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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in

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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.

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Speaker 2: This week on the podcast, I have yet another extra

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Speaker 2: special guest. There are few people in the world of

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Speaker 2: private equity better positioned to identify and discuss the explosive

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Speaker 2: growth and changes coming to the field. Eric Hirsh has

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Speaker 2: been with the firm Hamilton Lane for nearly thirty years,

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Speaker 2: both as CIO and Head of Strategic Initiatives. Now he's

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Speaker 2: co CEO. I found this conversation to be absolutely fascinating.

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Speaker 2: If you want to get a sense of why this

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Speaker 2: space has been growing so dramatically and what the future

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Speaker 2: of private credit, private capital, private equity, etc. Is going

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Speaker 2: to look like, then you're gonna find this conversation to

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Speaker 2: be absolutely fascinating. With no further ado, Hamilton Lane's co CEO,

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Speaker 2: Eric Hirsh thrilled to be here. So let's start with

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Speaker 2: your background. Bachelor's degree from University of Virginia in nineteen

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Speaker 2: ninety five. Would just study what was the original career plan?

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Speaker 3: I think I had no career plan because I originally

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Speaker 3: studied philosophy, which I think is pretty much the definition

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Speaker 3: of I'm not sure what I'm gonna do with my life.

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Speaker 3: I think I was probably thinking lawyer back then, and

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Speaker 3: I luckily got on a different track and ended up

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Speaker 3: in finance.

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Speaker 2: Huh, really, that's really amusing philosophy. I have discovered that

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Speaker 2: a number of people who have studied philosophy have said

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Speaker 2: it's useful for developing frameworks and thinking about the way

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Speaker 2: to approach management. We'll get to that in a bit.

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Speaker 2: So from philosophy, what drew you to a career in

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Speaker 2: finance and investment management?

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Speaker 3: I was not highly sought after when I was graduating

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Speaker 3: from college. I think it was a combination of the

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Speaker 3: philosophy degree and perhaps a little lack of studying. But

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Speaker 3: I ended up getting lucky and found myself in a

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Speaker 3: public finance firm in Philadelphia called Public Financial Management, And

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Speaker 3: there we were really servicing governments and trying to help

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Speaker 3: them with budgets and bond offerings and the like, and

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Speaker 3: that really taught me the fundamentals of finance. They had

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Speaker 3: an incredibly strong training program Excel modeling and just learning

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Speaker 3: kind of the ins and outs of finance. And it

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Speaker 3: was from there that was sort of the launching point.

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Speaker 2: Did I read this correctly. You specialized in sports stadium financing.

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Speaker 3: Back in the mid nineties, governments were paying for stadiums.

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Speaker 3: They were not being privately financed. They were The belief

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Speaker 3: back then was that this was going to be a

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Speaker 3: big revenue draw for cities if they had these great complexes,

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Speaker 3: and so we had developed one of the expertise early

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Speaker 3: on to help cities go through that process of raising

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Speaker 3: bonds financing that.

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Speaker 2: I'm always fascinated by that because you mentioned excel. If

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Speaker 2: you have a spreadsheet, it's pretty obvious this ain't a

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Speaker 2: money maker for cities. Maybe it's good for the municipal

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Speaker 2: morale or town spirit, but it's a money loser, isn't it.

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Speaker 3: I think what you found was it depended on the location.

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Speaker 3: So Camden Yards in Baltimore, if you remember when that

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Speaker 3: sort of first opened, was a money maker. It totally

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Speaker 3: altered the landscape of that city. Now that didn't prove

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Speaker 3: to be true everywhere that stadiums began to be created,

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Speaker 3: and so today we no longer see a lot of

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Speaker 3: public finance capital going into stadiums. But there was again

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Speaker 3: a moment in time where in the right location it

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Speaker 3: did make sense.

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Speaker 2: That was a deeply depressed area and you pour a

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Speaker 2: billion dollars into it. It certainly helps. But when we

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Speaker 2: look around at other stadiums, it's kind of amazing. To me,

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Speaker 2: looks like socialism. We're going to pay for your means

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Speaker 2: of production as the government, and you get to keep

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Speaker 2: the profits. But it's amazing. It took decades for the

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Speaker 2: taxpayers to kind of and the elected officials to reach

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Speaker 2: that conclusion. You also focused on mergers and acquisitions work

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Speaker 2: in the nineteen nineties. What was that like?

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Speaker 3: Grueling?

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Speaker 2: Gruel?

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Speaker 3: I don't miss it. I think I am happy to

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Speaker 3: have been moved on. I think the good thing about

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Speaker 3: my time as an investment banker was that it really

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Speaker 3: introduced me to private equity. We were mostly looking at

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Speaker 3: selling businesses for privately held businesses with families most often,

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Speaker 3: and selling them into private equity, and so having come

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Speaker 3: from the public finance side, it was really the first

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Speaker 3: time that my eyes got opened up to the fact

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Speaker 3: that there was this whole other industry out there that

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Speaker 3: seemed pretty interesting. And again, in sort of the mid

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Speaker 3: later nineties, the private equity world was just beginning to

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Speaker 3: start to grow up and start to have its first

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Speaker 3: real growth movement.

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Speaker 2: Brothers Harriman a storied firm. What was your experiences like there?

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Speaker 3: Great people. It is a lot of tradition, incredibly long history,

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Speaker 3: particularly interestingly in Philadelphia. The firm had been there going

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Speaker 3: back into the eighteen hundreds where it was more of

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Speaker 3: a sort of a mercantile business, and it was just

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Speaker 3: a good place again to kind of get the basics

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Speaker 3: and the fundamentals of what it meant to be on

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Speaker 3: the corporate side of finance again as opposed to the

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Speaker 3: public side of finance.

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Speaker 2: And if memory serves, they stayed a private partnership way

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Speaker 2: longer than a lot of their peers. Am I am

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Speaker 2: I remembering.

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Speaker 3: I think they still remain.

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Speaker 2: Yeah, I think that's right ship correct, which is despite

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Speaker 2: all the other partnerships having either gone per public or

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Speaker 2: getting acquired by other public firms.

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Speaker 3: Correct.

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Speaker 2: I've always wondered if that's the reason they never ran

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Speaker 2: into trouble during the Great Financial Crisis.

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Speaker 3: I suspect it's a lot of reasons. Again, there's a

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Speaker 3: lot of it's a conservative place by nature. I think

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Speaker 3: it's one of the reasons why clients are attracted to them.

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Speaker 3: Partners have a lot of their capital invested in the

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Speaker 3: business alongside of customers. Also a good business model, and

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Speaker 3: so I think it's just a company that has had

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Speaker 3: tremendous success, but as you said, has kind of remained

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Speaker 3: true to its roots in that private partnership.

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Speaker 2: Yeah. No, that's worked out really well for them. So

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Speaker 2: from Brown Brothers, how'd you make your way to Hamilton Lane?

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Speaker 3: Headhunter came knocking. I was again familiar with the concept

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Speaker 3: of private equity, and I had met some private equity

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Speaker 3: firms in my short time as an investment banker, but

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Speaker 3: the concept of Hamilton Lane and what they did is

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Speaker 3: this kind of solutions provider intermediary was not something that

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Speaker 3: I was familiar with. They were also you're going to

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Speaker 3: continue to have the Philly theme here. They were also

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Speaker 3: headquartered in Philadelphia, so I didn't move very far, but

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Speaker 3: I went over and met some people. Thought it was interesting.

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Speaker 3: Firm was very tiny at the time. It was probably

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Speaker 3: twenty twenty five people. This would have been in nineteen

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Speaker 3: ninety nine and essentially single office business. And the firm

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Speaker 3: had been around for a few years and had had

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Speaker 3: some early success, but at that point in time was

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Speaker 3: still very tiny.

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Speaker 2: And when you began at Hamilton Lane. What was your

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Speaker 2: role there.

