Illiquid Equities: Stock Picking in the Private Equity Market

This research note is produced by Elkstone in conjunction with our hedge fund and cta manager database partner, Nilsson Hedge.


· We believe there is significant alpha and edge in stock picking in private equity market

· We utilize this illiquid equity portfolio for our thematic investment portfolio

· We focus on direct, but hold some LP positions for specialisation and strategic purposes


In our Liquid Equity note, we put forward that we are generally not a fan of active management/stock picking in the public markets under the current macroeconomic conditions and therefore primarily look to get our liquid equity exposure via an ETF strategy. Liquid equity markets are an extremely competitive, transparent and heavily invested arena. Finding a technology, data and/or information edge to pick outperforming stocks consistently is a difficult task. Saying this, we do hold an actively managed portfolio stock picking within the private equity market; this short note goes into further detail on our illiquid equity block’s portfolio and why we are so active within stock picking in the private market versus having a preference of not stock picking within the public market.


As we always look at what we are getting from both a market/strategy and investment vehicle, we understand that with a venture capital investment, we will get the following:

Trade Setup: Long/buy-only exposure

Cost: If direct in our Venture Club, just performance carry but if into a Venture Fund, management and performance fees

Liquidity: A long lock-up, circa 5-10 years is our internal guideline

Management: Active, stock picking

Portfolio: Individual company at direct deal level and diversified exposure at external fund level


In our Liquid Equity note, we minimise active management/stock picking in the public markets under the current macroeconomic conditions, however we are a believer in stock picking in the private, equity market and we run a very active venture portfolio of 38 portfolio companies.

Our argument is that the public equity markets are incredibly competitive and transparent which makes finding and maintaining any edge within the market extremely difficult, if not impossible. To say we know a stock like Apple better than anyone else is likely not true due to the amount of information that is publicly available. Having a technology edge is also difficult to believe given that nearly every asset manager runs a public equity fund; there are millions meaning that there is significant research and development and manpower investment going in across thousands of managers to try to get an edge over each other.

Within the private markets, we hold strong advantages through being able to get close to the company as we get insight and data that is not widely available, we can pick up the phone to call the founder and CEO of the company, we can sit on their board and we are able to be a strategic partner to help execute on clear growth plans. We can get strong risk-adjusted returns by accessing companies much earlier and being able to actively support growth.

The qualitative argument above only holds merit if there are performance numbers that back it up. We have internally captured the outperformance in venture investing over public equity invests, as have our venture club members and clients. While we must keep our internal performance private, large institutions do provide their venture investing returns and a prime example is Yale’s Endowment fund that has brought in 21.3% annualised through their venture investing, significantly outperforming the public equity markets. Our venture investing returns to date comfortably exceed this.


We can see merit in sector and thematic equity investing however, we prefer to make these thematic investments in our venture portfolio versus our public equity portfolio, for the reasons of our above argument. We prefer not to, for example, invest in an external manager that specialises in public healthcare companies and play healthcare in our venture portfolio. This has been a strong area for us with two of our portfolio’s healthcare companies, LetsGetChecked and Thirty Madison, recently becoming unicorns. In both of these investments, our thesis was built around the digitalisation of outpatient care. Themes or sectors that we cover in our venture portfolio also include food supply chain, AI and Proptech companies. We believe in thematic investing however we want to do our equity investing primarily through the private equity markets that we believe can provide alpha and edge. For example, our early investment in Flipdish enabled us to access the explosion of the food delivery sector, whereas companies with similar return profiles were not available on the public markets at the time.


There has been a trend within the Family Office space away from being a Fund’s LP investor and a move into more direct investing. Primary reasons for this change stem from a preference over greater financial control over one’s capital, greater transparency at the portfolio level and better returns, as the fund’s fees are not taking from the top. The downside is that due diligence must be conducted internally which requires time, money and infrastructure. Multi-Family Office’s have an advantage here through cost sharing and leveraging off collective infrastructure.

A core part of infrastructure required to make the move from an LP investor to direct investor is access to quality deal flow. This can take significant time to build up one’s reputation as a quality venture investor and is an edge that we believe our family office has within our local ecosystem over the years. The other component to deal flow is belonging to multiple family office networks where we can share deal flow among each other.

Despite preferring going direct ourselves, having built up the sourcing channels, in-house team and infrastructure, we do still become LP investors in two situations. The first is within an industry which we believe is important to have exposure to but do not possess the knowledge base internally and therefore we want diversified exposure selected by that industry’s specialists. The other time we can become an LP investor is if we believe there is a strategic benefit; are they a strong name within the areas we know and like where direct follow-on round investment can take place by virtue of being an LP investor in the fund? If so, then that is a fund we will consider. Reasons for LP investment include pragmatism around access and capacity, broad diversification, specialised managers and co-investment opportunities.


The characteristics inherent in private equity markets, we believe, are a great fit for our investment philosophy and long-term investment goals. Although we are involved in both private and public markets, we lean towards private when liquidity and conditions allow.

Successful venture investing requires more than having the capital to make the investments. We always say that having opportunity, doesn’t mean that one will pick the best opportunity or make the right calls. It takes many years to build up a strong reputation as a sought-after venture investor. For us, reputation is paramount. Strong reputation brings in significant deal flow. Deal flow provides us great opportunities. Experience helps us select some of the great opportunities available. Working with a Family Office or Multi-Family office provides investors and clients access to all the benefits of private markets in a manner that is not readily available to most private investors.


Liquid Alternatives: Traditional Commodities

Liquid Debt: Active or Passive?


Karl Rogers is the Chief Investment Officer of Elkstone Private. Elkstone is a family office managing the wealth of its principals, with a focus on real estate, venture and alternatives, and a Multi-Family Office, regulated by the Central Bank of Ireland, which provides both access to co-investing in our principals’ investment portfolios and traditional family office services to many of Ireland’s entrepreneurs and HNWIs. Previously to Elkstone, Karl was a Managing Partner with Athlon Family Office, Head of US Power Trading with RISQ, Managing Director of ACE Capital Investments, a hedge fund manager and a proprietary commodity trader.

Karl currently sits in the adjunct faculty for Trinity College Dublin’s M.Sc. in Finance program where he is both a guest lecturer in their alternative investment module and supervises the student’s theses and he is a Special Advisor to the ESG Foundation.

Karl has been referenced in major industry publications including the Wall Street Journal, Bloomberg and the Financial Times and has spoken at numerous family office and alternative investment conferences across multiple continents.

Connect with Karl on LinkedIn.


Elkstone is a Family Office managing the wealth of its principals, with a focus on Real Estate, Venture and Alternatives, and a Multi-Family Office, regulated by the Central Bank of Ireland, which provides both access to co-investing in our principal’s investment portfolios and traditional family office services to many of Ireland’s entrepreneurs and HNWIs.