December 16, 2020 | Webinar

SharesPost 100 Fund Q4 Update and Outlook

Christian Munafo 00:04

Welcome, everyone. And thanks for joining us for today's webinar. I'm Christian Munafo, Chief Investment Officer of Liberty Street Advisors, which is the new investment advisor to the SharesPost 100 Fund. And I'm joined by Kevin Moss, Managing Director at Liberty Street and President of the SharesPost 100 Fund.

Kevin Moss 00:25

Welcome, everybody. Thanks for joining us today.

Christian 00:30

So, similar to the last few webinars, Kevin and I are with you today from separate locations given ongoing COVID-related health precautions. And so we will be using screen share for this presentation, which means you won't be able to see us. We are also pleased to be joined remotely by Tim Reick who's the CEO of Liberty Street Advisors and its affiliated broker-dealer, HRC Fund Associates. And we will be introducing him as well again shortly to say a few words about the Liberty Street and HRC platforms. As we've noted in the past, our objective is to get in front of you every quarter to provide what we believe are relevant updates. Since the last time we spoke in mid-September, quite a lot has happened. Just to give you some examples, first, as many of you know, we have now completed the investment advisor transition that was previously mentioned, which Kevin and Tim will touch on shortly. And we are certainly grateful for all of your support in connection with that process. Second, Kevin will touch on this in greater detail, but fund inflows have continued to be strong. We have continued investing across the existing portfolio as well as into new names. And the portfolio has continued performing quite well.

Christian 01:50

We've also had an increase in macro volatility that picked up post-Labor Day, which we touched on during our Q3 webinar in mid-September, although the major indices are once again sitting at record levels as most of you know. We are also pleased with and encouraged by progress that has been made with COVID-19 vaccine developments and therapeutics, which I'm sure many of you saw the first being made available and rolled out earlier this week. And finally, how can we forget what has become quite an eventful US presidential election. So, we have no shortage of subject matter to cover today. But as always, we welcome your suggestions on future topics. So, please share your thoughts with us. And if you have specific questions that you'd prefer to address offline, of course, that's also fine. I'm going to kick it over to Kevin now to touch on the agenda for today.

Kevin 02:50

Great. Thanks, Christian. Yeah. So, to set the agenda for today, we'll start off by reviewing important corporate developments followed by a quick overview of the fund strategy and key benefits, especially for those of you who're hearing about us for the first time. Then Christian will discuss the market perspective as you've done in the past then move to the Quarry Fund update and opportunities. Finally, we'll have Christian finish the webinar with a look-forward commentary. And as usual, we'll leave some time for some questions at the end. Please remember though if we don't get to your questions today, we'll make sure we follow up directly with each of you after the webinar.

Christian 03:35

Great. Thanks, Kevin. And so a couple of technical details before we begin for those of you also that may be new to this streaming platform, if you're having sound or video issues, please try to refresh your browser. That often seems to solve the issues. There are thumbnails at the bottoms of your screen, which can minimize or open different webcast resources including this presentation. And if you'd like to ask a question as Kevin was saying at any point, you can do so by using the Q and A box on your console. And we are going to have a Q and A session at the end. Again, we'll try our best to get through all the questions. And if not, we will certainly follow up with those of you directly. So, Kevin, why don't you kick us off with the corporate advisor update?

Kevin 04:27

Sounds good. Thanks again, Christian. As a corporate update, we wanted to let everyone know that on November 9th, SharesPost, Inc. and Forge Global completed their merger agreement. That has now created the largest private securities platform in the world. And as a reminder, the SharesPost 100 Fund was not part of that transaction. However, we were part of the transaction which closed on December 9th, whereby the SharesPost 100 Fund completed its transition to Liberty Street Advisors as the investment advisor to the fund. And to emphasize what we've mentioned on the last webinar, it's important to note that the only change to the fund is the move to the new advisor. The team, the valuation procedures, the investment process, the governance of the fund, the service providers-- all these remain the same. And so we couldn't be more excited about this move to Liberty Street. And I'll now pass it over to Tim Reick to talk more about Liberty and HRC Fund Associates. So, over to you, Tim.

Tim Reick 05:34

Thanks, Kevin. And good afternoon, everyone. I just want to say a few quick words before moving forward with the call. As Kevin just mentioned, with the approval of the fund shareholders and the board of trustees, as of December 9th, Liberty Street Advisors became the named advisor to the fund. Just a real quick background on Liberty Street. We're an SEC-registered investment advisor that I and three partners co-founded back in 2007. My partners and I average a little over 30 years of investment management experience. We currently have seven open-end mutual funds, which have total assets in excess of 1.2 billion. And now, with the addition of the SP or SharesPost 100 Fund, which as we all know is a closed-end interval fund, it brings the total [inaudible] to just under 1.5 billion. So, yeah, given the history of our firm and kind of the depth of our relationships within this industry, we believe that the fund will certainly benefit as we continue to expand platform availability as well as kind of the overall visibility of the compelling investment opportunity that we believe the fund represents. So, that's really [inaudible] what's changed-- and more importantly what has not changed, which is essentially everything else. We were very thrilled that Liberty not only to add the fund to our [family?] but more importantly, it was critical that we were able to bring the entire investment team over as well. So, the fund is going to continue to be managed by the exact same investment team under the existing investment strategy. The funds' governance, board of trustees, all remain the same. And I think as Kevin mentioned, ironically, all the service providers at the fund we used were the same service providers that Liberty Street uses. So, it was really operationally almost a seamless transition as none of the fund service providers changed. And then lastly, I think importantly, the fee structure of the fund has not changed either.