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Speaker 3: I joined the investment side as an associate, so I

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Speaker 3: was still a pretty young person and I joined the

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Speaker 3: investment team. Back then was simply one group. There was

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Speaker 3: no areas of specialization like we have today. But within

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Speaker 3: a couple of quick years, I became the chief investment

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Speaker 3: officer and we began to sort of think about the

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Speaker 3: business in a slightly different way. It had been historically

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Speaker 3: solely focused as a consulting company, and once we got

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Speaker 3: into the early two thousands, we began a bit of

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Speaker 3: a migration of adding more of an asset management service offering.

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Speaker 2: So you stayed CIO for like thirteen years.

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Speaker 3: Yeah, fourteen, maybe fourteen or fifteen years.

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Speaker 2: But so that must have been fascinating because the firm grew,

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Speaker 2: the entire private space exploded over the past twenty five years.

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Speaker 2: How did your role as CIO evolve? What did you

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Speaker 2: begin investing in? And then we'll talk a little later

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Speaker 2: about what your investment currently.

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Speaker 3: Everything was changing. So, as I said, the firm itself

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Speaker 3: was very tiny when I first took that role, and

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Speaker 3: while we've grown a lot, I still think of us

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Speaker 3: today as a relatively tiny company in the grand scheme

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Speaker 3: of things. On our tour in here you were mentioning

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Speaker 3: the employee count were one tenth of the Bloomberg employee count.

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Speaker 2: So that's just this building right exactly globally right.

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Speaker 3: So we're a total of a little under eight hundred

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Speaker 3: employees today. And so despite having gone from sort of

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Speaker 3: twenty so odd employees when I got there to about

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Speaker 3: eight hundred today, I still think of us as a

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Speaker 3: small business, but in the CIO role. Everything was evolving.

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Speaker 3: When I first came in, the concept of secondaries was

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Speaker 3: very new, the concept of co investing was relatively new.

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Speaker 3: People were not specializing products in any great way. Fund

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Speaker 3: of funds, which is something that we don't talk much

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Speaker 3: about today, was sort of the norm. That was mostly

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Speaker 3: how limited partners were accessing the private markets. The private

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Speaker 3: markets themselves had not really developed back then. Private credit

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Speaker 3: wasn't really much of a thing, whereas today it's a

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Speaker 3: huge driver of the growth. So I was witnessing and

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Speaker 3: got the experience change on lots of different axes. And

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Speaker 3: it was also for me growing up in the business.

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Speaker 3: I arrived there probably a twenty six year old. I'm

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Speaker 3: fifty two today, and so I've also kind of grown

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Speaker 3: up alongside of the industry.

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Speaker 2: Really interesting when you were first appointed CIO. What sort

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Speaker 2: of investments were you making back then? Was it strictly

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Speaker 2: private equity or was it a smattering of everything.

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Speaker 3: It was primarily private equity. The firm was at that

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Speaker 3: point not really engaged in things like private infrastructure or

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Speaker 3: real estate, and as I had mentioned, credit wasn't a

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Speaker 3: huge part of the industry, so it was mostly leverage

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Speaker 3: buyout's venture capital. And we were again a manager of managers,

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Speaker 3: so most of our investment activity was selecting fund managers

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Speaker 3: on behalf of our clients. Really, the genesis of the

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Speaker 3: firm was quite simple. It was sort of late eighties

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Speaker 3: early nineties. The institutional world was just beginning to make

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Speaker 3: their move into the private markets. Prior to that, kind

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Speaker 3: of in the seventies and into the early eighties, most

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Speaker 3: of the activity, small as it was, was primarily financed

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Speaker 3: by large families, high net worth families, endowments and foundations.

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Speaker 3: Things like public and corporate pensions were not a big

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Speaker 3: participant in the private markets. And with some regulatory changes

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Speaker 3: and with greater awareness, that began to shift, and the

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Speaker 3: founders of Hamilton Lane had a very simple concept, which

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Speaker 3: is people are going to want and need help, and

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Speaker 3: so we were really designed then as we are today

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Speaker 3: to really be a solutions provider to help whichever kind

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Speaker 3: of client is trying to access the private markets, to

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Speaker 3: do so in a way that most and best fits

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Speaker 3: their needs. Our view was that we didn't think that

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Speaker 3: most limited partners, we're going to invest the time, resources

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Speaker 3: and energy to build out large internal teams to cover

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Speaker 3: this asset class, and that has proven to be correct.

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Speaker 3: Most don't. They primarily find a partner, a solutions provider,

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Speaker 3: and we've been that partner of choice now for over

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Speaker 3: thirty years. But that was the business model, and so

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Speaker 3: our evolution has really just kind of mirrored what the

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Speaker 3: industry itself has been doing. Is as credit came online

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Speaker 3: and became bigger, so did we in that space. As

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Speaker 3: infrastructure and real estate developed, so too did we in

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Speaker 3: that space. And so I sort of say that we've

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Speaker 3: been kind of growing right alongside of the asset class.

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Speaker 2: Really really interesting. I'm also intrigued by the idea of

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Speaker 2: quote unquote consultants but with some skin in the game.

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Speaker 2: It's one thing to give advice, good or bad as

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Speaker 2: it might be, but it seems like something else entirely

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Speaker 2: to say, here's our recommendation, and by the way, we're

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Speaker 2: going to co invest our dollars, our personal dollars alongside

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Speaker 2: with you. Tell us a little bit about how that

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Speaker 2: developed and what does that mean for the clients you

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Speaker 2: work with.

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Speaker 3: So, as I said, the firm really began as a

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Speaker 3: consulting firm. That the idea originally was these were going

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Speaker 3: to be new decisions, new asset class for these public

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Speaker 3: pensions and corporate pensions primarily at that time, and that

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Speaker 3: they were going to want someone to make a recommendation

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Speaker 3: that they then could kind of ultimately take the decision themselves.

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Speaker 3: What we found was that the clients realized that this

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Speaker 3: industry was growing quite rapidly, and their need for resources

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Speaker 3: was growing quite rapidly, and the decision making needed to

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Speaker 3: also happen on a quicker pace, and so that consulting

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Speaker 3: model began to morph to the client simply saying we

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Speaker 3: want to just have you handle.

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Speaker 1: This for us.

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Speaker 3: I think the advantage that we've had came from that

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Speaker 3: consulting DNA because it rooted the firm in an incredible

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Speaker 3: client centric mindset that still is a hallmark of our

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Speaker 3: service offering today. So today, while we're primarily doing asset management,

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Speaker 3: we're still doing it in a very bespoke model, a

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Speaker 3: very customer oriented. But to your point, as an asset manager,

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Speaker 3: we're making the decisions, we have the discretion, and we're

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Speaker 3: putting our own capital at risk alongside of the clients.

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Speaker 3: And I think that alignment of interest rings true today

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Speaker 3: as it rang true many many years ago, and so

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Speaker 3: today it's still the biggest user of our balance sheet capital.

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Speaker 3: The firm has invested a huge amount of money alongside

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Speaker 3: of our clients over our history. But doing that sort

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Speaker 3: of asset management alongside of in combination with that really

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Speaker 3: strong customer focus, I think that has been one of

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Speaker 3: the reasons why we've been such a winner.

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Speaker 2: Really interesting, you've been at Hamilton Land for nearly thirty years.

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Speaker 2: I want to talk about the growth of the firm

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Speaker 2: and the parallel growth of the sector private markets. The

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Speaker 2: growth has just been amazing over the past twenty five years.

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Speaker 2: To what do you attribute this explosive increase in size

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Speaker 2: of this sector.

