Orlando Bravo pushes back on private markets criticism: ‘Everybody’s extremely comfortable’

Orlando Bravo, founder and managing partner of Thoma Bravo, pushed back against growing criticism of private markets, saying deep industry expertise separates the winners from the losers as artificial intelligence disrupts the software industry.

“We’ve been living in the details of the space for a very, very long time, not at a high level, we’re not investing in stocks, [but] Investing in companies, customer contracts, knowing the details. So yes, as an industry expert in private equity, our companies are very, very different,” Bravo said in an interview with CNBC’s Leslie Picker on Tuesday. “We’re very pleased with our private loan book, given the picks that make us an expert.”

His comments come as investors step up scrutiny of private market valuations and liquidity following a wave of price cuts and repayment pressure on private credit and equity funds.

Morgan Stanley recently said it expects direct lending default rates to reach around 8%, close to Covid-era peaks. Meanwhile, Apollo Global Management’s John Zito told UBS clients last month that private equity firms had grossly misrepresented the value of their software assets and that “all signs are wrong.”

Thoma Bravo’s investor base, which includes leading US pension funds and global sovereign wealth funds, is confident because of the firm’s long history and transparency, Bravo said.

“They saw our signals, they saw our exits, they saw our progress,” he said. “Everyone is extremely comfortable.”

Addressing one of the firm’s apparent missteps, Bravo admitted to overpaying customer experience software company Medallia. Apollo’s Zito specifically pointed to this $6.4 billion take-private deal in 2021, saying it will be “worse than people expected.” In the Wall Street Journal.

“When we bought it, we overestimated or overestimated the company’s very high future growth rate. We made a mistake. And it cost us a lot of payments. Now, from our perspective, the equity has been damaged for a long time,” he said. “Our investors, this group that controls the world’s capital, have known this for years. Therefore, there is no new news.”

Still, he said the broad portfolio performed strongly.

“The other 77 companies that we have, for the most part — and this is very relevant to AI — they are absolutely crushing it,” Bravo said.

Bravo noted a sharp divide between private equity-owned companies and many publicly traded software firms, saying the latter are facing increasing disruption. He noted that recent valuation declines in some names are “very warranted.”

“In the public markets, if you look, there are many, many software companies in the public markets that are going to be disrupted by AI. These companies were going to be disrupted anyway. AI will create disruption at a much faster rate,” Bravo said.