Tim 07:27

So, the only thing that I would mention that's a little bit different is that going forward, the fund is going to be marketed and serviced by Liberty Street advisor-- Liberty Street's affiliate broker-dealer, HRC Fund Associates. Some of you on the call today may have already been contacted by an HRC wholesaler who covers your territory or your account. And they will act as an additional point of contact and hopefully a resource for you in regards to the fund. For the past 14 years, HRC has successfully marketed and services funds, [inaudible] manages accounts, limited partnerships within major wire houses, RIA, and the independent broker-dealer channel. They've got a staff [inaudible] staff of eight geographically located externals, which is complemented by an internal staff and components of six. And we're confident that your inquiries and servicing needs in relation to the fund will be addressed in a timely and professional manner by the folks at HRC. So, we, at Liberty, believe the SharesPost 100 Fund represents one of the most compelling and disruptive investment opportunities in the marketplace. We look forward to working with all of you, most importantly, in providing the fund and its investment team the benefit of our collective experience and resources, which is actually to the benefit of all current and future shareholders. So, with that welcome aboard, everyone, I'll turn it back over to Christian and Kevin to go on with the call.

Christian 08:55

Great, thanks. Thanks, Tim. And thanks, Kevin. We're grateful also for the support that SharesPost provided to get the fund to where it currently is. And as Kevin was saying, we're very appreciative for all of your efforts in helping us get this transition completed. And we're excited to be partnered with Liberty Street and HRC. For those of you with us today who may be less familiar with the SharesPost 100 Fund, we do want to provide a brief overview, as Kevin stated at the outset, of the underlying strategy and some unique characteristics of the fund. So, let's go ahead and start there. And then I can proceed with some market perspectives.

Christian 09:39

So, quite simply, this fund is focused on a very significant trend that has been growing over the past couple of decades-- that being the number of publicly-traded companies listed on US exchanges have contracted quite significantly over this time period as private venture-backed and growth-oriented companies continue staying private for longer. And we can observe some of these public company figures on this slide where there has clearly been a greater than 50% reduction from 1996 to 2019. This is largely attributed to three main drivers, which we outline on this slide. Just to cover briefly, first, as many of you know, regulatory changes have often made it more challenging and administratively burdensome for companies to go public. So, to some extent, there is a built-in desire for private companies to avoid public markets, at least for some period of time.

Christian 10:46

Second, growth-oriented companies are often still developing their business models, which means it might be at times necessary to make certain adjustments, which if implemented as a publicly-traded company may result in high volatility, which is certainly not ideal. And third, and perhaps most importantly, there has been a significant amount of capital that has been made available to the private markets over the last decade alone with roughly $6 trillion committed across the entire private asset class during that 10-year period of which roughly 1 trillion has gone into venture and growth-stage assets. And this capital simply provides more runway for these companies to continue staying private.

Christian 11:44

As we can see on this slide, this is essentially showing some data behind the private company trends. So, back in 1999, we can see that the typical venture-backed company took roughly four years from its inception to go public, whereas that time period has essentially tripled when we look to 2019 up to 12 years. Perhaps the most important takeaway here though is that there is also a significant amount of value appreciation that's taking place during this protracted lifecycle, which is all happening in the private market. So, we could think of household names like Microsoft and Oracle and Apple, Google, Amazon, etc. that went public many years ago at valuations that are often far less than valuations we see companies coming out at today into the public markets. And for those types of companies, most of the value appreciation has occurred while they have been public. However, because of the trend that we're talking about here, in today's environment, by the time these private companies go public at these higher valuations, the underlying businesses are fundamentally larger. And a lot of that growth has been missed by the average investor, who typically doesn't have the appropriate accreditation requirements to invest in private market-style funds. And since there is no universal exchange that exists today to easily buy private companies securities like we have with our public exchanges, it makes it even more challenging, right, to access them.