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Speaker 3: I think there's a variety of factors. One the most

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Speaker 3: simple is just performance. If you take a look at

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Speaker 3: aggregated private market performance, and you compare that over five, ten, fifteen,

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Speaker 3: twenty year time periods to the public markets, you're going

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Speaker 3: to see meaningful outperformance. I think the second thing, though,

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Speaker 3: is becoming more recognized, which is diversification. Today our public

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Speaker 3: equity markets have never been more concentrated. A very very

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Speaker 3: small number of companies, all technology oriented, make up a

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Speaker 3: huge portion of the overall market cap. And I think

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Speaker 3: when you sort of see that occurring, in combination with

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Speaker 3: the fact that more and more investors have moved to

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Speaker 3: a passive public equity mindset, it means that you're ending

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Speaker 3: up with these oddly concentrated portfolios and a small number

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Speaker 3: of stocks. The other thing that's happen is that the

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Speaker 3: public markets themselves are growing from a market cap standpoint,

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Speaker 3: but they're not growing from a number of publicly listed companies.

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Speaker 3: In fact, if we go back to the eighties and

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Speaker 3: sort of draw a chart of number of publicly listed

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Speaker 3: companies in the US, that chart is essentially moving down

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Speaker 3: into the right. It's shrinking. So today about four thousand

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Speaker 3: publicly traded businesses. But think about, Barry, how many businesses

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Speaker 3: you interact with every day that are private.

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Speaker 2: It's just of them right, the vast.

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Speaker 3: Majority, and so they employ a huge amount of people

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Speaker 3: in the country and all around the globe. So as

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Speaker 3: an investor, if you want to get access to that

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Speaker 3: part of the economy, a substantially large portion of the economy,

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Speaker 3: the only way to do that is through investing in

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Speaker 3: the private markets. So I think when you combine the performance,

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Speaker 3: the diversification, all of that is resulted in the growth.

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Speaker 3: And yet the private markets remain very, very small. If

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Speaker 3: you took all of the capital raised last year across

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Speaker 3: all of the sub sectors in the industry, it wouldn't

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Speaker 3: be enough to buy Apple.

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Speaker 2: Wow.

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Speaker 3: So if you look at total fundraising again, all private

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Speaker 3: markets fundraising, it accounts for about two percent of the

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Speaker 3: MSCI market cap. So again there's been huge growth, but

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Speaker 3: the public markets themselves have also been growing quite a bit.

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Speaker 3: And so when we put it in context, just like

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Speaker 3: I say Hamilton Lane in context as a relatively small company,

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Speaker 3: so too are the private markets.

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Speaker 2: So how much growth is possible in this space? I'm

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Speaker 2: going to go off script and ask can the private

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Speaker 2: markets ever expand to where they're comparable to what we

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Speaker 2: see in the public markets.

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Speaker 3: You'd have to see an enormous amount of growth for

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Speaker 3: that to happen decades decades, But I think what you

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Speaker 3: see in front of you is I think there are

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Speaker 3: still decades more of growth to occur. The private markets

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Speaker 3: are expanding across lots of different axes, so they've expanded geographically.

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Speaker 3: So if we went back into sort of the eighties,

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Speaker 3: it was basically a US only business, and then you've

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Speaker 3: expanded into Europe, etc. So now it's becoming much more

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Speaker 3: of a global phenomenon. It's also expanded across strategy. We've

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Speaker 3: talked earlier about the fact that credit, for example, is

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Speaker 3: becoming a bigger part infrastructure, real estate, so we've seen

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Speaker 3: that expansion. Now you're also seeing expansion across the client

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Speaker 3: tell So we've gone decades. Were essentially the only entities

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Speaker 3: that were able to access this industry or institutional investors

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Speaker 3: and ultra ultra high net worth investors.

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Speaker 2: So family offices, foundations, endowments, etc.

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Speaker 3: Exactly Today you now see more mass affluent individuals able

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Speaker 3: to access this industry, people with say three to five

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Speaker 3: million dollars of investable assets, of which there are a

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Speaker 3: lot of those people all over the globe. They've been

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Speaker 3: again historically shut out, but with some regulatory changes and

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Speaker 3: new product offerings, they too are now accessing this industry.

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Speaker 3: So I go back to lots of different axis, all

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Speaker 3: of them kind of growing in different ways, and I

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Speaker 3: think that trend still has a long long way to go.

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Speaker 2: Huh, really really interesting, So let's focus on the firm's growth.

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Speaker 2: Obviously the tailwind of the whole industry is helpful, but

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Speaker 2: not every private equity has grown as explosively as Hamilton

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Speaker 2: Lane has. What's been the most surprising thing about the

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Speaker 2: firm's growth to you.

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Speaker 3: Well, I think no one would have predicted that we've

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Speaker 3: got that we would have gotten this large, So I

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Speaker 3: think that in itself has been a surprise. But I

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Speaker 3: think what's been noteworthy you hoped it was going to

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Speaker 3: be true, but you weren't sure, was that could you

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Speaker 3: continue to grow and could you continue to expand again

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Speaker 3: in different ways across geographies, across clientele, and at the

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Speaker 3: same time maintain the firm's core DNA. And I think

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Speaker 3: one of the reasons why the growth has occurred and

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Speaker 3: why the success has been there is that we have

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Speaker 3: done that. The roots of the firm are still very

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Speaker 3: present in how we interact with customers today, how we

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Speaker 3: interact with our own employees, how we interact as a team,

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Speaker 3: how we interact with shareholders. All of that still I

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Speaker 3: think remains kind of very true to the firm's values

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Speaker 3: and foundations, and so being able to achieve both of

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Speaker 3: those was always the goal. Again, always a risk that

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Speaker 3: you don't pull it off, but knock on wood, here

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Speaker 3: we are and we're still doing it.

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Speaker 2: So you described all the various sectors that you've expanded

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Speaker 2: into in the growth that's been there. Let's talk geography.

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Speaker 2: What are the plans for a global expansion.

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Speaker 3: So today we have twenty two offices around the globe,

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Speaker 3: so we already have a very large geographic footprint, and

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Speaker 3: our client base is also about equally split between kind

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Speaker 3: of North America and non North America. So while we're

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Speaker 3: a US headquartered business located outside of Philadelphia, we have

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Speaker 3: a very global feel to the firm in that you

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Speaker 3: have hundreds of employees who are operating outside of the

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Speaker 3: US and my partner in co CEO is a Hong

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Speaker 3: Kong resident and operates out of Asia. So that footprint,

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Speaker 3: combined with the client base, has already established us in

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Speaker 3: a very geographically diversified way. I think as we look forward,

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Speaker 3: I suspect the twenty two offices will continue to grow.

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Speaker 3: We have plans to open up in other locations. And

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Speaker 3: if you look at the map of where we are,

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Speaker 3: there are some very big places where we are not

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Speaker 3: at present. So India, for example, would be a fairly

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Speaker 3: large economy, but so far has had a very small

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Speaker 3: private markets industry. That will change over time, and I

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Speaker 3: think you'll likely see a Hamilton Land office there at

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Speaker 3: some point in the future. So there are a number

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Speaker 3: of places that you can look around the globe and say, well,

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Speaker 3: I can imagine that at some point in time that

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Speaker 3: would make sense to have an office presence there.

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Speaker 2: So in the public markets, the rest of the world

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Speaker 2: has lagged the United States for I don't know the

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Speaker 2: better part of fifteen years, decade and a half, certainly

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Speaker 2: since the end of the financial crisis. This year to

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Speaker 2: date or for the past twelve months, depending on where

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Speaker 2: you're looking around the world, the United States has become

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Speaker 2: a laggart, even though first half of the year we're

385
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Speaker 2: up six percent, pretty decent. Twelve percent run rate is

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Speaker 2: pretty typical. But Europe is doing really well. Asia is

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Speaker 2: doing really well, how do you look at those parts

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Speaker 2: of the world, especially I've been hearing Europe has structural problems,

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Speaker 2: Europe has all these cultural issues, Brexit, Grexit, all these

390
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Speaker 2: different things, and yet Europe really seems to be having

391
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Speaker 2: a banner year. How do you look at that part

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Speaker 2: of the world.

