December 20, 2021 | Webinar

Private Shares Fund Q4 2021 Webinar

CHRISTIAN MUNAFO: Welcome, everyone and thanks for joining us for today’s webinar. I’m Christian Munafo, the Chief Investment Officer of Liberty Street Advisors, the Investment Advisor to the Private Shares 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, similar to the recent webinars we’ve been doing, we’re going to be using a screenshare once again for our presentation today, so you won’t be able to see us. As noted in the past, our objective is to get in front of you every quarter to provide what we think are the most relevant updates. Today will be more of a year in review. Kevin is going to provide a number of details in a short while.

Just to summarize, we’re pleased to report that Fund inflows continue at record levels. We continue investing on behalf of the fund by both increasing the existing positions and also adding new names. As you’ll see year to date, we have exceeded capital deployment for the last several years combined. And portfolio has continued performing well, with some additional the liquidity activity.

As always, we welcome your suggestions on specific topics that you might want us to cover. So please share your thoughts with us and if you have specific questions that you might prefer to address directly with us offline, that’s also fine.

We think many of you by now are familiar with Zoom. So please feel free to submit your questions during this presentation using the Q&A box on the bottom of your screen, and we will try to respond before the end of the webinar. In the event that we don’t get to all of your questions, we will be sure to respond to you directly afterwards.

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

KEVIN MOSS: Thank you, Christian. Yes, to set the agenda for today, we’ll start off with an overview of the fund strategy and key benefits. Christian will then discuss our market perspective. We will then provide a fund update, starting with a high-level review of the year, as Christian mentioned. And finally, we will close with our thoughts on where we think the market is heading. And as also Christian mentioned, as we typically try to do, we’ll take some time to answer a few questions at the end of the webinar.

CHRISTIAN MUNAFO: Great. Thanks, Kevin. We think most of you are already quite familiar with the Private Shares Fund and the strategy, so we’ll try to keep this brief.

Quite simply, this fund is focused on a pronounced trend that’s been proliferating for the past couple decades, in which the number of publicly traded companies on U.S. listed exchanges has essentially contracted in half over this period of time, as the number of private venture-backed and growth-oriented companies continue staying private for longer. And the data on this slide quite clearly tells the story, where you’re seeing a 50% reduction in the public companies over this time period.

As we’ve described in the past, and just to summarize quickly, we think there are three main drivers that have contributed to this dynamic. The first being regulatory challenges and administrative burdens of being a public company, as well as the costs. So in many situations, we’ve seen private companies decide to stay private for longer.

We’ll touch on recent developments that have made it easier for certain companies to go public through utilization of structures like SPACs, or Special Purpose Acquisition Companies, as well as direct private offerings, which are also called direct listings. This has been a more recent trend though, and we’ll provide some thoughts on how sustainable we think it is.

A second factor is that growth-oriented companies are often still developing their business models, which means that it may not be optimal for them to enter the public market and be held accountable to quarterly earnings reports when they’re still optimizing various operating metrics of their businesses.

And then third, and perhaps the most pronounced factor, is that there’s just been a potential amount of capital that’s been made available to the private markets. If we just look at the last decade alone, there’s been about $6 trillion committed across the entire private asset class over the last 10-15 years, of which over $1 trillion has gone directly into the asset class we invest into, which is venture and growth.

So what that means is essentially there’s been more runway provided to these companies to stay private for longer. And while this is happening, and part of the reason why this is happening, is there has been a substantial number of what we call non-traditional investors that have been entering the private markets. Mostly we would describe them as public crossover investors, sovereign wealth firms, family offices, and groups of that like, who are seeking access to growth companies in advance of public offerings. And we’ll get into some of the data why, but many of them have realized that there is significant capital appreciation available in the private markets.

We’ll also just touch on something quickly. You know, over the last couple of years, there has clearly been a flurry of public market activity involving private companies, especially if you look at ones that have any semblance to innovation and disruption. And that also has been driven largely by these types of non-traditional players, as well as retail public market investors who also are creating access to this innovation and disruption. And COVID-19 really cast a spotlight on what we would broadly describe as digitization trends that are happening across, call it, practically all sectors.

Now look, we understand, and we’ll show numbers supporting, that attractive alpha generation exists in private markets. But based on our decades of experience in the private markets, not every company should go public. Significant milestones need to be achieved before companies should even consider going public in our opinion. And companies’ fundamentals matter.

And one of the problems that we’re now seeing is that the heightened demand for these types of companies has in some situations eroded discipline. And as a result, we are seeing, let’s call it, some hype. That hype has a shelf life. Right? And ultimately, the markets are going to focus on companies’ fundamentals, which is something that has been and always will be a key pillar to our strategy.

So on this slide what we see is there’s been a substantial trend happening where the private companies that are staying private for longer, are not just staying private for longer, but they’re also growing into much larger market cap companies.

So as you can see on the left-hand side, compared to, call it roughly two decades ago where the average company went public in roughly four years from inception at a market cap of roughly $500 million, we’re now seeing similar types of private technology and innovation companies taking three times longer, in some cases more than that, but they’re going out at valuations that are substantially higher than that.

And so we think about companies like, whether it be Microsoft, Oracle, Apple, Google, or Amazon, that went public at valuations far less than valuations we’re seeing companies come out today, a lot of the value appreciation in those companies I just mentioned has happened in the public market. So your average public market investor, retail investor, can access that growth.