Christian 13:38

And then furthermore, you have a vast majority of these private venture-backed and growth-oriented companies never actually become publicly available but rather get acquired while they're still private. It's also important to note that shareholders in these private companies that are staying private for longer, whether it be the founders of the companies, the early investors in the companies, employees, investors who come in later-- these groups all have different investment timelines. And so while the value of the companies may be appreciating, which is a positive, the extended lifecycle and holding period can and often does create friction with inside of the capital structure, which creates a motivation in some situations for certain holders for liquidity. And once again, because there is no universal exchange and because information for these private companies is often not available to the public, there can be significant information asymmetry and inefficiency, which may allow sophisticated investors to secure attractive entry points into these late-stage growth-oriented assets. And so not surprisingly, we've seen a surge in the number of private companies. And just as an example, on this slide, what we've shown is how many of these late-stage growth-oriented companies are now valued at market cap equivalents that are in excess of $1 billion, which is a milestone in term that is now called unicorn for those of you that are not familiar. So, you have a number of these late-stage private companies has just continued to surge.

Christian 15:33

So, with all of that said, in short, the SharesPost 100 Fund is an SEC-registered '40 Act Fund using the interval structure that allows us to democratize access to this asset class and market opportunity involving late-stage high-growth innovation companies for all investors, which is quite disruptive as private market strategies like this have historically only been available to institutional investors like pensions, endowments, family offices, and high net worth investors. 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% of the fund's NAV to be redeemed on a quarterly basis, which can be a helpful liquidity management tool for investors. And with the highly regulated '40 Act structure that we've utilized here, investors can simply invest in the fund with a ticker that is available on most brokerage platforms like TD, Schwab, Fidelity, Pershing, etc. The fund has now been around for nearly seven years. We have a highly experienced team that has been investing in this asset class for several decades, and we follow a rigorous institutional-grade investment process.

Christian 17:08

We currently have a well-diversified portfolio, which Kevin will take us through today, of 60 companies representing numerous innovation-oriented sectors that we have built often by taking advantage of the dislocations and inefficiencies that I noted earlier to invest in these companies at what we believe to be attractive prices and often discounts to fair market value or intrinsic value. And we also are often able to get into these companies later in their development, where we believe an exit may occur within two to four years on average from our entry point. And during that period, after we make the investment through the time that the company exits, whether that be through an M&A event or some type of public listing, we expect to see capital appreciation as those companies continue to grow. And when these companies exit, we invest those proceeds back into new opportunities. And, of course, we receive inflows from our investors daily. And we're continuously trying not only to increase positions in companies that we already own and think highly of - so building our positions - but also further diversifying the fund into new companies. And since inception, we're pleased to report that the fund has achieved low to negative correlation to the public equity markets while offering what we believe are attractive risk-adjusted returns that could resemble private equity.

Christian 18:43

So, hopefully, that was helpful for those of you who are less familiar with the fund and with our strategy. And for those of you who are familiar, thanks for your patience for letting us go through that. So, let's move on to our current market perspectives. This is a list of topics that I'll try to navigate through as quickly as possible before I turn things over to Kevin. As I was saying at the outset, we're going to try to address some of these major developments - including market volatility, COVID updates, presidential election - and then try to piece it all together in terms of how this may impact the investment activity, the valuations, and the exit environment for the type of late-stage companies that we invest into.

Christian 19:34

So, first, let's just start quickly with volatility. So, when we last spoke to many of you in mid-September, we found ourselves in what seemed to be a post-Labor Day selloff, which had impacted all the major indices. And this was followed by a rapid recovery into mid-October. And then we saw another selloff take place in advance of the US presidential election. Since then, the markets have essentially continued to rally, albeit not without continued volatility. And for the most part, the indices are now sitting at record highs. Mind you, we still don't have complete visibility around additional stimulus. COVID infection rates, hospitalizations, and daily death rates unfortunately are surging on a global basis as well. However, we are pleased to have the positive news that's been coming out regarding the COVID-19 vaccine-related developments. And while it sounds like universal availability of these vaccines will likely take us well into 2021, the progress that's been made and the additional therapeutics that are available show promising stability that is much needed.

Christian 20:52

We've also seen fairly strong earnings reports throughout the quarter, particularly around the tech-oriented industries, which again are ones that are most relevant to our portfolio. And there's been additional cushion as a result of those earnings reports in the market. It's also nice to see other areas rebound like transportation, lodging, entertainment, retail, etc., which were clearly dealt a pretty tough hand this year, to say the least. And as we've previously discussed, the more innovative and technology-enabled sectors that we look to invest to privately have continued to do extremely well in the public markets. And despite the ongoing pandemic, there continue to be fairly universal views that are optimistic, not only for the fourth-quarter earnings but also for a strong recovery in 2021.

Christian 21:46

We're not going to spend much time on this slide. We certainly don't fancy ourselves to be political pundits, but there is fairly good data out there supporting that when there is a split government - meaning that in this case, Democrats will control the White House; Republicans at least as of now control the Senate - this has historically led to a fairly strong stock performance. And we can see that from this data going back to 1950. This can clearly change depending on the upcoming runoff in Georgia. So, more to come here.