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Speaker 3: I think this is the luxury of being a global

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Speaker 3: firm with global deal flow, and most of our clients

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Speaker 3: take a global view on portfolio construction. They want the

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Speaker 3: best investment opportunities, the best managers that we can access

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Speaker 3: for them, and so in building portfolios, we have the

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Speaker 3: ability to move around the globe to take advantage of

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Speaker 3: whatever we think is interesting at that moment in time. Now,

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Speaker 3: unlike the public markets, we have to be making investment

401
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Speaker 3: decisions with an eye towards how's this going to play

402
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Speaker 3: out over the next sort of three, five, six years,

403
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Speaker 3: because most of the investments that we're making have a

404
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Speaker 3: fairly long duration, again long relative to public markets. So

405
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Speaker 3: once you're investing in a private company, the work then starts,

406
00:22:20,560 --> 00:22:24,199
Speaker 3: the value add then actually is happening, and that exit

407
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Speaker 3: ultimately comes years in the future. So I think our

408
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Speaker 3: investment view has to be balanced. We have to be

409
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Speaker 3: looking both at short term and long term simultaneously to

410
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Speaker 3: decide where you sort of see trends going, how that's

411
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Speaker 3: going to impact the company or manager that you're about

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Speaker 3: to invest in. But we don't have the ability that

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Speaker 3: the public market has, which is to say, two hours

414
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Speaker 3: after making a trade, I'm going to change my mind

415
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Speaker 3: and unwind that. Once we do something, we're going to

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Speaker 3: own it for a while.

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Speaker 2: The liquidity premium is significant and real.

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Speaker 3: It's real. Well, it changes the mindset. I have the

419
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Speaker 3: benefit of interacting with lots of different investment heads who

420
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Speaker 3: run all kinds of different investment firms, and as a

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Speaker 3: public company ourselves, I'm also constantly interacting with our public

422
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Speaker 3: equity shareholders and research analysts, and it is just a

423
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Speaker 3: different mindset. The Hamilton Lane team is thinking about things

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Speaker 3: over many, many years. They're not fixating on what's going

425
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Speaker 3: to happen this week or this quarter with that company.

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Speaker 3: They're thinking, how can I invest a dollar today and

427
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Speaker 3: five years from now turn that dollar into three dollars

428
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Speaker 3: or four dollars. It's just a different orientation.

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Speaker 2: So, prior to becoming CIO, you were head of strategic Initiatives.

430
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Speaker 2: Is that timeline right? Or was that after after So,

431
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Speaker 2: after you are CIO, you become head of strategic Initiatives.

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Speaker 2: It sounds like the different sectors, the different geographies, the

433
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Speaker 2: different clientele fits nicely into that role. Tell us a

434
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Speaker 2: little bit about what that role was like and how

435
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Speaker 2: that eventually led to becoming co CEO.

436
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Speaker 3: What we realized, my partners and I and our board

437
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Speaker 3: was that as we were continuing to evolve, one of

438
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Speaker 3: the areas that we needed to have a real rethink

439
00:24:15,280 --> 00:24:19,440
Speaker 3: on was technology. Having spent fourteen or so years as

440
00:24:19,480 --> 00:24:23,320
Speaker 3: CIO and building out the various investment verticals and putting

441
00:24:23,359 --> 00:24:27,200
Speaker 3: senior leadership in place, really the thought was the best

442
00:24:27,200 --> 00:24:29,359
Speaker 3: place for me to spend the next part of my

443
00:24:29,520 --> 00:24:32,880
Speaker 3: career was doing the same thing on the technology side

444
00:24:32,880 --> 00:24:36,199
Speaker 3: of the business. While Hamilton Lane had embraced technology and

445
00:24:36,320 --> 00:24:39,720
Speaker 3: had various technologies that we had been using. I think

446
00:24:39,760 --> 00:24:43,760
Speaker 3: the view was we sort we foresaw growth accelerating and

447
00:24:43,840 --> 00:24:46,280
Speaker 3: the idea was we needed to really rethink the tech

448
00:24:46,320 --> 00:24:48,879
Speaker 3: stack and we took an interesting approach. So in my

449
00:24:49,000 --> 00:24:51,879
Speaker 3: job as the sort of head of strategic Initiatives, I

450
00:24:52,040 --> 00:24:55,119
Speaker 3: was afforded the opportunity to have access to Hamilton Lane's

451
00:24:55,160 --> 00:24:58,880
Speaker 3: balance sheet capital, and in using that balance sheet capital,

452
00:24:59,280 --> 00:25:02,399
Speaker 3: we went off into establish partnerships with a variety of

453
00:25:02,520 --> 00:25:06,800
Speaker 3: primarily tech startups that were focused on the private markets.

454
00:25:07,359 --> 00:25:09,520
Speaker 3: So what we were doing was we were starting to

455
00:25:09,600 --> 00:25:12,800
Speaker 3: meet with these firms who were trying to identify problems

456
00:25:13,359 --> 00:25:15,800
Speaker 3: and areas that we're going to impede scaling in the

457
00:25:15,800 --> 00:25:18,840
Speaker 3: private markets, and we took an ownership stake in a

458
00:25:18,920 --> 00:25:22,080
Speaker 3: variety of these businesses. To date, we've done over fifteen

459
00:25:22,240 --> 00:25:26,240
Speaker 3: transactions where we've taken anywhere from very small ownership stakes

460
00:25:26,240 --> 00:25:29,000
Speaker 3: to very very large ownership stakes. And the benefit of

461
00:25:29,000 --> 00:25:31,040
Speaker 3: doing it with balance sheet capital was we got to

462
00:25:31,080 --> 00:25:34,800
Speaker 3: be unlimitedly patient. There was no pressure of us to

463
00:25:34,800 --> 00:25:37,240
Speaker 3: have to exit. We weren't using client capital, we weren't

464
00:25:37,280 --> 00:25:40,600
Speaker 3: using fund capital, and thought our thinking was, if this

465
00:25:40,640 --> 00:25:42,800
Speaker 3: is going to be something that's good for us, it's

466
00:25:42,840 --> 00:25:44,960
Speaker 3: going to probably be good for others in the industry,

467
00:25:45,440 --> 00:25:47,880
Speaker 3: And if we're going to be helping to drive these

468
00:25:47,920 --> 00:25:51,120
Speaker 3: businesses and to help give them ideas and real time

469
00:25:51,160 --> 00:25:54,679
Speaker 3: feedback and become a customer, then we'd rather align with

470
00:25:54,720 --> 00:25:57,359
Speaker 3: them by actually being an owner as well. So I

471
00:25:57,440 --> 00:26:01,800
Speaker 3: spent several years developing and sourcing and working on these

472
00:26:01,880 --> 00:26:05,600
Speaker 3: various partnerships with some other Hamilton Lane people to try

473
00:26:05,600 --> 00:26:08,719
Speaker 3: to get us into a much better position to have

474
00:26:08,800 --> 00:26:13,080
Speaker 3: a market leading tech stack. A variety of these strategic partnerships,

475
00:26:13,520 --> 00:26:15,880
Speaker 3: and we've had a couple of these that have exited

476
00:26:15,960 --> 00:26:17,800
Speaker 3: very successfully. So it was also a good use of

477
00:26:17,840 --> 00:26:18,800
Speaker 3: balance sheet capital.

478
00:26:19,240 --> 00:26:21,520
Speaker 2: So let's talk a little bit about one of the

479
00:26:21,640 --> 00:26:26,040
Speaker 2: companies that you guys are founding members of, which is Novada,

480
00:26:26,080 --> 00:26:30,480
Speaker 2: which is a tech platform providing private markets with ESG

481
00:26:30,720 --> 00:26:34,359
Speaker 2: data and benchmarking analytics. Tell us a little bit about

482
00:26:34,480 --> 00:26:36,560
Speaker 2: Novada and how that's working.