But while these companies are now staying private for longer, that growth is happening in the private market. So your typical investor is not easily able to access that capital appreciation. And there’s no universal exchange that investors can just click a button and buy these types of companies.

And on top of that, a lot of these companies actually never even do go public. They get acquired. Historically, roughly two-thirds of venture-backed companies actually get acquired and don’t go public. But this is a really kind of important trend and another reason why we think there is so much demand for accessing private market growth.

And finally what we’ll point out is that shareholders in these private companies that are staying private for longer, which also includes founders and employees, they often have very different investment timelines. And so while the value of the companies may be appreciating, which is a positive on the surface, the extended lifecycle and holding period can create friction and motivation for liquidity. And due to the lack of universal exchange, you can easily purchase securities in these companies, the result is a lot of information asymmetry and inefficiency, which allows what we would describe as more sophisticated investors to take advantage of those dislocations and secure what we think are often more attractive entry points into the late-stage growth assets.

And so, when you factor all that in, it should not be a surprise that we’ve seen a surge in the number of these private companies that have grown into much larger valuations. The data on the right-hand portion of this slide represents the number of unicorns, which is a term to describe a private company with a market cap of at least a billion dollars. So the number of those has grown from probably like 40, when the Private Shares Fund was created, to over 900 today globally. And of those, roughly half are based in the U.S.

Now, our strategy is to go after companies like this, but also companies that have not achieved a billion dollar market cap at this point, but we think they are on the path to do so. And so the universe is just very, very large.

Kevin is going to talk through our portfolio shortly, but again, as we focus on digitization and transformational trends involving various applications of technology, ranging from call it the space economy and aerospace to ecommerce or fintech, big data, cybersecurity; even things like education, digital health, agriculture and food tech, these are very substantial trends where we are seeing very interesting disruption happening in the private markets.

The COVID-19 pandemic clearly had an impact on casting a spotlight on these, but we expect a lot of this innovation to continue, as well as the desire for it to continue.

So, with that being said, Kevin, I’m going to kick it over to you to touch on the following slide.

KEVIN MOSS: Thanks, Christian. Yeah, we touch on the key benefits and fund strategy at each webinar. We try to keep it brief, as this is really for the benefit of new listeners and attendees. So, I apologize for those that are already familiar with the strategy.

But in short, the Private Shares Fund is an SEC-registered 40 Act fund using an interval structure that allows us to really democratize access to these asset classes involving late-stage high-growth innovation companies for all investors, which is quite disruptive as private market strategies like this had historically only been available to institutional investors like pension funds, endowments, family offices and high net worth investors.

So, with the interval structure, we essentially remove the typical accreditation requirements that come with private market products. But, 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 this can be a very helpful liquidity management tool of investors.

Furthermore, investors can simply invest in the fund with a ticker, and that’s available on most brokerage platforms like TD, Schwab, Fidelity, Pershing, etc. The fund has been around now for nearly seven years, so we've got a real nice track record in place. We have a highly experienced team that has been investing in this asset class for several decades in aggregate, and we follow a rigorous institutional-grade investment process.

As of November, we have over 75 companies with exposure across numerous sectors at what we believe to be attractive prices and also late in their development where we expect an exit may occur in two to four years. And this can be via M&A or a public offering.

When the companies do exit, we try to reinvest those proceeds back into new opportunities, but we also have cash available for redemptions or distributions. But we are continuously trying to not only increase positions in companies we already own and think highly of, but also for diversifying into new companies. So that’s a high level of the Private Share Fund’s key benefits.

Back to you, Christian.

CHRISTIAN MUNAFO: Thanks, Kevin. And I’m of course happy to talk to any of you if you have more questions about the strategy, the fund structure, et cetera. This is the list of topics that we’re going to get through quickly from a market perspective standpoint. So why don’t we just kind of jump right in?

So to set the stage, this chart essentially represents volatility through the end of November going back two years . And so, again, we can see the peak volatility back at the onset of COVID. And while we have seen increased volatility, as well as recently over the last couple of weeks in December, which is after this chart was created, we’re still sitting well below the peak levels at the onset of COVID.

There’s a number of reasons, though, why we’re seeing this volatility, we think. First, there has obviously been a resurgence of concerns regarding COVID-19 and its variants. We think if there’s any good news here, it’s that the increased vaccination rates still appear to be having a kind of reduction of the consequential impacts. But everyone, I think, is keeping a close eye on the infection rates and hospitalizations, which are going up.

Second, while we’ve continued to see reasonably strong earnings reports throughout most of the public sectors during the quarter with decent growth and profit margins, there has clearly been a lot of choppiness due to concerns around the sustainability of these numbers and these growth metrics. And we’re heading into clearly the throes of a cyclical rotation.

Many of what are broadly painted as growth stocks are the ones getting hit the hardest, particularly those without profitability or a reasonable path to profitability. And those have sold off quite meaningfully.

In parallel, and also driving this activity, are heightened inflation levels, and consequentially, expectations that the Fed is going to take action to combat rising inflation by increasing rates next year.

Now, while many of the most vulnerable growth-oriented names seem to have already been hit quite hard, it is possible to see additional rebalancing as investors try to calibrate their near and longer-term value and growth objectives. While the macro is always important, we can’t ignore that underlying company fundamentals are also important, especially for investors that have longer-term views.