Christian 22:28

So, what does this all mean for late-stage venture-backed companies. First, it goes without saying, as we reported in the past, that the pandemic has had and will continue to have an impact on the private market ecosystem as well. However, we can say with confidence that the late-stage venture capital market has been resilient throughout this year. And we've seen how COVID-19 has essentially propelled technology adoption ranging from areas like telehealth to distance learning to e-commerce, cybersecurity, and everything in between. So, in terms of overall investment activity, 2020 is on pace to actually set a record for late-stage venture capital investment volume. And we try to show that here on this chart. Deal Value for the first three quarters of 2020 was actually just below Deal Value for all of 2019-- again, despite what was a very challenging year and essentially a shutdown of the markets back in March and April.

Christian 23:42

Now, while the magnitude of investments in late-stage deals has clearly grown dramatically over the last few years, this segment of the venture market, so being that late stage, we've seen growing quite consistently over the last decade. And there's a few major drivers of that including the dynamic we talked about earlier, where these private companies are staying private for longer. And because of that, there's a need for additional capital raises. There's also been, what we've observed is, a divergence trend, where investors that invest into the venture capital space, they seem to have been allocating more of their capital away from early-stage companies into later-stage companies primarily because they view them essentially as less risky. So, they're more developed businesses that have achieved more scale. And so there is inherently from that perspective less risk. And then also, another example is there is a desire, as we're seeing for investors, to concentrate on what they believed to be the winners. And so in other words, investors are looking to double down and triple down on what they believe to be their best companies perhaps at the expense of investing in earlier stage companies or ones that they may not think have that type of a successful outcome.

Christian 25:05

And in terms of the late-stage valuations for venture-backed companies, we continue to believe that overall, there should not be a material impact from here, particularly given the signs of a recovery that we've touched on and how resilient these companies have been. If anything, we think the vulnerable companies have already been hit fairly hard. And there may actually be additional room to run for innovation-oriented companies, especially if they're targeting large addressable markets, many of which, again, have undergone what we've seen as significant acceleration of their adoption during this year. And Kevin's going to touch on some of these examples as it relates to our portfolio, but a lot of this can also be evidenced in terms of new rounds of financings that private companies already completed, where many are achieving above their prior valuations.

Christian 26:06

And finally, as we've discussed before, private companies tend to involve far less short-term volatility compared to publicly-traded companies, which as we know are subject to rapid price changes from market forces that don't entirely reflect at times the underlying fundamentals of a given company. That's not again to imply that private companies are immune to those same types of risks. But quite frankly, they're just not exposed to idiosyncratic market volatility. And again, Kevin's going to touch on this as we get to his sections in a few moments. Importantly, from an exit perspective - and we've noted this in the prior webinars - you can see here on this slide that there had been a dampening in the exit environment for this asset class over the quarters leading up to the pandemic. But clearly, exit activity, and in particular IPOs [and?] the public-oriented exits, have very much picked up since what became a massive slowdown particularly in the March, April period of this year. And if we look back historically, we have not seen levels like this since 2014, which is encouraging.

Christian 27:31

Now, again, for private companies that have less robust business models perhaps going after smaller market opportunities and that may have a capital need, this macro environment can have a negative implication, making it more challenging for these companies either to raise money or to exit. But for companies that are better situated with strong operating models, large addressable markets, and [inaudible], we're continuing to see strong support from the market-- again, especially the IPO market and with special purpose acquisition companies, or as many of you know them to be SPACs, which we'll also touch on shortly. And there will be instances where the macro can result in a delay in a decision to stay private for longer until an opportune time arises for liquidity. And we may see this in our portfolio for certain holdings as well. But overall, we feel quite optimistic about the exit environment. There's been no shortage of significant public offerings, which again, are including IPOs, SPACs, and direct listings this year. And Kevin will touch on some of the exposure that we're pleased to have had to that activity as well.

Christian 28:50

Just a real quick statement with regards to SPACs. And again, SPACs are also referred to as blank check companies for those of you less familiar, which is essentially-- the way to think about it is a shell company that has no operations but is able to go public with the intention of acquiring or merging with a company that does have operations. And they use the proceeds raised by that SPACs public offering. We have seen, as the data on this slide shows, a surge in SPAC activity year to date with roughly 70 billion in proceeds spanning over 200 events. Now, SPACs have come a long way from how they've historically been structured. And what we're seeing in many of these SPACs is that they're attracting larger public investors. There's utilization of sophisticated investments alongside of the SPACs, which are often referred to as PIPEs and sidecar investments. Like anything else, SPACs are not perfect from our perspective, but they can be a more efficient way for companies to establish a currency in the public market. And net/net, we're simply happy to have more options for our underlying portfolio companies to get liquidity. And based on our portfolio level conversations, most of the companies that we speak with who are considering near-term public style offering, they're exploring traditional IPOs, SPACs, and maybe to a lesser degree, direct listings all in parallel. So, this is a trend that we don't see ending, at least not in the near term.

Christian 30:37

And finally, before I kick things over to Kevin, many of you may have seen this analysis that we published through a blog post back in June. We did recently update the data through November. And essentially, what this 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 compared to investing in these companies at the IPO or first rate. This is something I touched on at the outset. And here, we're simply putting some numbers behind it. And to simplify the analysis, we just used the last round valuation while these companies were still private as the basis, even though certain investors, including the SharesPost 100 Fund, and many instances are able to invest earlier and at lower valuations at times.

