used in the venture capital industry to describe a privately held startup company with a value of over $1 billion. EBITDA: or earnings before interest, taxes, depreciation, and amortization, is a measure of a company's overall financial performance and is used as an alternative to net income in some circumstances. Yield Curve: is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.

CBOE Volatility Index: CBOE Volatility Index measures the stock market’s expectation of volatility based on S&P 500 index options. One cannot invest in an index.

Correlation: Correlation is a statistic that measures the degree to which two securities move in relation to each other.

Russell 200 Index: The Russell 2000 is an index measuring the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index, which is made up of 3,000 of the largest U.S. stocks.

The views expressed in this material reflect those of the Fund’s Advisor as of the date this is written and may not reflect its views on the date this material is first published or anytime thereafter. These views are intended to assist shareholders in understanding the Fund’s investment methodology and do not constitute investment advice. This material may contain discussions about investments that may or may not be held by the Fund. All current and future holdings are subject to risk and to change.

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