But again, not surprisingly, all of these factors are creating short-term pain in the markets. We still can’t lose sight of the fact that we’re sitting at or near record stock market levels across essentially all of the exchanges, in a number of scenarios where certain valuations have been stretched. And yes, increased stimulus and increased liquidity measures has helped perhaps to prop those up. But it is still important that despite all this volatility, we’re still sitting at record highs across most of the exchanges.

As it relates to types of companies that we target for this fund, we continue to believe that having a longer-term perspective is vital, and that high-caliber businesses in the technology and innovation space should perform well in both the public and private arenas. Of course there’s going to be more volatility for publicly traded holdings. And as we said, it’s not just about hyper growth or growth at all costs, it must be balanced with strong margins. And there is also a slew of additional operating metrics that we look at for the private market companies. And there also has to be either profitability or a legitimate path to profitability. Companies can’t have just consistent burning at very high rates or else ultimately the market is going to catch up to them. And we’re seeing that right now.

All that said, in our experience — and, you know, we’ve been doing this for a while — periods of increased volatility and uncertainty, both in the markets and the macroenvironment, have often been good catalysts for increasing the supply of opportunities, especially in the private markets that we focus on, and that the increase in supply and the increase in fear and concern can also create what we believe are more attractive risk-adjusted entry points.

And as a result of this, it shouldn’t be a surprise that vintage funds and strategies that are raising and deploying capital during periods of increased public market volatility and macro uncertainty, they typically generate outperformance because there is an ability to often get better pricing on the entry.

There is, as it relates to private markets, typically a lag effect. So there is a lag effect in terms of how the public market volatility, valuation and sentiments, how that seeps into the private market. And we expect this to occur, but quite frankly, we think we’re very well positioned with the health of this fund and our own balance sheet to take advantage of dislocations that may result.

And as we’ll show momentarily, we believe that investing in U.S. venture-backed companies while they are in the private market can potentially generate significantly higher returns, compared to waiting to access them at what are often higher valuations in the public market.

So if you’re an investor who has concerns about all the volatility in the valuations in the public market for technology and innovation companies, which we completely understand, 1) quality matters; You need a longer-term perspective, and there are often opportunities to take advantage of those dislocations in the private market.

So, moving to the next slide, this essentially covers the amount of activity that we continue seeing in late-stage venture-backed companies. So while COVID-19 has had and will continue having an impact on the private market, the late-stage venture market, in our view, has been quite resilient and has actually propelled a lot of the adoption of technology innovation across many sectors.

2021 has set a new record in terms of both deal value and also deal count. And that’s also consistent with our own activity, which Kevin will touch on shortly, as it relates to our fund.

The magnitude of investment in late-stage deals has grown dramatically, as you can see, over the last few years. And there’s a few things driving this; 1) We talked about companies staying private longer; 2) there continues to be what we call a divergence trend, where investors have been allocating more capital towards later-stage companies that they view as less risky, and in some situations, less capital towards what they view as maybe earlier-stage or riskier assets and then there’s just a desire by investors to concentrate and in effect double down on their perceived winners. So that’s also something that we’ve been acknowledging.

From a valuation standpoint, again, we’re closely watching what’s happening in the public market. We are starting to see some private market rounds perhaps take longer to get those rounds closed, especially if they’re larger rounds, and at some point, we may see a bit of a valuation pullback, especially for companies that may have either been overvalued in their most recent rounds. And so we’ll see that in secondary trading activity. We’ll see that in future rounds of financings, as well as exits.

We think that’s going to proliferate more for companies that are less robust and not able to demonstrate sustained growth rates and margins. We do think there is going to continue to be a very strong appetite for higher-caliber businesses that have strong fundamentals. Again, not to say that they’re going to be immune, but the companies that we would say should be most concerned are the ones that are less fundamentally strong and with weaker balance sheets and burn profiles.

And there’s significant capital and dry powder that’s continuing to target this ecosystem. And if we look at the numbers, a lot of these late-stage companies, they continue raising capital at higher valuations. So again, if we were to kind of look in the quarters ahead, there is a possibility that some of that slows down. We’ll continue monitoring it and continue reporting to you our findings.

As we’ve discussed before, the types of private companies that we invest in and the private markets in general, they involve far less short-term volatility, compared to publicly-traded companies, which are much more exposed to rapid price changes and behavioral forces. Again, not to say that private market companies are not affected, but from a volatility standpoint and the way these assets are priced, there is a big difference and so you should not expect to see the same degree of volatility in private markets.

From an exit perspective, IPO activity has slowed down this quarter relative to earlier this year. But we’re still sitting at very healthy levels on a historical basis. M&A continues to increase, and we’re sitting at record levels there as well.

Just to be clear, the data on this slide combines traditional M&A also with SPACs, so Special Purpose Acquisition Company deals. But look, for companies, again, as we’ve said, with less robust business models and fundamentals, we think those may be more vulnerable and may not have the ability to get liquid, or if they do, they’re going to happen at perhaps lower prices, if the current environment sustains over companies that are better situated with strong models, large addressable markets, healthy balance sheets, et cetera, we’re still seeing strong support from the markets for these types of companies.

With regards to SPAC activity, which we touched on earlier in this presentation, first of all, SPAC stands for Special Purpose Acquisition Company, which is also called a blank check company. And what a SPAC is, if you think about it, quite simply it’s a shell company with no operations, that goes public with the intention of acquiring or merging with a company, an operating company, and utilizing the proceeds of that SPAC’s initial public offering to finance that merger.