Christian 31:36

And then finally, I'll just point out that the environment that we're in has provided attractive opportunities for investments into these late-stage companies. We've been extremely active in terms of origination and diligence, but we're also being extremely disciplined in managing the fund's cash. And in parallel, we've seen this year a flight-to-quality, as we touched on earlier, where investors are doubling down, if you will, into their best ideas, which could create more what we would call frothy pricing situations. And so again, we're being disciplined while also trying to get the fund into attractive assets at attractive prices. So, to summarize, we're pleased but not surprised by how resilient the late-stage venture ecosystem has been. There continues to be significant capital invested across the asset class. And the exit activity has been very encouraging. So, with that, I'm going to turn it over to Kevin for a fund level update. And we'll also discuss how some of these market-related trends that I covered are evident in our underlying portfolio. So, Kevin, I'm going to turn it over to you.

Kevin 32:55

Thank you again, Christian. So, let's take a high-level look on what we did do this year. And I'm echoing some of Christian's comments, but as you recall, we were all sitting around in March wondering what the year would bring given the pandemic. I don't think we could have guessed the year could have turned out like it did. But I do think it's a testament to late-stage ventures and the companies we're putting into the portfolio that we've accomplished all that we have so far this year. So, looking at this slide, we've added 11 companies to the portfolio this year, which is a nice uptick since last quarter. And by the way, we do continue to have deals in process. So, you might see some additional companies added to the fund before the end of the year. But as a result of that, we deploy $27.9 million of capital. We've had two companies fully exit, which I'll touch on in a minute. And we have taken about $12.7 million in exit proceeds. Finally, if you remember the biggest surprise - and Christian talked about this a little bit - this year, it's the number of financings that the venture space has seen. And the fact that companies were able to continue to not only raise capital in a period of unprecedented volatility and uncertainty but raised money at higher valuations was extremely encouraging. And so in our own portfolio, we saw 21 companies raise capital this year. And again, I'll touch on the details of that in a minute.

Kevin 34:29

So, let me briefly touch on the new companies in the portfolio. We've recently added Click Therapeutics, Exabeam, GrubMarket, a company called PatientPop, and WiTricity. Q3, we didn't show many new positions because we were busy working two transactions, which we are now see coming into the portfolio. And as you may recall, buying private securities is much different than buying a public company. It's more of a T plus 30-, 45-day settlement approach as opposed to a T plus 2 that you'll find in a public security. So, in addition to that, we also continue to add to some of our existing positions that we think are doing extremely well. So, we're looking to continue to build a deep bench of companies that we hope will add returns for many years to come. And as we have mentioned in the past, a lot of these companies in particular, if you want to know about them, please reach out to us directly. [It's?] unfortunate we can't go into details given the time we have today, but please reach out directly if you have questions on any companies.

Kevin 35:37

So, here's a quick look at the financing statistics in our portfolio. Of 21 rounds of financings, we've had 16 up rounds. We've had 4 flat rounds, and one down round, which we've mentioned in the past, which was Lime Scooters. This of course has contributed to our nice returns this year as well as the stability of our NAV. And so yeah. So, that's the big surprise in this case. It's out of all these rounds of financings, we really had one down round and we've had so many up rounds in the space in general. So, here's what happened. And I won't go through all of this, but the busy nature of this slide is meant to highlight just how active our companies were in raising capital. Udemy had two rounds of financing, both at higher levels. Marqeta had a 2x increase from the previous round landing in a $4.3 billion valuation. Robinhood also had two rounds of financing, both at higher rounds. And this is something that Christian talked about, but the result of COVID is that many of our company's business models were accelerated to some extent two to four years in advance. Ed-tech, education technology, fintech, especially the payment companies, digital health, e-commerce-- all of these types of companies received a boost from the fact that people were working from home. And, of course, this has contributed to our returns and, again, a very stable NAV.

Kevin 37:13

So, moving on to the next slide, this is what really happened with our realized exits. We only had two and one partial exit so far this year. We've talked about One Medical. It was a traditional IPO at the beginning of the year. It was fairly timely actually given what was to follow with COVID because it's a digital health company. It priced in January at $14/share. It raised $245 million. Our cost was $8 and 20 cents. And we exited this position around $30. Lock-up expired in July. As a reminder, when one of our companies goes public and when the lockup expires, we exit the position opportunistically over a period of somewhere between 60 to 90 days. Optimizley was another exit for us via M&A transaction. This one didn't work out for us as well, but we did receive back 50% of our original cost basis. And then as I mentioned, we had a partial exit in Palantir. This was a direct listing, which typically is completely free to trade with no lock-up, but they decided to lock up 80% of shareholders and allow 20% of shareholders free to trade. Therefore, we made some sales to lock in some gains. But subsequent to that, Palantir has rallied over 150 percent. And with the cost bases of around $5 and 57 cents a share and it's now trading over $25-- that's obviously worked out very nicely for us. We should also mention [inaudible], a company in our portfolio who has also gone public. It's in lock-up. It's gone public via traditional IPO. And also, ChargePoint and Hims are going public via SPAC. All of these companies we expect to have a lock-up [inaudible].

