The Art of the Private Equity Deal
Dana Johns’s early career aspirations were focused on curating contemporary art exhibitions, but in a wonderfully circuitous route her post undergraduate work experiences and education wound their way to the Maryland State Retirement and Pension System (MSRPS) where Johns is “curating” a sizable portfolio of private equity fund managers. MSRPS, which covers state employees as well as teachers, manages over $67 billion in pension member and beneficiary assets including an $11 billion private equity portfolio.
“When I joined the System in 2011, the private equity allocation target was 10% of total plan assets, and we were well under target,” Johns says. “Over the past decade the PE asset allocation target has increased, and the team has developed important relationships with fund managers. The result is a mature and top quartile performing PE portfolio.” Since the Global Financial Crisis, she adds, “the System made important modifications to the overall asset allocation and leaned into private markets significantly. So, we have a large private market exposure which additionally includes private credit, real assets, and absolute return.”
Johns, a former museum administrator who once was immersed in contemporary art, now thinks about the respective roles of venture capital, growth, and buyout funds in a diversified institutional portfolio. Within the global private equity portfolio, “We have about 60 GP relationships,” she says, adding, “Globally, 65% of the investments are in North America, 25% in Europe, and the balance in Asia/ROW.”
Going forward, she explains, “We have a number of mega buyout managers, and have that market well covered. Over the past five years, we have focused on building out the venture capital and growth portfolio.” The technology sector growth continues to accelerate. “Recent trends include large buyout tech fund managers raising smaller discrete growth funds and now competing with late stage venture funds. We’re focused on growth, and typically we keep our mandate very flexible, so we can be responsive,” she says. Investment decision-making is streamlined at the System, Johns adds, because “our CIO has the investment decision making authority to approve investment recommendations – and has encouraged the investment team to be creative problem solvers.”
In her ongoing search for managers, Johns questions the conventional wisdom that the current top quartile private equity fund managers will significantly and consistently outperform the rest in the next decade. “The dispersion between top and bottom quartiles in buyout funds has contracted, and even in venture, the dispersion has narrowed in the last few years.”
Johns says investments in private equity continues to grow, and some express concern about too much dry powder, but she says, “I think that’s less true today. Private companies are staying private longer, there are increasing take private transactions, and a robust secondary market has emerged in recent years.” Yes, investors are entering the private realm – She notes that a number of traditional long-only hedge funds have been investing in companies yet to go public – but she asserts, “Private equity is not to be avoided if you’re focused on certain sectors, such as healthcare life sciences and technology. The innovation economy is transforming old and new industries, and growth in many sectors of the economy depends on private equity investment.”
As for the special purpose acquisition companies (“SPAC”) movement, Johns says, “When I was working for a private equity fund of funds 10 years ago, I remember one of the portfolio companies went public via a SPAC, which was not used frequently to access the public markets. Fast-forward to today where you have a massive amount of capital flowing through SPAC transactions: It’s another tool in the toolkit for private companies to access the public markets.” She adds, “For example, when you think about specific sectors, SPACs might be an interesting way for biotech companies to go public. If a company is private equity-backed, it can have more control over the IPO process and which investors are strategically involved. They can attract investors with the ability to uniquely add value to the business.” She adds, “Some of the GPs in the PE portfolio are raising SPACs, a trend that we will likely see for a while. It will be interesting to see how SPAC-related regulations evolve in the years to come.”
A particular area of passion and focus for Johns is first-time fund managers run by women or underrepresented minority investors. Typically, these GPs have track records which can be more challenging to understand because they frequently do not have permission to share their attribution from their prior fund. She says, “I think that mature managers should be supporting the talent spinning out of their fund. What I find in these next generation managers are very focused founders, whose net worth is completely tied up in the fund, so they are eating their own cooking.” With more and more new female- and minority-owned fund managers coming to market, institutional investors are becoming more acutely aware that the metrics and benchmarks used to evaluate mature managers are different from the next generation of fund managers: “There is also a capital access gap here: and this impacts the success of managers raising an institutional quality firm with a team, and portfolio company investments in the early days of a fund.”
Johns seeks to level the playing field in comparing managers and create the industry context for more underrepresented first-time fund managers to experience long-term success. She thinks it is very important that institutional investors consider being the first capital committed in a first-time fund. This will help shorten the average length of time it takes to raise a fund and show support for a high conviction, first-time fund manager. She says, “Despite what we would all like to think, everyone is afraid to be the anchor and take on the risk of being the largest limited partner in a fund. But if we don’t, who will?”