SPACS have come a long way to years structurally, but they are not perfect, like anything else. They can be more efficient and create a quicker runway, a shorter runway, if you will, for companies to establish a public currency. And look, we saw in 2020 how rampant the activity was. We saw over 200 deals representing close to $100 billion in proceeds that happened through SPACs. And then we went into 2021, this year, where the first two months of this year exceeded the activity for all of 2020, which was quite remarkable, and as we said, probably not sustainable.

SPAC activity has in fact slowed quite dramatically since earlier this year. And it’s going to be interesting to see what happens over the coming quarters, because many of these SPACs may need to return capital to their investors if they are unable to identify a merger partner, because there’s typically a two-year term upon a launch of a SPAC for them to go ahead and complete a merger. And there are hundreds of SPACs right now that are active, sitting on hundreds of billions of dollars. So it’s going to be really interesting to monitor what’s happening.

From our perspective net net, we have been happy for our portfolio companies to have more options to get liquidity. In many situations, we’ve been a beneficiary, we think, of this development. That being said, it doesn’t do much good for companies or investors if the underlying companies are not truly public market ready, whether it’s through a SPAC, whether it’s through an IPO, or whether it’s through a direct listing. And I touched on this earlier. And we’re actually starting to see over the last six months how ugly it can become if companies prematurely go public. And I think in our own experiences in recent months, we’re seeing a number of companies that may have been contemplating going public through SPACs, deciding to stay private for longer, and perhaps do another private round of financing so they can improve their fundamentals before considering the public markets. We think that’s a prudent decision. But we’ll continue to monitor that activity.

And lastly, before I kick it over to Kevin, as I alluded to earlier, what this data essentially shows is that investors who are able to access late-stage venture-backed companies while they are still private, can potentially generate significantly higher returns, compared to investors who wait to access them, or who are unable to access them earlier. And so they have to essentially wait to access them at the IPO, pricing or first trade.

And so to simplify this analysis, we went back over a decade, and we looked at all of the technology-oriented companies that went public during that period and the basis we used for the private market performance was just the last round of capital. So the last round of capital, what that valuation was across all of these companies — even though it’s quite possible, and we often buy in sooner than that or at lower prices than that, we just used that as a clean basis point. And you can see that the comparison is not even close.

So I’m going to turn it over to Kevin. I’ll just point out that we continue seeing significant deal flow through our extensive origination capabilities. We’re growing the team, which Kevin will touch on. We’re actively deploying capital, but we’re doing it in a very prudent and disciplined manner.

So with that, Kevin, I’m going to turn it over to you to provide a fund level update, and also discuss a number of these trends I just talked to, how they’re flowing in and impacting our portfolio.

KEVIN MOSS: Great. Thank you, Christian. Yeah, it’s been an incredible 2021, with many accomplishments. It almost feels like 2020 and ’21 have been one long year with COVID and the unusual environment we find ourselves in. But let’s start by highlighting some of our accomplishments at a high level, and then we can dig into some of the more details.

First of all, this month marks our one year anniversary of the transition to our new advisor, Liberty Street. So we’ve been very successful in this regard. It’s been a smooth transition, with no disruptions to the investment team, and our distribution has seen significant improvements, which has resulted in a material leap in AUM growth.

To that end, AUM has grown 134% as of the end of November to $714 million in capital. Capital deployment this year has jumped significantly, with investments deploying over $241 million into new companies; 24 new portfolio company names, as well as 15 add-on investments. This is up 588% year over year, so, as Christian pointed out earlier, it’s really a record year for us in terms of deployment; more deployment this year than over the last four years combined.

We’ve also had a record year of realized proceeds and were able to have a distribution back to shareholders this year of $51.2 million for 2021. That was a record distribution.

We’ll talk about performance in more detail, but we’ve had a record two years now in performance, with year-to-date performance of 23.93%, and we were up 18.72% from the prior year, with the Russell returning 12.31 % and 10.41% respectively.

Given our significant growth in AUM, we’ve also added two new members to the team, with another analyst being added to our investment team, as well as an individual who focuses exclusively on origination given our AUM ramp. And we’ll continue to build out this team as we receive further growth in the business and continue to achieve further success.

So, in slightly more detail, we have added 24 new companies in the portfolio in 2021 and deployed $161 million into those new companies, while adding to 15 existing names, deploying $79 million into those existing names. So, therefore, again, we have deployed close to $241 million in capital so far this year.

We have made significant sales in companies this year as well, generating proceeds that you saw in this last distribution, as well as future distributions. And these are companies that have either gone public and we’ve sold shares, or we are selling them opportunistically when they’re still private.

If you want to move on to the next slide, Christian. This one illustrates all the new portfolio companies. Typically in the past I have read through them, but there’s 24 new companies, so I’ll let you review the presentation at your convenience.

But some highlights that are companies that are pretty difficult to get or access and we’re pretty excited about are Relativity Space, Betterment, Farmers Business Network, and Impossible Foods. Some of these companies, you may have heard of. But as you can see, we continue to build a bench of companies across a variety of different sectors, which we will hopefully continue to drive returns in years to come. All of them have their own unique story and position within the portfolio.

