Our Vision

As Private Equity gained steam over the past decades, more firms joined the asset class, and as usual, not everyone created value.

The average time taken to exit private equity investments has increased year-on-year since 2008. Holding periods in private equity have increased significantly since 2010, rising from an average of 3.8 years to 5.4 years.

Today, PWC estimates there are over 250 overdue exits in the portfolios of European PE firms. Deal value is down by 70% from 2021. Bain & Co estimates that $3.2 trillion in unrealized value is sitting in global buyout portfolios.

We would expect returns to rise as holding periods increase, however, time held is not always proportional to performance. Companies held for less than two years on average delivered less than a 2x multiple on invested capital (MOIC) gross of fees. The average MOIC increases with a holding period of up to five years and then stabilizes around 2.5x, before reaching a maximum value of above 2.6x for deals held between 9 and 10 years according to eFront.

Today, some firms have introduced continuity funds which further distort the calculation of holding periods.

As investors, we want shorter fund life cycles if performance does not follow.

In 2023, Mantra Investment Partners analyzed the historical internal rate of return (IRR) and MOIC across more than 5,000 deals, 500 funds, and 242 private equity firms. The analysis found that broadly diversified funds of all sizes in North America averaged an 18 percent IRR and 1.7x MOIC while private equity strategies focused on investing in esoteric industries or businesses, meaningfully outperformed bigger funds. Their data from 2011 to 2021 shows that funds with a narrow investment focus or niche delivered an average IRR of 38 percent and a MOIC of 2.3x net of fees. (Mantra compared its niche PE index to Pitchbook data for a group of funds that included lower-middle-market buyout, growth equity, venture capital, and other investments across industries.)

Now, did size matter? From 2017 to 2021, niche funds with less than $500 million in capital had an IRR of 40 percent while funds between $500 million and $2 billion had an IRR of 32 percent, according to Mantra’s research and Prequin data. Regardless of their size, all funds with a niche still surpassed similar peers without one. However, their life cycles were similar to other private equity funds.

As investors, we should prefer smaller, more nimble, specialized funds.

According to MSCI Inc., 36% of companies across North America & Europe acquired six years ago or more are now just at breakeven or below. Another 34% are marked at a 1.0x to 2.5x MOIC, adding up to a modest internal rate of return. The numbers are slightly better for companies held four years or longer (29% at or below 1x, and 41% better than 1x but below 2.5x). Overall, 70% of the companies four years old or older are doing just OK or worse. As we do not know how some of the realized exits have been structured due to continuation funds & rough GP-LP negotiations, we can only come to one definite conclusion:

Returns & liquidity are low while fees and holding periods are long…

In the meantime, our team kept achieving an IRR above 65%, a distributed to paid-in capital (DPI) of 1.8x with an average holding period of 1.7 years across several funds & market conditions. Therefore, we decided to focus on the deals that made the holding period so short and realized that we could create a new offering for investors by investors.

As entrepreneurs, we saw this as a much-needed innovation for Private Equity; and should be the direction in which the market naturally moves given its current pain points.

This led to the birth of 2Two .

Why did we call it 2Two?

Because we aim to bring our investors liquidity in 2 years. The other “two” corresponds to our targeted return. We aim to 2x that money over those 2 years. We have done it in the past and we are confident we can keep replicating this via a mix of equity & debt structures that aim to maximize returns over a set period of time hence why we call it a “Time-Structured Fund”.

How?

We get rid of multiple stages in a typical private fund cycle such as extended closing periods and significantly reduce investment & liquidation periods. Our opportunities are “pre-made” and exits are “pre-planned” relative to the typical fund that may still seek targets after fundraising before figuring out an exit strategy.