483
00:26:36,320 --> 00:26:39,240
Speaker 3: At This is a great example of seeing a problem

484
00:26:39,320 --> 00:26:43,560
Speaker 3: and not seeing an obvious solution. Our clients no different

485
00:26:43,600 --> 00:26:46,080
Speaker 3: than they focus on the public equity side. If they

486
00:26:46,080 --> 00:26:49,320
Speaker 3: want to understand what's sort of happening around ESG issues

487
00:26:49,359 --> 00:26:52,320
Speaker 3: with companies that they're investing in, and so they're beginning

488
00:26:52,320 --> 00:26:56,800
Speaker 3: to ask for various data points and various tracking. There

489
00:26:56,840 --> 00:26:59,840
Speaker 3: was no system to do this, and what you all

490
00:27:00,000 --> 00:27:03,639
Speaker 3: also realized very quickly was that investors did not have

491
00:27:03,720 --> 00:27:07,800
Speaker 3: a one size fits all approach to this. An investor

492
00:27:07,840 --> 00:27:11,879
Speaker 3: in Norway has a very different orientation around what ESG

493
00:27:12,119 --> 00:27:15,280
Speaker 3: means to them than an investor in Japan or an

494
00:27:15,320 --> 00:27:18,280
Speaker 3: investor in Saudi Arabia. And so trying to say to

495
00:27:18,680 --> 00:27:21,200
Speaker 3: all these investors, oh, here's the one way you have

496
00:27:21,320 --> 00:27:24,640
Speaker 3: to look at it, we thought was a total losing proposition.

497
00:27:25,280 --> 00:27:28,000
Speaker 3: We also thought that, frankly, the ESG metrics in the

498
00:27:28,000 --> 00:27:30,920
Speaker 3: way that scoring is working on the public equity side

499
00:27:31,400 --> 00:27:35,080
Speaker 3: was a little bit nonsensical. And so take us, for

500
00:27:35,119 --> 00:27:38,359
Speaker 3: an example, Hamilton Lane in the public equity world has

501
00:27:38,400 --> 00:27:42,359
Speaker 3: a pretty lousy ESG score. Well, we have an incredibly

502
00:27:42,400 --> 00:27:45,760
Speaker 3: good environmental footprint. We do all kinds of carbon offsetting,

503
00:27:46,119 --> 00:27:49,959
Speaker 3: so no issue there. We have very positive societal impact.

504
00:27:50,040 --> 00:27:53,560
Speaker 3: We're helping with an awful lot of retirement benefits, were

505
00:27:53,600 --> 00:27:56,440
Speaker 3: consistently listed as a best place to work in providing

506
00:27:56,480 --> 00:28:01,080
Speaker 3: employees with a healthy and constructive work environment. So why

507
00:28:01,160 --> 00:28:04,120
Speaker 3: is there a score problem? Well, we're a controlled company

508
00:28:04,119 --> 00:28:04,960
Speaker 3: in the public world.

509
00:28:05,480 --> 00:28:07,120
Speaker 2: Define what a controlled company.

510
00:28:07,160 --> 00:28:11,960
Speaker 3: Controlled company means that the insiders some shareholders, have super

511
00:28:12,080 --> 00:28:17,480
Speaker 3: voting shares, and so we are technically controlled by those

512
00:28:17,520 --> 00:28:21,000
Speaker 3: inside shareholders as opposed to our outside shareholder.

513
00:28:21,000 --> 00:28:24,760
Speaker 2: Shouldn't that be a different scoring for a private company.

514
00:28:24,800 --> 00:28:27,359
Speaker 2: Then it's one thing if you're a public company with

515
00:28:27,480 --> 00:28:30,840
Speaker 2: tens of millions of shareholders, Like I am not a

516
00:28:30,840 --> 00:28:34,800
Speaker 2: big fan of the Facebook management structure, and we saw

517
00:28:34,880 --> 00:28:40,840
Speaker 2: something similar chops like Fharahos and Uber and other places

518
00:28:40,840 --> 00:28:44,600
Speaker 2: that ran into we work as another example. You're less

519
00:28:44,640 --> 00:28:49,440
Speaker 2: than a thousand employees, the founding partners are mostly still there.

520
00:28:49,760 --> 00:28:53,800
Speaker 2: Why shouldn't the founders have Maybe I'm speaking my book here,

521
00:28:53,840 --> 00:28:56,800
Speaker 2: but why shouldn't the founders have super majority?

522
00:28:56,840 --> 00:28:58,840
Speaker 3: I think our investors liked it, yea. That was the

523
00:28:58,880 --> 00:29:01,120
Speaker 3: irony was that they liked the alignment. They liked that

524
00:29:01,160 --> 00:29:03,080
Speaker 3: we were again a lot of our capitals at risk.

525
00:29:03,120 --> 00:29:05,600
Speaker 3: Alongside of there, our clients, like at shareholders liked it.

526
00:29:06,200 --> 00:29:08,080
Speaker 3: But again in sort of the way the public equity

527
00:29:08,320 --> 00:29:12,200
Speaker 3: ESG scoring works, it's a little bit blind to nuance.

528
00:29:12,320 --> 00:29:16,160
Speaker 3: It's controlled company bad therefore bad score. So as we

529
00:29:16,160 --> 00:29:18,640
Speaker 3: were looking at ESG for the private world, we didn't

530
00:29:18,680 --> 00:29:21,160
Speaker 3: want to replicate what we saw the mistakes being made

531
00:29:21,200 --> 00:29:23,840
Speaker 3: we thought on the public side, and there wasn't really

532
00:29:23,920 --> 00:29:27,160
Speaker 3: anything out there at the time, and so we created

533
00:29:27,200 --> 00:29:29,360
Speaker 3: from huole cloth. We came together, We met some of

534
00:29:29,400 --> 00:29:34,000
Speaker 3: the now management team of Nevada, shared a philosophy around

535
00:29:34,040 --> 00:29:37,000
Speaker 3: the problem that we were trying to solve. Gathered up

536
00:29:37,040 --> 00:29:43,560
Speaker 3: a group of various shareholders now including the Ford Foundation, SMP, Microsoft,

537
00:29:43,880 --> 00:29:48,640
Speaker 3: a lot of other interesting institutional investors, and we literally

538
00:29:48,720 --> 00:29:52,680
Speaker 3: created Nevada from hl Cloth and now today Nevada is

539
00:29:52,760 --> 00:29:57,640
Speaker 3: the world's largest collector of ESG data for private companies,

540
00:29:58,200 --> 00:30:03,560
Speaker 3: client bases all over the globe. Huge database, interesting technology,

541
00:30:03,760 --> 00:30:08,239
Speaker 3: interesting solution, and allowing investors and clients of Nevada to

542
00:30:08,320 --> 00:30:12,520
Speaker 3: consume data how they want to consume it, rather than

543
00:30:12,560 --> 00:30:16,040
Speaker 3: giving some arbitrary scorecard that says this is how you

544
00:30:16,080 --> 00:30:19,200
Speaker 3: should look at it, or instead empowering people by saying,

545
00:30:19,480 --> 00:30:22,080
Speaker 3: here's the data. You do with the data that you

546
00:30:22,160 --> 00:30:24,120
Speaker 3: think is best for you and your organization.

547
00:30:24,400 --> 00:30:27,680
Speaker 2: Huh. Really really fascinating. So let's talk a little bit

548
00:30:27,720 --> 00:30:30,720
Speaker 2: about some of the most significant changes that are going

549
00:30:30,760 --> 00:30:34,720
Speaker 2: on in the private markets. What's the difference between today

550
00:30:35,200 --> 00:30:36,680
Speaker 2: and the nineteen nineties.