In the next slide, this slide shows companies that we have continued to add to this year, given their performance and our continued belief in their ability to execute; Axiom Space, Course Hero, DarkTrace, which has since gone public and we’ve now exited, Exabeam, Trax, GrubMarket, a company we’re really excited about and participated in their round, Tempo, ThoughtSpot, we participated in their tender this year, NextRoll, Inrix, KeepTruckin, and we recently participated in Fundbox and Heap's rounds of financing. So you’re going to see us continue to participate in primary rounds as our companies are raising capital.

Go to the next slide, and we continue to mention this in every webinar, one of the major surprises of 2020, and it continues in 2021, is how many financings we saw in our portfolio. Companies are raising capital. And more importantly, the number of higher rounds are at records. The trend continues in 2021 and we’ve seen a total of 30 of our portfolio companies raise capital this year, with 26 of those rounds being at higher valuations, and only one having a flat round. The other three were undisclosed, so we can’t share them here, but I can tell you that we have no down rounds this year.

If you look at this slide, we see some of our companies that have had the new financings. The slide after this goes into detail; I won’t go through each of these companies. But some of the names of note would be SpaceX, with a capital raise of $74 billion in valuation, and then later in the year they did a tender at $100 billion in valuation, which is in line with the frequency of their capital raises they’ve done in the past.

As mentioned at our last webinar as well, some of the more impressive up rounds would be Dataminr and Exabeam, with rounds increasing over 3X previous round valuation. We just saw Heap do a round of 3X its prior valuation. We have also seen Checkr double its valuation in its latest round, and Algoli triple its valuation in its latest round. We’ve seen up rounds in Cybereason, Eruditus, Betterment and Fundbox. So this is a very busy year in financing.

If you just go to the next slide, the slide itself is extremely busy, just because there’s been so much activity. This has obviously helped our returns, given they were mostly up rounds, and we’re hoping to continue to see our companies raise capital at this rate at higher valuations. And again, I’m not going to spend, really any extra time on this slide, because it’s just so busy, and you can peruse this at your convenience.

We go to the next slide, again, very busy for us. This is our exit environment. And this slide gives you a snapshot of our exits year-to-date in 2021. We’ve had six traditional IPOs, including Digital Ocean in March, Darktrace in April, Marqeta in June, Blend Labs and Robinhood in July, and Udemy, just recently went public in October.

And in addition to these traditional IPOs, we’ve seen five of our portfolio companies enter the public market via SPAC. These companies include Hims back in January, ChargePoint in March, SoFi in June, 23andMe this past August, and Nextdoor just happened in November. Except for 23andMe, Nextdoor and Udemy, each of these companies are out of lockup and free to trade. And as per our normal course of business, we will look to sell off these companies opportunistically over a reasonable period of time once they come off lockup.

Quickly, on the following slide, we only saw two M&A exits so far this year in our companies, which would be Chartboost and Xant, which was formerly InsideSales. So the M&A exit scenario has still been fairly quiet for us.

And some companies to keep an eye on within our portfolio that have been targeted by SPACs or have filed their S-1s are Planet Labs, which actually just did the SPAC, but it’s still in lockup; SoundHound, Tempo, and Toro.

Here is a good look at our current portfolio. As previously mentioned, we have over 75 companies in the portfolio. And as you can see, the largest position in the portfolio is now once again SpaceX, after they did their $100 billion tender. That’s followed by Axiom Space, Relativity Space, then Tradeshift, and then GrubMarket, the top five positions. Most of these companies have moved up in the portfolio organically, as well as us adding to the position. Axiom Space and GrubMarket are good examples of where they did rounds of financing at higher valuations. And we also participated in those rounds as well.

Since last webinar, we’ve had full realization of companies, such as Social Finance, Digital Ocean, DarkTrace and Hims. The fund has been selling these companies that have recently come out of lockup. Like Blend Labs, which is currently in the portfolio and we’re opportunistically selling it; Marqeta and Robinhood, all of which have continued to perform well, relative to our costs, which can also be found in our September 30th filings, if you’re looking for the actual costs that we entered the position.

But as Christian mentioned, with the challenges of the recent rotation, out of growth companies has been pretty challenging for our public companies and those that are out of lockup. We do look to reduce that public exposure.

And really, this is how our portfolio is supposed to work. Again, 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 have had a nice buildup of companies, and we feel fortunate that we are getting some good exits here. Even with this rotation, we’re being able to reduce our public exposure pretty well.

If we go to the next slide, this slide here is a really good look at the broad exposure our fund has to the different sectors. Our largest allocation fits in the fintech space, with Marqeta, Blend Labs, Fundbox and Robinhood as some of our larger positions. This is followed by Aerospace, with SpaceX and Relativity Space and Axiom Space. Then that is followed by Big Data, with companies like Domino Data, Heap, Pavilion Data. And then finally we round out the top four sectors with Enterprise Software companies like Trax, KeepTruckin and Automation Anywhere. But as you can see here, many sectors are represented within our portfolio. Technology today really is reflected across a broad range of sectors, which make all of these companies innovative and disruptive.

Of course, I’d like to touch on our performance, the public market rally has seen some resistance, as Christian mentioned. And we kind of keep talking about this recycling of sectors. As mentioned, technology in growth companies have been facing some headwinds, and the rotation, frankly, has been pretty brutal the last few weeks.

