#5: John Toomey – Private Equity Masters Ep.01, HarborVest Partners, EP.200

Episode Summary

Executive Summary: John Toomey of HarbourVest traces private equity’s evolution from a relationship-driven niche to a data-rich, global, multi-vehicle market spanning primaries, co-investments, and secondaries. He explains how HarbourVest underwrites managers, uses dedicated teams and deep datasets to assess alignment and skill, and sees continued opportunity despite higher prices, tougher regulation, and growing ESG complexity.

Main Topics: HarbourVest’s origin and the early private equity landscape (Priority: 5/5): Toomey describes joining HarbourVest in 1997 as an analyst, when private equity was far less specialized, fund options were simple, and HarborVest’s platform already combined primaries, secondaries, and co-investments under one roof. How manager due diligence has evolved (Priority: 5/5): He contrasts the 1997 diligence process—relationship-heavy and manager-supplied data—with today’s process, which uses decades of return data, operational due diligence, ESG/D&I considerations, secondaries insights, and performance verification. Co-investing as a specialized discipline (Priority: 5/5): Toomey explains why HarbourVest separates primary, secondary, and co-invest teams, how it evaluates deal-specific and manager-specific alignment, and why speed, selectivity, and capital commitment are essential in co-investing. The strategic role of secondaries (Priority: 4/5): Secondaries are presented as both a portfolio construction tool and a return driver, with value coming less from discount and more from buying strong assets and managers at the right point in their lifecycle. Global expansion and market differences (Priority: 4/5): HarbourVest’s international footprint is central to accessing growth in Europe, Asia, and China. Toomey emphasizes that non-U.S. markets are not merely lagging the U.S.; they are evolving differently and require local teams. Industry scale, pricing, and return expectations (Priority: 4/5): He argues private equity still has room to grow relative to public markets, but higher pricing and competition require better managers, sharper strategy, and potentially recalibrated investor expectations. Firm culture, learning, and leadership lessons (Priority: 3/5): Toomey closes with lessons on accountability, preparation, stewardship, and humility, emphasizing continuous improvement, honest self-assessment, and treating people well.

Key Arguments: Private equity diligence is now fundamentally more data-driven than relationship-driven; HarbourVest verifies manager claims against actual outcomes across years and quarters. Dedicated strategy teams improve decision quality because a single relationship manager may be biased toward recommending every opportunity from a favored GP. Co-investments require speed and alignment; the best LP co-investors are valuable to GPs because they provide quick feedback, certainty, and capital solutions. Secondaries are mischaracterized as mainly a discount game; the real driver of returns is buying quality assets and managers, sometimes even at par or above par. The secondary market has expanded because GPs now use it for portfolio management, continuation funds, and LP tenders—not just because LPs need liquidity. Global private equity opportunities are not just “behind” the U.S.; markets like Asia and China are developing on their own trajectories and need local presence. Despite higher valuations, top managers underwrite to conservative exits and rely more on operational improvement, market selection, and execution than multiple expansion. Investor expectations may need recalibration, but many LPs still rely on private equity to meet total-return targets. ESG is increasingly important, but uneven global standards and political/regulatory differences make implementation difficult; HarbourVest sees evidence that good ESG correlates with strong returns. HarbourVest’s culture of accountability and preparation—never making the same mistake twice—underpins its investment process and client service.

Data Points: HarbourVest assets under oversight: over $75 billion - Size of the platform at the time of the interview Years in private equity investing: more than 30 years - HarbourVest’s track record across fund investing HarbourVest first ex-U.S. office: 1990 - International expansion history HarbourVest first Asia office: 1996 - International expansion history HarbourVest offices today: 10 - Current global footprint HarbourVest people on the ground in Asia: 60 - Regional staffing to source and diligence deals HarbourVest dedicated team size: over 50 people - Resources supporting co-investment and broader diligence Co-invest opportunities seen annually: 800 - Annual co-investment opportunity flow Co-invest opportunities that actually happen: 780 - Toomey’s estimate of near-complete flow among opportunities reviewed Top managers’ product lines today: 7 on average - Evolution from more concentrated multi-product platforms Top managers’ product lines 10 years ago: 2 on average - Historical comparison for industry evolution Top managers’ product lines 20 years ago: 1 on average - Historical comparison for industry evolution HarbourVest secondary commitments historically: $30 billion - Scale of the firm’s secondary investing history Global public equity market capitalization: about $80–90 trillion - Used to frame private equity’s growth runway Global private equity market capitalization: about $8–9 trillion - Used to compare private and public market scale Co-invest example investment: $50–60 million - HarbourVest’s participation in CSN Stores / Wayfair CSN Stores round size: $200 million - Private round used to consolidate and rebrand the company Lead sponsor / sponsor-fund example check: $200 million fully underwritten then $100–150 million callable - Illustrates HarbourVest’s flexible co-invest support in larger deals Large buyout fund size in late 1990s: about $1 billion - Illustrates how much smaller the market was historically Time on a quick co-invest response: 24 hours - HarbourVest’s commitment to provide rapid feedback to managers Co-invest example outcome: Wayfair IPO - CSN Stores later rebranded and went public Vanguard partnership context: Selected because of scale and visibility - HarbourVest’s newer strategic relationship

Pivotal Quotes: "We don't pay you to make copies. We pay you because we want to hear what you think." — Ed Cain: Toomey recalls an early investment committee experience that shaped HarbourVest’s culture of independent thinking "A quick no is always better than an elongated no." — John Toomey: Explaining what co-investment partners value most from HarbourVest "You can only buy what someone is selling." — John Toomey: Describing the inherent constraint and diversification characteristic of the secondary market

Implications: Private equity is becoming more segmented, data-intensive, and globally integrated. Investors will need stronger manager selection, faster execution, and clearer expectations as pricing rises and new access points—co-investments, secondaries, continuation funds—reshape the asset class.