551
00:30:37,080 --> 00:30:39,320
Speaker 3: I think it depends on which vertical we want to

552
00:30:39,360 --> 00:30:42,200
Speaker 3: focus on. I would say probably the biggest difference is

553
00:30:42,240 --> 00:30:45,280
Speaker 3: really around the client base. In the nineties, as we

554
00:30:45,320 --> 00:30:49,160
Speaker 3: had mentioned, it was really just a game for institutional investors,

555
00:30:49,720 --> 00:30:53,840
Speaker 3: and today that's no longer true. Today, the retail investor

556
00:30:53,920 --> 00:30:57,280
Speaker 3: has finally been afforded the opportunity to take advantage of

557
00:30:57,320 --> 00:30:59,720
Speaker 3: what the institutional investor has been taking advantage of for

558
00:30:59,760 --> 00:31:03,760
Speaker 3: men many many years. So that's the biggest change I

559
00:31:03,840 --> 00:31:06,960
Speaker 3: think on the investing side. The expansion of some of

560
00:31:07,000 --> 00:31:10,040
Speaker 3: the verticals is also a big change. Private credit has

561
00:31:10,160 --> 00:31:15,280
Speaker 3: really taken over from banks, particularly regional banks as well

562
00:31:15,280 --> 00:31:19,400
Speaker 3: as large banks, in being the primary provider of lending

563
00:31:19,480 --> 00:31:23,040
Speaker 3: capital to businesses. That's been a huge sea change. If

564
00:31:23,080 --> 00:31:25,320
Speaker 3: we had gone back into the eighties or nineties, or

565
00:31:25,360 --> 00:31:28,360
Speaker 3: even in the two thousands, and you were a local

566
00:31:28,440 --> 00:31:32,080
Speaker 3: business owner that had a small factory and a town

567
00:31:32,160 --> 00:31:35,920
Speaker 3: in the Midwest US, and you wanted to expand and

568
00:31:36,240 --> 00:31:39,360
Speaker 3: add another factory, you would have probably gotten in your

569
00:31:39,360 --> 00:31:41,800
Speaker 3: car and driven down to your local bank where you

570
00:31:41,880 --> 00:31:44,680
Speaker 3: knew the bank manager and they knew you because you

571
00:31:44,680 --> 00:31:47,400
Speaker 3: were the big employer in that town, and you said,

572
00:31:47,400 --> 00:31:49,800
Speaker 3: I'm going to build another factory, and they said great,

573
00:31:50,280 --> 00:31:51,880
Speaker 3: and they were going to give you a loan to

574
00:31:52,000 --> 00:31:56,920
Speaker 3: do that. That's really not existing much anymore. Private credit

575
00:31:56,960 --> 00:32:01,120
Speaker 3: has really taken that over in a much more programmatic way.

576
00:32:01,240 --> 00:32:03,960
Speaker 3: So I think there's a couple of big examples of

577
00:32:04,000 --> 00:32:06,440
Speaker 3: some of the changes that you're seeing across the asset class.

578
00:32:06,760 --> 00:32:09,960
Speaker 2: You know, it's interesting because I have a recollection of

579
00:32:10,000 --> 00:32:13,640
Speaker 2: the late nineties early two thousands, and as all the

580
00:32:13,840 --> 00:32:18,320
Speaker 2: large money center brokers and banks just became larger and

581
00:32:18,360 --> 00:32:22,680
Speaker 2: moved upscale upstream, there was a void created behind them,

582
00:32:22,680 --> 00:32:28,040
Speaker 2: and private equity filled that void. On the mercantile banking

583
00:32:28,160 --> 00:32:31,320
Speaker 2: and private equity side, it sounds like you're saying the

584
00:32:31,360 --> 00:32:34,120
Speaker 2: exact same thing happened on the private credit side. Banks

585
00:32:34,120 --> 00:32:37,400
Speaker 2: got bigger and they left their smaller, mid sized clients behind.

586
00:32:37,600 --> 00:32:40,400
Speaker 3: They got bigger, and they got regulated in a way

587
00:32:40,400 --> 00:32:44,280
Speaker 3: that made it harder for them to participate here. And

588
00:32:44,800 --> 00:32:47,160
Speaker 3: I think the private credit firms have frankly just done

589
00:32:47,160 --> 00:32:51,360
Speaker 3: a better job of making that an asset class and

590
00:32:51,400 --> 00:32:55,800
Speaker 3: making that both accessible to borrower and lender. And so

591
00:32:55,880 --> 00:32:58,640
Speaker 3: I think all of that has actually been a positive development.

592
00:32:58,920 --> 00:33:05,160
Speaker 2: So I've a credit both expanded. How about infrastructure expansion there? Really?

593
00:33:05,200 --> 00:33:07,880
Speaker 3: I mean, if you look around the globe, we can

594
00:33:07,920 --> 00:33:10,840
Speaker 3: go anywhere very quickly and see that there's huge need

595
00:33:10,920 --> 00:33:18,240
Speaker 3: for infrastructure overhaul our systems, roads, telcom, power sources, all

596
00:33:18,280 --> 00:33:21,200
Speaker 3: of that is aging in a way that governments are

597
00:33:21,200 --> 00:33:23,800
Speaker 3: just frankly not able to keep up with it, and

598
00:33:23,840 --> 00:33:26,719
Speaker 3: they're not able to finance it, And so you're seeing

599
00:33:26,800 --> 00:33:32,080
Speaker 3: more partnerships with private infrastructure to go and deal with again,

600
00:33:32,160 --> 00:33:36,200
Speaker 3: whether it's transportation needs or energy needs, all of that

601
00:33:36,320 --> 00:33:39,200
Speaker 3: becoming much more in the purview of the private markets.

602
00:33:40,360 --> 00:33:44,760
Speaker 2: So we've seen a torrent of capital entering a variety

603
00:33:44,760 --> 00:33:48,840
Speaker 2: of different private investment strategies. When I see that much

604
00:33:48,920 --> 00:33:53,240
Speaker 2: money piling into a space, the first question that comes

605
00:33:53,280 --> 00:33:56,280
Speaker 2: to mind is, Hey, are there enough good deals to

606
00:33:56,360 --> 00:34:00,000
Speaker 2: go around for all this capital find a home or

607
00:34:00,080 --> 00:34:02,760
Speaker 2: or are we just seeing a sea of cash just

608
00:34:03,600 --> 00:34:05,440
Speaker 2: washing over too few deals.

609
00:34:05,640 --> 00:34:09,279
Speaker 3: I think, like in anything, people do things better and

610
00:34:09,360 --> 00:34:12,640
Speaker 3: some people do things worse. I think the interesting part

611
00:34:12,680 --> 00:34:16,040
Speaker 3: with the private markets is that capital flows have really

612
00:34:16,160 --> 00:34:19,080
Speaker 3: not been a good barometer of much of anything. So

613
00:34:19,120 --> 00:34:22,400
Speaker 3: in years where you've seen lots of capital raised, you

614
00:34:22,480 --> 00:34:26,359
Speaker 3: haven't seen any correlation to performance, good or bad. And

615
00:34:26,400 --> 00:34:28,880
Speaker 3: in fact, if you look at performance over long periods

616
00:34:28,920 --> 00:34:31,520
Speaker 3: of time, one thing that has been true is that

617
00:34:31,560 --> 00:34:35,719
Speaker 3: the dispersion of performance has remained very wide. Pundits would

618
00:34:35,760 --> 00:34:37,920
Speaker 3: have said and did say twenty years ago. Well, as

619
00:34:37,960 --> 00:34:42,400
Speaker 3: the industry matures, the dispersion will shrink and the difference

620
00:34:42,400 --> 00:34:45,040
Speaker 3: between top and bottom will become very small because the

621
00:34:45,040 --> 00:34:48,520
Speaker 3: markets will quote become more efficient. And in fact, that

622
00:34:48,560 --> 00:34:50,440
Speaker 3: hasn't happened at all, and it hasn't happened for a