The good news is that our public exposure continues to go down and we’ve been selling off our publicly traded companies. As of November 30th, the institutional shares are down 1.37% for the month, which is actually our first down month on the year. It’s up 29.15% in the past year and up 23.93% year-to-date, with the Russell 2000 down 4.1%, up 22.03% and 12.31% respectively year-to-date.

And it’s always at this point where we want to remind everyone that an important thing to remember is the volatility of our NAV compared to our benchmark in the public markets. We’ve shown much more stability in our NAV than in the public markets. And given the unprecedented amount of volatility and uncertainty, we’re pretty happy about that. And it shows, again, even with this rotation, that we’re holding up pretty well.

So we’re happy with these returns. I’m going to wrap that up right now and hand it back to you, Christian.

CHRISTIAN MUNAFO: That was great, Kevin. Lot of great data there. Thanks for that.

So on this slide, this basically shows you that of the 129 positions that the fund has invested in since inception, roughly 50 of them are, call it, 40 percent have been realized, or in other words, exited from the portfolio.

As Kevin noted, it’s been a very active year. There were 24 new positions added this year. And as you can see from this slide, most of the current active positions were added over the last few years, which we believe implies that the current portfolio is actually fairly young, since we typically anticipate a two to four year holding period once we add a new position.

So as a result, we think there is significant growth potential in the current marks as these companies continue scaling at high growth rates. We also have a number of investments that are more than three years old, some of which we believe are well-positioned for liquidity over the next few quarters.

We entered 2021 with a strong pipeline and we’ve been consistently deploying, as you’ve heard today, already having exceeded all prior years combined. Building on a comment from the last slide, if you kind of look at the numbers, more than 80% of total cash deployed since inception has actually occurred over the past few years. So again, this underscores the view we have that the underlying portfolio, the current portfolio, we believe has attractive growth potential from current levels.

And despite strong deployment to date, we would note that there have been a number of opportunities that got away from us. They either were priced up, well above where we were willing to pay. There were some transfer restrictions that were executed which prohibited us from being able to purchase them. We continue using different techniques to help navigate these types of challenges in pricing. But the reality is this comes with the business and it tends to be more prevalent when demand is high. Our intent and focus is to remain disciplined, right, it's a key pillar is just to remain disciplined.

So pipeline generation has continued to be strong. We have a number of deals in the process of closing. Hoping to add more logos by the end of the year. And as Kevin mentioned, our team continues to grow. And so with that growth will also come even more pipeline generation. And we continue to seek opportunities, as Kevin was saying also, not just to add new names, but also to increase existing positions that are high-conviction positions, through both secondary transactions and new primary financings.

Given everything that you’ve heard today about the macroenvironment and our view of it, we think the takeaway is that we have been very active, but also highly selective, and we’ll continue doing that. We’re encouraged by the capital inflows that Kevin touched on, which were very brief before for all of your support because these inflows will allow us to write larger check sizes to be even more active, and to hopefully add new companies in different sectors to the portfolio.

And with that, in terms of the fund outlook, we will continue actively monitoring the existing book, whether it be performance, whether it be tracking fundamentals, balance sheet health, burn rates, et cetera. Of course, we are going to maintain our discipline and continue to seek price dislocations. Again, we think there is a chance that we’re going to see more price dislocations as a result of what happening in the macro. And I think that we’re very well-positioned to take advantage of that for the benefit of the fund.

And it’s paramount for us, when we’re doing our work we need to get access to the information we need to get the proper visibility. And again, in environments like this, you want to see really how healthy balance sheets are, you want to see what the burn rates of these companies are. And so we really spend a lot of time understanding how healthy the balance sheet and the capitalization, to understand if there is a protracted downside, but what it might look like.

We saw how important balance sheet strength was last year, and we’re keenly aware, as noted multiple times, that again, the macro presents challenges. Again, we think that we’re very well-positioned to take advantage of any pullbacks and remind you that it’s periods when there is increased volatility where there is the potential for outperformance, because investors can often gain entry at what may be lower risk-adjusted entry points, which are ultimately going to benefit. And as a result of that, we continue to think that there’s going to be a number of portfolio companies that we have that are well-positioned for exits in the coming quarters.

So with that, that’s the fund outlook I wanted to share. Kevin, is there anything you’d like to add?

KEVIN MOSS: Well, as usual, Christian, I just wanted to say thank you. You know, we’ve had shareholders in the fund that are still in the fund for the past eight years, and we have a lot of new shareholders in the fund. And so thank you very much for your support. It's been an incredible last two years, marked by lots of milestones, and we couldn’t have done it without our shareholders. So, thank you.

I think at this point we’ll be going into Q and A.

CHRISTIAN MUNAFO: Great. Thanks, Kevin. I would echo all of that. This concludes the webinar portion of the presentation, and we will now move over to Q and A. And it looks like we have a number of questions already submitted. So why don’t we get started? And just a quick note, as we’re addressing questions, please review our disclosure slides, which we’ll pull up in parallel.

So we do have a lot of questions here. So I’m going to do my best to try to combine some of them. So, first one — I’ll try to combine these two. Essentially, it’s saying how should we be thinking about the Private Shares Fund in lieu of the public market selloff and volatility? And I can combine with that, is there a point where the fund size becomes too large?