Kevin 39:09

Finally, we should mention we have completed partial realizations of four portfolio companies to lock in gains at attractive prices. These are private companies still in the portfolio. We had a $6.4 million of proceeds with a cost basis of 3.2 million. So, we're capturing about 2x in those sales. And we'll continue to be opportunistic as it relates to taking some gains at attractive levels.

Kevin 39:38

Let's take a look at our current portfolio. And you can see some definite changes from the last webinar with ChargePoint and Palantir moving into our largest positions followed by SpaceX and Marqeta. So, what's actually happened here-- well, I mentioned Palantir went public and has had over 150 percent move in the public market. So, that's obviously moved that position up. And ChargePoint is going public via SPAC with a company called Switchback Energy. And that's grown organically in the fund. We feel very strongly now that if you look at this portfolio we've built over the past two to three years, it's a very high-quality portfolio consisting of names that have near-term potential exits as well as the fact that we continue to build a deep bench of these names that we hope will continue to drive returns in 2021 and beyond. And again, the companies [who're?] in the process of exiting now are Palantir, PubMatic, Hims, and ChargePoint. Some of those companies though have publicly come out with an intention to exit in 2021. And some of those companies would be Marqeta, SoFi, Trax, Nextdoor, and Robinhood. And many others are showing signs that they could be positioning themselves for a 2021 exit. So, therefore, we're happy to say that we could see another busy year of exits in 2021 if these companies stay on track.

Kevin 41:14

I wanted to touch on our performance with this slide. The public market rally, as Christian mentioned, has continued into the fourth quarter. And our benchmark made up some pretty good ground on our returns, but there was a rather significant upward move recently in terms of performance from the 930 performance from the 1130 performance. So, we want to kind of put those together so you can see that delta. But we are up 7% in the last month, which is a really nice move-- 30% in the past three months, and 21.62% in the past year with the [Russell?] up 18.43, 60.87, and 13.59 respectively. And what we always try to remind everybody-- that it's important to remember that the volatility of our NAV compared to our benchmark in the public markets in general is obviously a lot less. We showed a lot of stability in our NAV. And we're really happy about that. And I know a lot of our shareholders have reached out and are very happy about that as well.

Kevin 42:22

Another improvement on the year would be our inflows of capital into the fund. We've averaged about $5 million per month. And as we pointed out, last quarter, despite the pandemic, we still were raising capital even during the most volatile month of March and April. Our capital raise is picking up in recent months. And our round rate for our capital raise is much higher so far in the second half of the year than the first half-- in particular these last couple of months. November was our largest month so far with 13.2 million in inflows. And given the way December is going, I think that will actually end up being our biggest inflow for the year. It's a nice way to end the year. Q1 and Q2 redemptions were higher. No surprise, given the environment. But we rebounded very nicely in Q3 with the normal redemption period. And the upcoming redemption period is looking very similar to Q3. So, we feel really good about that. And I always like to contrast that to your typical private fund. And you'll probably find in most cases, you're not going to find any liquidity if you have a typical private funds, especially in markets like this. And at the bottom part of the slide, you're just seeing that we had liquidity of up to 12.7 million in some of our positions.

Kevin 43:49

I just wanted to also mention, before I hand it back over to Christian, that we are for the first time having a distribution this year. It's going to be about 72 cents a share. The record date is December 17th. So, it's this Thursday. And the actual payment date is December 18th. So, you'll see that move about 2%. That's the dividend. Obviously, it's not part of our performance. It's just our dividend being paid out this Friday. Okay. So, I'd like to now hand it back to Christian to further discuss our portfolio and what to possibly expect from the fund and the private market going forward. Over to you, Christian.

Christian 44:29

Great. Thanks, Kevin. Thanks for taking us through those updates. So, of this slide, which many of you have also seen in the past, we just tried to map out the vintage seasoning, if you will, of the fund since its inception. And so, of the 101 total companies that the fund has invested in since inception, roughly 40% have been realized or exited the portfolio. I would just note that this excludes companies Kevin mentioned that have recently listed via IPO, SPAC, or direct listing since the fund continues to hold these shares, which are in a lock-up period. A lock-up period is typically six months from the date that those events happen. And after that period, as Kevin said, we look to liquidate those shares in an orderly and logical manner.

Christian 45:30

When we look at the 60 portfolios that are currently active, roughly 70% of those - it's important to understand - were added over the last few years. And so that implies that the current portfolio, we believe, has substantial growth potential from the current marks as these companies continue scaling at high growth rates into their ultimate terminal values. Again, the idea is that the average company we're looking at is two to four years from its terminal value. Sometimes, it happens sooner. Sometimes, it takes longer. But again, the implication is that for a portfolio which is largely weighted towards deals done over the last couple of years, we believe that there could be attractive upside just in these names alone. We also have a number of investments that are more than three years old-- a number of which we believe are positioned as well, as Kevin was saying earlier, for liquidity. Some, we thought, might be able to get out this year. But it looks like next year, at this rate, could be a more active year as well.

