Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Let's turn to the
Speaker 1: private markets, though, because as appetite for private assets grows.
Speaker 1: Today we learned that I Capital has surpassed two hundred
Speaker 1: billion dollars in global platform assets and for more on
Speaker 1: this exclusive news. I'm pleased to say we're joined now
Speaker 1: by Chairman and CEO Lawrence Kolkano, along with our own
Speaker 1: Shanali bask And we should also note, of course that
Speaker 1: Lawrence will be speaking tomorrow at the Greenwich Economic Forum.
Speaker 2: Lawrence, it's great to have you with us. So two
Speaker 2: hundred billion dollars.
Speaker 1: In AUM you think about private markets, that's a pretty
Speaker 1: broad church. Where are you seeing the most flows right
Speaker 1: now when you dial down into the private markets.
Speaker 3: Sure, so, thank you, Katie, it's great to be here.
Speaker 3: I really appreciate it. So I think you look at
Speaker 3: the flow question from two different perspectives. The first is
Speaker 3: what are the strategies that people are using and then
Speaker 3: sack in what are the structures they're using to get
Speaker 3: into the acid class. So on the strategies, we're really
Speaker 3: seeing a shift more to private credit. If you go
Speaker 3: back two years, back to twenty two, and you remember
Speaker 3: the economic environment was uncertain we were about to start
Speaker 3: a fed rate hike trend and there was really a
Speaker 3: risk off mode in the market. So in that context,
Speaker 3: private credit, which is shorter duration than private equity, people
Speaker 3: started to shift there. Most of the private credit products
Speaker 3: are floating rate, and so people had a natural hedge,
Speaker 3: you know, in their investment. And as time went on
Speaker 3: and interest rates went to you know, five to six percent,
Speaker 3: people were earning almost ten percent or a little bit
Speaker 3: more on their private credit portfolio, which was which was very,
Speaker 3: very exciting. We've seen flows into private credit year to
Speaker 3: date of about forty one percent as compared to private
Speaker 3: equity of thirty four percent, which is a flip from
Speaker 3: last year. And then the other quick point I'd make
Speaker 3: on the structures, we're seeing a big shift to evergreen
Speaker 3: investment structures as opposed to the traditional private placements which
Speaker 3: people had historically always use. And that's really a function
Speaker 3: of more credited investors coming into the asset class and
Speaker 3: those products. We've seen to the tune of about sixty
Speaker 3: percent of the flows year to date versus forty percent
Speaker 3: for the private assets.
Speaker 4: Lawrence and Okatie and I have both been covering the
Speaker 4: advent of a private credit etf Apollo and State Street
Speaker 4: really breaking the gate wide open in terms of seeking approval.
Speaker 4: For one still needs regulatory approval. But let's look around
Speaker 4: the corner for a minute here, and should they get
Speaker 4: this done, how fast you see more of these entry
Speaker 4: in the market, and how will that change the way
Speaker 4: that retail investors access these funds that have been typically
Speaker 4: hard to access.
Speaker 3: So I would say that you know, you're going to
Speaker 3: see more of that, and you've seen it on the
Speaker 3: M and A side with a lot of traditional asset
Speaker 3: managers requiring alternative asset managers, You're going to see more
Speaker 3: and more partnerships come to the for as you're suggesting,
Speaker 3: as people think more holistically about these portfolios. You know,
Speaker 3: we always think that, you know, though we are obviously
Speaker 3: driving the volume in a lot of alternative assets, they
Speaker 3: live somewhere, They live in a portfolio, and they have
Speaker 3: to make sense in the context of the portfolio and
Speaker 3: what the underlying investor is trying to accomplish in that portfolio.
Speaker 2: So I think you're going to see.
Speaker 3: More of these types of arrangements, and I think ultimately
Speaker 3: they will really help the investor because right now, one
Speaker 3: of the challenges that advisors have is making sense of
Speaker 3: how do you allocate how do you bring these alternative
Speaker 3: assets into a portfolio.
Speaker 4: Well, one major issue too is the liquidity profile. When
Speaker 4: people look at the ETFs, they say, well, wait a minute,
Speaker 4: you're taking an elective asset putting it into a very
Speaker 4: liquid structure. But you've seen these interval funds throughout the
Speaker 4: last year, some very successful, but some of course getting
Speaker 4: into some issues when it comes to redemption requests. Are
Speaker 4: investors thinking about that structure, whether it'll be semi liquid,
Speaker 4: do they want daily liquidity or do they not want
Speaker 4: liquidity for these structures at all?
Speaker 3: So look, I think it's really early days right now
Speaker 3: for all of this, and so a lot of people
Speaker 3: are experimenting on how to make this all work. I
Speaker 3: think the one thing you have to keep in mind,
Speaker 3: and that is an alternative asset, generally speaking, is an
Speaker 3: ill liquid investment.
Speaker 2: So when you think about some of the funds that
Speaker 2: might have.