Okay. So I think we touched on most of this, but let’s do it again. As noted before, there typically tends to be a lag effect between public and private markets. And while we continue seeing the highest caliber names get premium valuations, both in terms of secondaries and new rounds, including ones we have in the fund, we are beginning to see some indications where new rounds are either taking longer to close — in a couple instances we’ve seen investors pulling out of deals — secondary pricing is starting to pull back in certain instances. And we can expect that new rounds are going to be priced with greater discipline and scrutiny, which is a good thing.

Look, we can never guarantee anything, but our fund has performed quite well during previous cycles. We have no reason to believe things should be different this time around. Clearly, public positions, which are freely tradable from our perspective, get hit the hardest, and ones that we cannot trade out of, we can’t trade out of. We’re always looking to explore how to optimize for that. But when we are freely tradable, as we’ve been doing, we can get out of those positions to lower the exposure. And so we have a very small amount of freely tradable positions currently in the portfolio, which we think is a positive, given the environment.

And as the fund has had, and we expect it will continue to have, low correlation to the major indices and lower levels of volatility. In terms of thinking about the fund I guess we would say this can be a positive factor for a client’s portfolio construction against the backdrop of a gyrating public market. And strictly in terms of fund size, while we really can’t disclose details, what we can say is that we left a lot of potential capital allocation on the table due to the fund actually being too small. So, in other words, many of the deals that we executed that we had touched on could have been much larger commitment amounts if our fund was larger. But we’re always carefully managing our construction to never allocate too much to any one position.

So, I guess I would say, as the fund gets larger, we think we’ll be even better positioned to take advantage of the unique access we have, which will further increase our deployment. And frankly, it can also open the fund up to larger positions and opportunities that were currently too small to secure.

And if you look at the trillion dollars committed to late-stage VC over the past decade and the many billions we see a year in annual deal flow, our view is that we see this fund getting to a few billion before we really have to consider size limitations. So we’re far away from that. Of course, we’ll always monitor and things can change. But that’s kind of how we view that.

Next question. Kevin, I’ll give this to you. Let me combine. Okay. So we’ve had good experience investing in private market strategies, particularly during pullbacks. Should we anticipate a similar outcome here? So, Kevin, why don't you take that?

KEVIN MOSS: Sure. Obviously, we can’t predict the future of our returns, but we do have a lot of really good data points from the past, and how we’ve acted in periods of volatility. As a matter of fact, we’ve put out an analysis that shows in the last 10 periods of the greatest amount of volatility in both the S&P and the Russell, how the fund has reacted during that period of time. And in nine out of 10 instances, we’ve outperformed. Not only have we outperformed, but in some cases we were up during those periods of time.

So there is a lot of data points on that. And as you kind of just mentioned before, Christian, one of the nice benefits about this fund is that it’s not very volatile, and in periods of financial distress we tend to do pretty well. So, hopefully that covers that question.

CHRISTIAN MUNAFO: Thanks, Kevin. And again, there’s a lot of great questions. So those of you that we can’t touch on today, we’ll get back to you offline. Next one. Are there certain types of companies you’ll avoid during the cycles? Another one that’s kind of related in terms of how we’re managing inflated valuation. So, I’ll take this, Kevin.

So, first, we would always underscore that we have a pretty rigorous institutional grade process that we implement with discipline regardless of what type of a cycle we’re facing. However, we will pay even closer attention to things like a company’s balance sheet and the burn rates and the strength of the investor syndicate, the alignment of that syndicate, et cetera, during more challenging times.

So, while we always like to see hyper growth rates north of 50% top line, if the margins are too low or the burn rates conversely are too high, we’ll need an even better understanding of how management plans to navigate the business before we invest. And in some cases, a management team can pull back on certain expenditure levers to help manage the burn rates, and that can create a reduction of growth.

And so this is why we often look for seasoned management teams and investor syndicates, and so often have the ability to navigate all types of cycles. And it’s also important to point out that the types of late-stage venture-backed companies that we focus have very little if any debt on their balance sheets.

So, unlike other private market strategies such as buyouts or real estate or other debt-dependent segments, leverage is not a risk with this fund. So, when people think about interest rates and things like that, there’s not a direct impact in terms of the ability for these companies to continue financing their operations and that’s another differentiator.

In terms of how we manage inflated valuations, it gets back to our process. So let’s just give a quick example. So, let’s say we’re looking at a cybersecurity company and the entry point valuation is inline with what have arguably been heightened public marks of, call it 40X revenue, although those have largely pulled back for anyone paying attention.

When we factor all of the quantitative and qualitative findings into our own underwriting, we can take a view that three years from now, when we expect the company to potentially get liquid, the market multiples are not going to be 40X. They‘ll likely have contracted to let’s say 20-25X. And that’s exactly how we’ll model out the underwriting case. So we’ve already been actively factoring multiple contraction and less valuation contraction into our deals.

So long as growth rates are strong, you can still often generate attractive returns, even with more conservative underwriting forecasting. But if it turns out that you cannot generate a good yield because the entry point is just too rich, then we don’t do the deal. It’s that simple.

So it gets back to our process, our experience, what we think are realistic assumptions, and ultimately, the discipline in terms of how we manage what may be inflated valuation. So we hope that that makes sense.

Kevin, I’m going to turn it back to you. So there’s a question in terms of — so what does the macroenvironment mean in terms of liquidity, I guess, for exit activity for the fund in 2022? So maybe touch on that one and maybe any other ones you want to hit on before we wrap up.