Christian 46:50

Turning the slide. This is essentially an analysis, again, by year of our cash deployed since inception. Clearly, we're behind pace if you look at the comparison to last year, which marked the fund's most active deployment on record. However, what can't be seen by this slide is we have a number of investments that are in process that we expect to close over the coming weeks and months. As Kevin said, there's a timeline to close these deals. It's not like you just pull the trigger, and it closes overnight. These deals do take some time to close. And we're excited to have a very active pipeline of deals that are far along as well as a number of deals that are in the process of performing due diligence on. We have no shortage of origination channels, and they continue to be very active.

Christian 47:53

And given everything we've covered on the macro environment while understanding that we're also managing our cash conservatively, there has to be-- it has to be said that for the type of discipline that we're implementing into this fund and into this market-- in a lot of situations, we've been forced to write what we would call [smaller check sizes?]. And that's quite literally a function of the size of this fund. And so we're not fully able to take advantage as of yet or full advantage of our origination efforts. So, if a large deal comes along that we're able to execute on in a number of situations, we can't take the entire deal because of our allocation and construction objectives. And so as the inflows have continued to be strong, which we're very excited about even throughout the pandemic, we're very excited to have completed this transition to Liberty Street, which we believe is going to help us accelerate the fund’s growth so that we can further take advantage of our various origination efforts to write larger investment sizes while continuing to further diversify the portfolio.

Christian 49:12

So, in terms of the fund outlook, we're going to continue to actively monitor the existing portfolio, as Kevin was talking through. Of course, we're going to maintain our discipline and continue seeking price dislocations where possible in what we believe are high-quality assets and often into preferred securities that we think have a fairly short path towards exiting. It's paramount that we gain visibility not only around what these companies do and how they do it and who's running them but also into what their balance sheets look like compared to the burn rates. The burn rate is a measure which essentially implies the amount of capital a company is spending relative to the income that it's generating-- because we want to make sure that these companies are well-capitalized in all environments, let alone the environment that we've been experiencing this year. And while we're keenly aware that sustained volatility can impact both valuations and exit activity, we should be reminded again that historically, investments made during vintages where there's been increased macro volatility and uncertainty, there's been strong performance because there is often an ability to get in at more attractive prices. And as we noted, we have a number of portfolio companies that not only were able to exit this year but, as Kevin was saying, that we believe may be positioned for exits next year, particularly if the public markets and the economic recovery continues. So, Kevin, before we move on to questions, is there anything you'd like to touch on?

Kevin 50:59

No. I think we should move on to the questions, Christian.

Christian 51:03

Great. And we realize that we've covered more content than usual today. And so we're taking up more time than we anticipated. So, we'll try to get through these as quickly as possible. Again, for those of you who do have questions, please submit them through the Q&A box. If we can't get to your questions, we will get to you separately offline to make sure that they are addressed. So, Kevin, I'm going to just take a quick look at some of the questions that we received. There is one question here which is, "How does the fund gain exposure to underlying private companies?" Kevin, do you want to take that?

Kevin 51:48

Sure, I can take that. Yes. We, at the moment, are investing directly into these companies. That was sort of the mandate of the fund when we launched it. And so we find a lot of our origination through some of the larger platforms out there like SharesPost, or where we just came from, EquityZen, Forge, and some of the other brokers. We find a lot of our exposure through financial advisors like yourself who have clients that are invested in private companies that are looking to get some liquidity. And then I think that you'll find more and more we're getting a lot of our exposure directly from the company themselves. Not only are the companies sending us employees that are looking for liquidity, especially given the fact that we're an Evergreen fund - and we continue to grow; and we can partner with these companies in that regard - but also, the bigger we get and the bigger check we can write, we're getting a lot of opportunities to participate in primary rounds of financing as well. So, lots of options for us to gain exposure to our company.

Christian 52:59

Great. Thanks, Kevin. Next question: "Are SPACs viable investment options for the fund in terms of gaining additional exposure to non-public companies?" And an add on to that is, "Is leverage allowed?" So, to answer your first question, we are not investing into SPACs. Our mandate is that we're investing into late-stage private companies that we believe have multiple exit paths. Historically, two-thirds of the exits in this asset class have been M&A. Clearly, we've seen an uptick in public-oriented exits this year ranging from traditional IPOs to SPACs to direct listings. So, we're trying to invest in companies that we believe have a path to achieve exits through those venues. We're not looking to invest into SPACs, which are, again, blank check companies. These are entities that often have a two-year life to execute on a merger or acquisition. If they're unable to achieve that in that timeframe, they also may be unwound. And so, we're looking to invest into operating companies. We're not looking to invest into these types of blank check companies. In terms of leverage under the '40 Act, we do have an ability to draw down a certain amount of leverage. However, the only scenario that you would likely see us doing that is potentially to open up a credit facility, which we're in the process of exploring for a small percentage, which can provide some additional flexibility around cash reserves to help us alleviate the cash drag-- and give us an ability to invest more of our cash into yield-generating opportunities.