The private equity corner of the institutional investment world has long been an outpost for the macho men of investing, so how do women fit in? “There’s not enough women,” Johns says. “We are sooo underrepresented. Women investors have work to do. And, the industry has work to do.” She is actively engaged on this issue with women investors and advocates of women investors. She is the Co-CEO of PEWIN (Private Equity Women Investor Network), with a global membership of 800 senior women in private equity, including both LPs and GPs. Johns says, “I regularly ask GPs the questions, ‘How does your firm think about diversity, equity and inclusion? Has the diversity of the firm changed? Is it more or less diverse today?’” The goal, she says, is ultimately to foster and encourage “diversity of thought: It’s gender; it’s race; it’s many different things.”
She adds, “Something that’s really important to me is bringing more gender parity to my industry and my world. Hopefully, I am having an impact on growing the number of women in the private equity industry, whether that’s through supporting and sponsoring women already in the industry or mentoring them and sharing my network.” She adds, “What is crucial is the funnel. We need to connect with women when they’re in high school and college.”
Johns, however, missed that funnel: “My path to private equity was very circuitous.” She grew up in Pittsburgh and went to college in Indiana, where she studied art history, graduating with a bachelor’s degree in Comparative Literature. “I thought my career path was clear: I would work for a gallery, which I did, and would become a curator working with contemporary artists, which was so interesting to me. I have always been inspired by strong, brilliant women who have forged paths in industries that were dominated by men.” She worked for a few years with Paula Cooper, a pioneer in the art world, in her New York gallery. After spending two years at the Paula Cooper Gallery, however, “I moved to Baltimore in 1992. I was dating someone, and he lived in Baltimore. Eventually I got married, and I had a child” (her son Wheeler is now 22).
The next turn in her road came after 10 years in Baltimore: “I had been working in museums, both the Baltimore Museum of Art and then the Contemporary Art Museum.” Johns says, “I was burnt out and decided to take a break, to spend some time with my three-year-old son and think about what I wanted to do next. During this time, I received a bachelor’s degree in Computer Systems.” And while she was finishing up the degree, she took a position at Camden Partners, a Baltimore-based private equity firm. “It was serendipity,” she says, “meeting up with a fellow Pittsburgh investor who had started working at Camden, learning about finance from the ground up and then, I fell in love with private equity.”
At Camden, she was a member of a team led by Catharine Burkett focused on raising and investing their first private equity fund of funds. John says, “I was on a small team and everything that I know about portfolio construction and developing LP and GP relationships I learned from my mentor Catharine, an industry legend and another strong female mentor.” While she was working full-time at Camden Private Capital, she earned another degree, a Master of Science degree in Finance from Loyola University. Johns remembers where she was standing when Lehman Brothers declared bankruptcy and the Global Financial Crisis began: She was grateful to be a member of the Camden team at that time, but a lot of priorities changed after the GFC. When Camden decided to focus primarily on the direct funds, “the writing was on the wall.” After nine years at Camden, she joined the Maryland State Retirement and Pension System investment team.
Johns is committed to Baltimore and has enticed most of her family to move to the area. Her now-widowed father lives close by, and her son, who spent the spring semester of his junior year locked down at home, has recently graduated from college. She thinks the city has received a bad rap from the brilliant and popular HBO series “The Wire.” “Like any city,” she says, “there are some not so great things like systemic racism, which can be countered by the wonderfully gritty and eccentric culture that makes Baltimore, so Baltimore.”
While steeped in the world of private equity, Johns has not forgotten art. “I moved away from art as a profession and have remained active over the years in local arts organization in Baltimore, including the Friends of Modern and Contemporary Art (now defunct) at the Baltimore Museum of Art and serving on the board of a local opera company. She also co-chaired for many years The Art of Caring, a silent art auction featuring local artists benefiting Court Appointed Special Advocates (CASA) Baltimore City.
“I am engaged with my community.” She’s been on the Board of CASA, which trains volunteers to be advocates for foster kids. “A professional silver lining of COVID is that I have had bandwidth to interact with more managers,” John says. Pre-COVID, “I used to travel frequently and look forward to seeing my peers and fund managers in person. During COVID, yoga and cycling have become very important to my wellness practice,” she says.
Throughout her career journey, advocating for greater diversity, equity, and inclusion has remained front and center for Johns. Her experience of a non-traditional path to private equity and the opportunity to sit in the seat of a GP and LP during her career, coupled with her worldview as a woman in a historically male dominated industry, endows Johns with deep gratitude, empathy, and compassion. Throughout the pandemic, Johns has remained passionately engaged in the discourse and initiatives to support greater and lasting diversity in private equity.