KEVIN MOSS: Yeah, sure. So I think that given the increased volatility in the market and what we’re seeing right now, you could expect the exit environment to close up. I wouldn’t say it could close up completely, but you would expect it at least to slow down, which would of course mean that we wouldn’t have as many exits in public companies in the portfolio.

That being said, if you back out all the deals and processes we have, as well as our requirement to hold cash back for redemption purposes, we still stand at about three-quarters of cash on hand.

And so if you look back in periods of time where the exit environment was slow, we still were able to provide a lot of liquidity to our shareholders and never really had any issues during our redemption periods. And that can be exemplified even in 2020 when COVID hit. So that’s how I would probably answer that question, Christian.

I’m looking at one more question here before we wrap up. It’s from an anonymous attendee about pricing, and they’re having issues with their pricing.

We do disseminate our pricing activity daily to all the different platforms, like Yahoo Finance and Bloomberg, et cetera. They’re referring specifically to Morningstar here, and I know that Morningstar has had issues in the past covering interval funds, which the Private Shares Fund is. We are working with them on this and have spoken to them about it. But if you can let yourself be known to the salesperson who covers you, we can call you directly and explain to you what we’re doing to work on this issue.

CHRISTIAN MUNAFO: Great. Thanks, Kevin. And again, apologies we can’t hit all the questions. We think a lot of them, based on what I’m reading, have been addressed throughout the presentation. But we’ll be certain to follow up directly with those of you whose questions were not answered. Please feel free to contact your wholesaler, obviously, if you also wanted to address additional questions.

In wrapping up, we can’t underscore, again, how grateful we are for your continued support. We wish everyone a very happy holidays and a very healthy, most important, and prosperous new year. And Kevin, I’ll turn it over to you for the final word.

KEVIN MOSS: Thanks, Christian. I would echo that. I want to thank everybody for their support. I want everybody to please stay safe during this period of time. And may you all have a happy and health new year.

Goodbye, everybody. Thanks a lot.

Private Shares Fund

Top 10 Holdings as of 06/02/2022*
*Represents 27.7% of Fund holdings as of June 02, 2022. 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.

Important Disclosure

As of December 9, 2020, Liberty Street Advisors, Inc. became the adviser to the Fund. The Fund’s portfolio managers did not change. Effective April 30, 2021, the Fund changed its name from the “SharesPost 100 Fund” to “The Private Shares Fund.” Effective July 7, 2021, the Fund made changes to its investment strategy. In addition to directly investing in private companies, the Fund may also invest in private investments in public equity (“PIPEs”) where the issuer is a special purpose acquisition company (“SPAC”), and profit sharing agreements. The Fund’s investment thesis has not changed.

Performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Current performance may be lower or higher than the performance data quoted. Some of the Fund’s fees were waived or expenses reimbursed; otherwise, returns would have been lower. For performance as of the most recent month-end, please call 1-855-551-5510. Please see link for full standardized performance.

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, or call 1-855-551-5510. Read the prospectus carefully before investing.

The investment minimums are $2,500 for the Class A Share and Class L Share, and $1,000,000 for the Institutional Share

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 which allows for up to 5% of the Fund’s outstanding shares at NAV to be redeemed each quarter. 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’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. Portfolio holdings of private companies that become publicly traded likely will be subject to more volatile market fluctuations than when private, and the Fund may not be able to sell shares at favorable prices. Such companies frequently impose lock-ups that would prohibit the Fund from selling shares for a period of time after an initial public offering (IPO). Market prices of public securities held by the Fund may decline substantially before the Investment Adviser is able to sell the securities. The Fund may invest in private securities utilizing special purpose vehicles (“SPV”s), private investments in public equity (“PIPE”) transactions where the issuer is a special purpose acquisition company (“SPAC”), and profit sharing agreements. The Fund will bear its pro rata portion of expenses on investments in SPVs or similar investment structures and will have no direct claim against underlying portfolio companies. PIPE transactions involve price risk, market risk, expense risk, and the Fund may not be able to sell the securities due to lock-ups or restrictions. Profit sharing agreements may expose the Fund to certain risks, including that the agreements could reduce the gain the Fund otherwise would have achieved on its investment, may be difficult to value and may result in contractual disputes. Certain conflicts of interest involving the Fund and its affiliates could impact the Fund’s investment returns and limit the flexibility of its investment policies. This is not a complete enumeration of the Fund’s risks. Please read the Fund prospectus for other risk factors related to the Fund.

The Fund may not be suitable for all investors. Investors are encouraged to consult with appropriate financial professionals before considering an investment in 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.

Duration: a measure of the sensitivity of the price of a bond or other debt instrument to change in interest rates

Institutional Grade: a rating that signifies a municipal or corporate bond presents a relatively low risk of default

VIX: a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX)

Alpha: the excess return on an investment after adjusting for market-related volatility and random fluctuations

M&A: mergers and acquisitions

Russell 2000: 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. It is a market-cap weighted index.

The S&P 500: an index consisting of 500 large cap common stocks which together represent approximately 80% of the total U.S. stock market. It is a float-adjusted market-weighted index (stock price times float-adjusted shares outstanding), with each stock affecting the index in proportion to its market value

It is not possible to invest directly in an index.

The Private Shares Fund is distributed by FORESIDE FUND SERVICES, LLC