Speaker 3: Had gates put up, which is by the way, a feature,
Speaker 3: not a bug of how those products are designed, they
Speaker 3: are ultimately investing in long lived, I liquid assets, and
Speaker 3: what people are trying to do is figure out how
Speaker 3: to put hospitable wrappers for this market around those products
Speaker 3: so that people can have that access. But you can't
Speaker 3: get away from the fact that these are still, you know,
Speaker 3: the underlying investments are very illiquid, and so people have
Speaker 3: to understand that. I will tell you one of the
Speaker 3: things I find quite frustrat creating is the description of
Speaker 3: these assets is semi liquid, because I think human nature
Speaker 3: being what it is, when people hear semi liquid, they
Speaker 3: hear what they want to hear, and they hear liquid.
Speaker 3: The reality is that these products are generally speaking illiquid
Speaker 3: with some liquidity features, and I think that's a really
Speaker 3: important component of the education that has to go on
Speaker 3: in this space.
Speaker 2: We certainly spend a lot of time on it, as.
Speaker 3: Do many of the leading asset managers, and really helping
Speaker 3: people understand the underlying character of these products and how
Speaker 3: they work and how they're supposed to work for investors.
Speaker 1: Lawrence, it's a great point, and of course making sure
Speaker 1: that it's communicated to perspective retail investors in particular. I
Speaker 1: know a lot of etf issuers who are thinking carefully
Speaker 1: about that topic, but I am curious when it comes
Speaker 1: to retail investors moving into private assets.
Speaker 2: I have to ask why bother when.
Speaker 1: You have public markets that are up twenty one percent
Speaker 1: you're to date on the S and P five hundred,
Speaker 1: for example, what role do you see assets playing in
Speaker 1: the typical portfolio of just the average investor.
Speaker 3: Sure, if you look at the sort of large families,
Speaker 3: family offices, you look at institutions, many of those are
Speaker 3: allocated well in access of fifty percent. If you look
Speaker 3: at the suggested allocations at most of the large private banks,
Speaker 3: they're suggesting allocations of fifteen to twenty five percent into
Speaker 3: alternative investments for their underlying wealth clients. And so the
Speaker 3: view is clearly that there's an opportunity for you know,
Speaker 3: incremental return. People buy these things for the same reasons
Speaker 3: that large families and institutions do. They want and they're
Speaker 3: seeking incremental return opportunities. They're seeking diversification of the portfolio.
Speaker 3: And you think about the private markets today, there are
Speaker 3: hundreds of thousands of private companies and there are four
Speaker 3: or five thousand public companies.
Speaker 2: So if you think about the.
Speaker 3: Market, not investing in is shutting down a very significant.
Speaker 2: Part of the marketplace to the underlying investors.
Speaker 3: So I think privates play a really important role in
Speaker 3: a complete portfolio. Most certainly they will not be for
Speaker 3: everybody because of the liquidity conversations that we had a
Speaker 3: few seconds ago, as well as some other reasons, but
Speaker 3: I think for the right investor base, they can be
Speaker 3: very additive to the portfolio.
Speaker 1: Yeah, it's an interesting point, especially when you think the
Speaker 1: fact about the fact that we aren't seeing a lot
Speaker 1: of IPOs lately. We have seen some delistings, so it
Speaker 1: feels just like the public markets are shrink and going
Speaker 1: into privates. And speaking of privates, you make the points
Speaker 1: in your notes that private credit has had a good run,
Speaker 1: it's had a lot of the mind share as well,
Speaker 1: but you see private equity growing in the months ahead.
Speaker 2: Walk us through that call.
Speaker 3: Sure, So it's sort of the inverse of what I
Speaker 3: talked about earlier, where you know, you have as interest
Speaker 3: rates were coming down, you know, private credit became very
Speaker 3: very attractive. Sorry, as interest rates were going up, private
Speaker 3: credit it became very very attractive given the hedge and frankly,
Speaker 3: the spread between the expected total return on credit that
Speaker 3: was then yielding ten percent and equity was narrowing. As
Speaker 3: we now perhaps start a reduction cycle in interest rates,
Speaker 3: you're going to see the spreads in private credit and
Speaker 3: private equity start to widen again. And I also think
Speaker 3: as we get into sort of that climate, equities tend
Speaker 3: to perform quite well, so we would expect more allocation
Speaker 3: into private equity in the months ahead. But I would
Speaker 3: say very much that the private credit strategies are going
Speaker 3: to be a core part of alternative holdings. And I
Speaker 3: think as you look forward, when you think about how
Speaker 3: people will allocate, at some point, I think people are
Speaker 3: going to stop even referring to these assets as alternative.
Speaker 3: I think people are going to have an equity portfolio,
Speaker 3: and that portfolio is going to have common stocks, ETFs,
Speaker 3: private companies, private.
Speaker 2: Equity funds, maybe some venture funds.
Speaker 3: Private credit portfolio is going to have unis, treasuries, corporate bonds,
Speaker 3: and private credit maybe structured credit, real estate credit, et cetera.
Speaker 3: And you're going to see a blending of the private
Speaker 3: markets and the public markets, and people are going to
Speaker 3: are going to think about, you know, how to combine
Speaker 3: these things to get to the portfolio outcomes they're looking for.
Speaker 1: All right, Lawrence, great conversation, Really appreciate your time. Of course,
Speaker 1: that is Lawrence Kolkano. He is the Chairman and CEO
Speaker 1: of I Capital and thanks of course to Shanali bask