Christian 54:56

Let me go to another question. Kevin, there's a question here about, "Is the ChargePoint merger complete yesterday or today?" I don't think we're here to necessarily speculate on timing, but do you want to touch on that briefly?

Kevin 55:15

Yeah. I think some people are a little confused because, in one of the SEC filings, it mentioned December 15th. But the reality is that it could happen anytime during the end of December or the very beginning of January. And we will know along with everybody else when they do their filing. But we would anticipate it to happen sometime in the next two to four weeks. And Christian, I just see another question real quickly since it's about somebody asking about the distribution rate again. Just to repeat, the distribution that were that's coming this Friday is 72 cents per share approximately. So, that's about 2% of NAV.

Christian 56:04

Great. I mean, we have time to just knock out-- there's two quick ones, Kevin, which I can touch on. And then I think we should wrap things up.

Kevin 56:10

Sure.

Christian 56:12

The first one is there's a question, "Can you touch on Airbnb?" We're not exactly sure what it is that you'd like to hear about Airbnb. We're happy to schedule a call with you offline. It's an opportunity that we have looked at in the past. Again, we have a very rigorous investment process. And we're trying to be very disciplined with our pricing. And for certain assets, there is a dynamic in the private markets where the ability to get into them just gets at valuations that we have a hard time defending. There are also situations where some of these companies, as I was describing earlier, are hard to access because existing investors essentially just look to take whatever is available. But if there's more you'd like to talk about Airbnb, we're not in the company. So, we don't have substantial amount of direct knowledge about it, but we're happy to talk about it.

Christian 57:07

And then the other question was just regarding, "If you have a protracted timeline to going public, wouldn't this have a negative effect on your ability to create returns in the last phase of private funding?" Again, this is all about when you get into these companies. And so our strategy is one where we are targeting these companies very late in their development-- so regardless of what the exit outcome is, whether it's an M&A, which, again historically, has been the majority of exists. And let's not forget that the top handful of mega tech companies are now sitting on hundreds of billions in cash looking to try to stimulate their own growth. And so, we expect the M&A exit path to continue for these tech and innovation-oriented companies. The IPO, SPAC, direct listing paths are also there. So, yes, there is a protracted lifecycle, but we're trying to buy into it, wait in that life cycle. So, we think there's a fairly short holding period. Kevin, there's one final one. You want to touch on this. "Do you think the number of private companies in the future will be dwindling because of all the exits?" I think if we look at the slide we showed earlier regarding the amount of capital that continues being invested into the private markets, the answer is probably no. But I don't know if you wanted to add anything to that.

Kevin 58:41

Yeah. No, I would say that late-stage venture, venture in general have a long-term horizon. And we've seen the ebbs and flows of exits. This is a space that is going to continue to grow for all the reasons that you mentioned earlier, Christian, with private companies staying private longer. And so, while we may see a 2019, which didn't have a lot of exits, that's quickly followed up by 2020, which had a lot of exits. And I could also point back to 2018. So, it does ebb and flow. But without question, I don't think this is going away ever, frankly. And we'll continue to see private companies mature. And we'll certainly look to get into some of the better ones.

Christian 59:34

Great. Thanks, Kevin. Please for those of you participating, we just had disclosures lists. So, I hope you read those as well. And we are on the top of the hour. So, we'd like to wrap things up. If you have any additional questions, please contact us directly. We're happy to talk to you more about the fund, the market, and anything else we've discussed today. We greatly appreciate your support and wish everyone a very healthy and happy holiday. Kevin, I'll turn it over to you for the final word.

Kevin 01:00:09

Yeah. I just want to say, as I have in the past, thank you very much for everybody's support. And please have a great holiday and a safe and healthy new year. Thank you, everybody.

Notes:

  1. Chicago Board Options Exchange's Volatility Index (VIX) is a popular measure of the stock market's expectation of volatility based on S&P 500 index options.
  2. The NASDAQ-100 is a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock market.
  3. The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.
  4. The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.
  5. The Russell 1000 Index is a stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 90% of the total market capitalization of that index.

Private Shares Fund

Top 10 Holdings as of 04/26/2021*
Represents 30.90% of Fund holdings as of April 26, 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.

Notes:

  1. Chicago Board Options Exchange's Volatility Index (VIX) is a popular measure of the stock market's expectation of volatility based on S&P 500 index options.
  2. The NASDAQ-100 is a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock market.
  3. The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.
  4. The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.
  5. The Russell 1000 Index is a stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index, which represent about 90% of the total market capitalization of that index.

Important Disclosure

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.

The Fund is distributed by FORESIDE FUND SERVICES, LLC

Prospectus for: