For more information contact: emailus@marcusevans.com An interview with Mac Gerlach who is the Managing Director of Cascade Partners and a private investment firm at the marcus evans Private Wealth Management Summit Spring 2014 talks about his experience on the lower middle market private equity space. Join the 2014 Private Wealth Management Summit along with leading regional investors in an intimate environment for a highly focused discussion on the latest investment strategies in the market. For more information contact: emailus@marcusevans.com

1. Generating Returns from Private Equity
Why Investors Must Look Towards the Lower Middle Market
Interview
Managing
Partners
with: Mac
D i r e ct o r ,
Gerlach,
C a s ca d e
“Most bankers and private equity firms
ignore small and medium sized
businesses. However, financial returns
can exceed the private equity returns of
funds in the upper and middle markets,”
according to Mac Gerlach, Managing
Director, Cascade Partners. “Their
lack of access to the public markets is a
blessing to private equity investors,” he
says.
C as c ad e Par t ne r s is a p r iv ate
investment firm attending the marcus
evans Private Wealth Management
Summit Spring 2014, in Amelia
Island, Florida, June 1-3, 2014.
How should private equity be
incorporated into a private wealth
portfolio? What must family offices
take into consideration?
Private equity can be incorporated into a
private wealth portfolio to achieve both
portfolio diversification and deliver
above market returns on capital.
In particular, it should be considered as
one form of alternative investments and
if used correctly, private equity
investments can hedge against the
volatility of the public debt and equity
markets. If a family office is aiming to
diversify its portfolio by investing in
private equity, then it should invest in
private equity firms that work with small
and medium sized companies, which
operate at the most inefficient point of
the capital and transaction markets.
Why should they consider lower
middle market companies? How do
they compare against larger
companies?
Make no mistake, small and medium
sized companies that compose the
“lower middle market” are substantial
enterprises. Many have compelling
business models, generate substantial
annual cash flow and are growing
businesses. Their lack of access to the
public markets is a blessing to private
equity investors. The non-public
markets at the lower end of the middle
market are highly inefficient and a
talented private equity firm can access
those inefficiencies to benefit its
investors’ returns. Frequently, these
small and medium sized companies
have been neglected from a management and resources perspectives,
oftentimes for multiple years. The right
private equity firm can generate
significant alpha by establishing or
upgrading basic infrastructure in an
existing business (e.g. new management, sales teams, CRM systems,
financial reporting and operational
dashboards). These basic investments
allow businesses to scale efficiently
which frequently jumpstarts revenue
growth, improves operating margins,
and increases shareholder value.
What insights are required to invest
in private equity successfully? What
is unique about your investment
approach?
There is no special sauce to investing in
private equity. As with any worthy
endeavor, success is dependent upon
three things: preparation, timing and
hard work. Although it would appear
that preparation and hard work are the
only two variables that are within one’s
control, in reality, proper preparation
includes picking the right opportunities
for the right time period.
Cascade’s investment approach is
unique because we target companies
that are frequently ignored by the rest
of the private equity community. In
particular, we target companies with
USD 500,000 - 5,000,000 of annual
cash flow. The general private equity
community considers these companies
to be too small and not worthy of their
attention. However, our historical
returns (3.5x cash of cash return and 43
percent IRR on 16 realized investments)
prove that diamonds can be found in the
rough. Additionally, our historic returns
were not generated through financial
engineering but through operational and
management upgrades.
What risk management tips could
you give to family offices? What
helps deliver consistent returns?
As equity investors, we tend to focus on
the upside of an investment, but take
the steps necessary to backstop
downside scenarios. In our experience,
the best way investors can protect
themselves is to work with high quality
operators (i.e. CEOs, CFOs, COOs) they can never do too much diligence on
their operators - and work in-depth with
them to develop and test an investment
thesis. This entails checking every
assumption and data point to ensure
that macro trends are correct and that
any risk is measured and quantified.
Once this has been done and the
operator has bought into the thesis,
then they can protect against downside
scenarios by searching for acquisitions
that fit the investment thesis. Far too
many other private equity investors
start with a company that is available
for sale and attempt to develop
an investment thesis later. Even worse,
the private equity investors may
purchase an available company and
then attempt to drop in a marginal CEO/
CFO/COO who neither believes in the
investment thesis nor the company.
Those situations are typically destined
for failure.
What trends do you project for this
space?
As an industry, private equity is no
different than other industries. There
are expansions and contractions,
innovations and fads, ups and downs. In
the 1970s and 1980s, private equity
was a relatively new concept and many
private equity investors focused
primarily on large companies. In the
1990s and 2000s, the large company
market became moderately efficient, so
private equity investors began to search
for greater returns in the middle
market. Those investors successfully
found those returns, but in the process
caused the middle market to become
m ore ef f ic ie nt. O ur spe c ulativ e
prediction is that the next wave of
private equity professionals looking for
greater returns will venture into the
lower middle market or small and
medium sized businesses. Approximately 94 percent of US companies
have less than USD 50 million in annual
revenue, yet most bankers and private
equity firms ignore them. Our return
results show that our approach to this
end of the market can generate returns
that exceed the private equity returns
of funds in the upper and middle
markets.

2. About the Private Wealth Management Summit Spring 2014
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About Cascade Partners
Cascade Growth Partners is a private investment fund focused on providing capital to lower-middle market value added
manufacturing, healthcare and technology enabled business services companies. Our focus is on companies that have the potential
to grow significantly, but have been constrained by lack of operating systems/ processes, management experience or capital.
Cascade Partners looks to partner with management in order to provide these missing resources and overcome these constraints.
www.cascade-partners.com
To watch a video about Cascade Growth Partners, please visit: www.cascade-partners.com/fund
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To view the web version of this interview, please click here: www.privatewealthsummit.com/MacGerlach