623
00:34:50,440 --> 00:34:53,680
Speaker 3: pretty basic reason. If you think about what is a

624
00:34:53,719 --> 00:34:57,319
Speaker 3: private equity investment, you're literally partnering with management to run

625
00:34:57,360 --> 00:34:59,840
Speaker 3: a company. And so one of the examples I always

626
00:34:59,840 --> 00:35:02,680
Speaker 3: say when I'm talking to audiences about this topic is

627
00:35:03,360 --> 00:35:06,080
Speaker 3: if I put ten people out out of the audience,

628
00:35:06,520 --> 00:35:08,600
Speaker 3: and I gave each of the ten a chance to

629
00:35:08,640 --> 00:35:12,960
Speaker 3: be the CEO of this particular business for a year,

630
00:35:13,640 --> 00:35:17,000
Speaker 3: we would have ten wildly different outcomes because each of

631
00:35:17,040 --> 00:35:20,200
Speaker 3: the ten would make very different decisions on marketing and

632
00:35:20,239 --> 00:35:24,560
Speaker 3: manufacturing and hiring and culture. And so whether there's more

633
00:35:24,680 --> 00:35:27,920
Speaker 3: or less capital thrown at that company, it's not going

634
00:35:28,000 --> 00:35:30,160
Speaker 3: to alter the outcome. What's going to alter the outcome

635
00:35:30,200 --> 00:35:33,839
Speaker 3: primarily is what decisions were being made, and were they

636
00:35:33,880 --> 00:35:37,000
Speaker 3: good decisions or bad decisions. It's sort of the very

637
00:35:37,080 --> 00:35:41,120
Speaker 3: definition of active management, where people are hands on with

638
00:35:41,200 --> 00:35:46,239
Speaker 3: that company making choices, fundamental choices. So some people make

639
00:35:46,280 --> 00:35:49,600
Speaker 3: better choices than others, and so the dispersion remains very,

640
00:35:49,719 --> 00:35:53,040
Speaker 3: very high despite the fact that more and more capital

641
00:35:53,080 --> 00:35:56,759
Speaker 3: continues to move into the business, and one of those

642
00:35:56,800 --> 00:36:00,480
Speaker 3: choices is around deal flow. Not every manager has an

643
00:36:00,520 --> 00:36:03,880
Speaker 3: equal access to the same deal flow. In fact, proprietary

644
00:36:03,920 --> 00:36:06,319
Speaker 3: deal flow is very much still alive and well in

645
00:36:06,360 --> 00:36:10,000
Speaker 3: the private markets because there's no screen that they can

646
00:36:10,120 --> 00:36:13,200
Speaker 3: log into to simply look up, hey, what's available to

647
00:36:13,239 --> 00:36:16,640
Speaker 3: buy today. In the private markets, it's really about getting

648
00:36:16,719 --> 00:36:21,920
Speaker 3: out there, unearthing opportunities, networking, meeting with management teams, meeting

649
00:36:21,920 --> 00:36:24,439
Speaker 3: with sellers. All of that is a skill set. All

650
00:36:24,440 --> 00:36:27,680
Speaker 3: of that is frankly unequal, and all of that then

651
00:36:27,840 --> 00:36:31,440
Speaker 3: leads to way better outcomes or way worse outcomes.

652
00:36:31,840 --> 00:36:35,040
Speaker 2: Yeah, I'm surprised to hear that pundits would have imagined

653
00:36:35,080 --> 00:36:39,160
Speaker 2: that that dispersion would narrow when we look in other areas.

654
00:36:39,160 --> 00:36:43,320
Speaker 2: It doesn't matter ETF's mutual funds facs. Pick your public

655
00:36:43,880 --> 00:36:47,759
Speaker 2: investment strategy almost a winner take all scenario when a

656
00:36:47,880 --> 00:36:51,960
Speaker 2: group of also runs. The winners have a flywheel where

657
00:36:52,000 --> 00:36:56,480
Speaker 2: all these advantages accumulate and compound and work to the

658
00:36:56,480 --> 00:37:01,480
Speaker 2: benefit of those who were early and right like why

659
00:37:01,520 --> 00:37:05,080
Speaker 2: would anyone really imagine that that dispersion would narrow. You

660
00:37:05,160 --> 00:37:07,680
Speaker 2: certainly haven't seen it in mutual funds or anything in

661
00:37:07,719 --> 00:37:11,400
Speaker 2: the private markets. It looks like, hey, if you have

662
00:37:11,520 --> 00:37:14,440
Speaker 2: an advantage and you've been successful for a while, you

663
00:37:14,440 --> 00:37:16,600
Speaker 2: should be able to continue to build on that advantage.

664
00:37:16,640 --> 00:37:18,399
Speaker 3: I think the mistake that people made is that they

665
00:37:18,440 --> 00:37:21,400
Speaker 3: just simply made the kind of bold and incorrect assumption

666
00:37:22,080 --> 00:37:27,960
Speaker 3: that time or growth or scale would sort of cause

667
00:37:28,000 --> 00:37:31,399
Speaker 3: a reversion of return or a reversion to the mean,

668
00:37:31,480 --> 00:37:34,520
Speaker 3: or a collapsing of dispersion. And it just goes back

669
00:37:34,520 --> 00:37:37,560
Speaker 3: to what we just said, No, this is about a

670
00:37:37,680 --> 00:37:41,400
Speaker 3: skill set and what choices you make with the business,

671
00:37:41,520 --> 00:37:44,359
Speaker 3: and what choices you make with your own business. And

672
00:37:44,800 --> 00:37:47,880
Speaker 3: again you've got winners and losers. What's not happening in

673
00:37:47,920 --> 00:37:50,759
Speaker 3: our industry is there's not a winner take all. There

674
00:37:50,760 --> 00:37:54,280
Speaker 3: are thousands of private fund managers around the globe, operating

675
00:37:54,320 --> 00:37:57,600
Speaker 3: in different geographies and across different styles and strategies, and

676
00:37:57,640 --> 00:38:00,239
Speaker 3: that number has generally continued to grow year after year

677
00:38:00,280 --> 00:38:03,680
Speaker 3: after year. So lots and lots of fund managers. And

678
00:38:03,719 --> 00:38:06,640
Speaker 3: if we then put them on a plot chart across performance,

679
00:38:07,160 --> 00:38:10,200
Speaker 3: you'd sort of see a big gapping between the top coretile,

680
00:38:10,600 --> 00:38:13,880
Speaker 3: which is still a huge number of managers, could be

681
00:38:13,920 --> 00:38:16,520
Speaker 3: over well over a thousand managers who are in the

682
00:38:16,520 --> 00:38:20,560
Speaker 3: top quartile relative to the bottom couretile, and then you

683
00:38:20,600 --> 00:38:22,400
Speaker 3: sort of see everything that's kind of in the middle.

684
00:38:22,480 --> 00:38:25,640
Speaker 3: So lots of choice for investors. But it's also why

685
00:38:25,800 --> 00:38:29,919
Speaker 3: frankly affirm like ours has the ability to exist. Navigating

686
00:38:29,960 --> 00:38:33,080
Speaker 3: all of that is hard. It takes a lot of resources,

687
00:38:33,120 --> 00:38:34,960
Speaker 3: a lot of expertise, a lot of data, a lot

688
00:38:34,960 --> 00:38:38,280
Speaker 3: of technology to try to figure out from those thousands

689
00:38:38,280 --> 00:38:40,640
Speaker 3: of choices, which ones do you want to put in

690
00:38:40,680 --> 00:38:41,680
Speaker 3: your portfolio.

691
00:38:41,520 --> 00:38:45,400
Speaker 2: So Sturgeon's law applies to private capital and private equity

692
00:38:45,480 --> 00:38:49,279
Speaker 2: and private credit as well as everything else. I was

693
00:38:49,360 --> 00:38:54,320
Speaker 2: kind of taken by a quote of yours earlier this spring.

694
00:38:54,360 --> 00:38:58,279
Speaker 2: You said this could be a choppy summer. What does

695
00:38:58,320 --> 00:39:00,640
Speaker 2: that mean and why do you expect choppy?

696
00:39:01,000 --> 00:39:04,040
Speaker 3: Well, I think what's happening in the US politically has

697
00:39:04,120 --> 00:39:11,400
Speaker 3: been very choppy. Tariffs, changes in the labor workforce, new regulations,

698
00:39:11,719 --> 00:39:17,080
Speaker 3: changes in tax code. It's a lot of altering the landscape.

699
00:39:17,120 --> 00:39:18,960
Speaker 3: And so I think one of the reasons why we

700
00:39:19,000 --> 00:39:22,200
Speaker 3: have seen a fair amount of public market volatility. While

701
00:39:22,200 --> 00:39:24,799
Speaker 3: it's generally been still moving up, we've seen a fair

702
00:39:24,840 --> 00:39:28,840
Speaker 3: amount of volatility. And in our world, it's harder to

703
00:39:28,960 --> 00:39:33,960
Speaker 3: price assets today because you're trying to look ahead to see, okay,

704
00:39:34,480 --> 00:39:37,239
Speaker 3: does this company have exposure to something that might be

705
00:39:37,360 --> 00:39:40,719
Speaker 3: tariff impacted? How much exposure and what will be the

706
00:39:40,760 --> 00:39:43,480
Speaker 3: tariff impact and how long will the tariff impact be

707
00:39:43,520 --> 00:39:47,000
Speaker 3: in place? So what you've seen in our industry is

708
00:39:47,040 --> 00:39:53,080
Speaker 3: that deal volume, deal doing remains relatively healthy, deal exiting

709
00:39:53,600 --> 00:39:54,600
Speaker 3: remains pretty slow.

710
00:39:55,480 --> 00:39:58,040
Speaker 2: Is that driven by the lack of an IPO market

711
00:39:58,239 --> 00:40:00,440
Speaker 2: or reduction in M and A or I.

712
00:40:00,360 --> 00:40:02,680
Speaker 3: Think it's more back to the choppiness to use my

713
00:40:02,719 --> 00:40:05,879
Speaker 3: own word of is today really the day I want

714
00:40:05,920 --> 00:40:09,120
Speaker 3: to sell this company to maximize value? And by the

715
00:40:09,120 --> 00:40:12,520
Speaker 3: way that potential buyer is also thinking to themselves, is

716
00:40:12,560 --> 00:40:15,200
Speaker 3: today the data I actually want to buy this business?

717
00:40:15,600 --> 00:40:17,920
Speaker 3: Could the price get lower tomorrow? Or might it get

718
00:40:18,000 --> 00:40:21,280
Speaker 3: higher tomorrow? So I would say we haven't seen buyer

719
00:40:21,400 --> 00:40:25,960
Speaker 3: and seller agree to what norm is, and they're both

720
00:40:26,040 --> 00:40:31,080
Speaker 3: kind of staring off at each other, looking to see higher, lower, better, worse,

721
00:40:31,480 --> 00:40:33,880
Speaker 3: And the result of that is causing sort of a

722
00:40:34,000 --> 00:40:36,960
Speaker 3: lack of this volume across the industry.

723
00:40:37,440 --> 00:40:41,960
Speaker 2: Huh, really really interesting. So the equity markets seem to

724
00:40:42,239 --> 00:40:45,439
Speaker 2: have figured out, for lack of a better phrase, hey,

725
00:40:45,600 --> 00:40:49,880
Speaker 2: most of this lack of clarity around tariffs is going

726
00:40:49,920 --> 00:40:52,160
Speaker 2: to go away, that there's a little bit of the

727
00:40:52,239 --> 00:40:55,600
Speaker 2: taco trade and that this is a negotiating tactic and

728
00:40:55,680 --> 00:41:02,040
Speaker 2: eventually will have ten fifteen percent marginally higher than we

729
00:41:02,160 --> 00:41:06,440
Speaker 2: had before, but nothing that's going to push the economy

730
00:41:06,480 --> 00:41:09,840
Speaker 2: into a recession. Do you think that's a fair assessment

731
00:41:09,960 --> 00:41:13,759
Speaker 2: or perhaps the public markets are being a little too optimistic.

732
00:41:14,360 --> 00:41:17,600
Speaker 3: I think it's a reasonable assessment. And the end, the

733
00:41:17,600 --> 00:41:22,160
Speaker 3: public markets have the advantage of momentum. If everyone can

734
00:41:22,200 --> 00:41:25,840
Speaker 3: kind of collectively agree and kind of drink that kool aid,

735
00:41:26,360 --> 00:41:28,600
Speaker 3: then you get the benefit of the sort of the

736
00:41:28,640 --> 00:41:31,920
Speaker 3: tide is rising. It's different in the private markets. If

737
00:41:31,960 --> 00:41:33,760
Speaker 3: you and I are out there to go do a deal,

738
00:41:34,320 --> 00:41:38,000
Speaker 3: we're about to walk away owning a company. Well, we're

739
00:41:38,040 --> 00:41:41,160
Speaker 3: going to live and die by that company's actual results,

740
00:41:41,640 --> 00:41:45,640
Speaker 3: and so hoping that tariff impacts will be either non

741
00:41:45,640 --> 00:41:47,960
Speaker 3: existent or hoping that they will change or that they

742
00:41:47,960 --> 00:41:51,759
Speaker 3: will be short lived, that's not a strategy because if

743
00:41:51,760 --> 00:41:55,040
Speaker 3: we're wrong, that company's earnings and revenue is going to

744
00:41:55,080 --> 00:41:58,040
Speaker 3: be fundamentally altered, and then we're gonna have a hard

745
00:41:58,040 --> 00:42:01,000
Speaker 3: time selling that company. So I think you have a

746
00:42:01,040 --> 00:42:04,879
Speaker 3: difference of in the public equity world, I see much

747
00:42:04,960 --> 00:42:09,439
Speaker 3: more macro overlay because you're sort of trying to figure out, yes,

748
00:42:09,520 --> 00:42:11,160
Speaker 3: is this a good company, and how do I assess

749
00:42:11,200 --> 00:42:13,719
Speaker 3: the company? And at the same time you're trying to

750
00:42:13,760 --> 00:42:17,319
Speaker 3: figure out, well, generally what direction are the markets going in?

751
00:42:17,880 --> 00:42:21,200
Speaker 3: But on the private side, a lot less macro overlay

752
00:42:21,280 --> 00:42:25,080
Speaker 3: and much more fundamental focus on that single asset.

753
00:42:25,280 --> 00:42:27,960
Speaker 2: You don't get the same tailwind from the sector and

754
00:42:28,040 --> 00:42:31,160
Speaker 2: the market overall in private markets that perhaps you get

755
00:42:31,200 --> 00:42:31,480
Speaker 2: in part.

756
00:42:31,640 --> 00:42:33,680
Speaker 3: You get some of that when it comes time to sell.

757
00:42:33,920 --> 00:42:37,040
Speaker 3: Are you in a good space? Is your industry growing?

758
00:42:37,200 --> 00:42:40,839
Speaker 3: So you get some of that halo effect, but you're

759
00:42:40,880 --> 00:42:44,840
Speaker 3: still pinned to a single asset, and on a relative basis,

760
00:42:45,200 --> 00:42:48,440
Speaker 3: most private markets portfolios are pretty concentrated. So if you're

761
00:42:48,480 --> 00:42:51,879
Speaker 3: a fund manager running a private market's portfolio, you might

762
00:42:52,000 --> 00:42:55,960
Speaker 3: end up with a portfolio of fifteen companies. Well, you

763
00:42:56,000 --> 00:42:58,560
Speaker 3: can't be wrong on a bunch of those. That's you're

764
00:42:58,560 --> 00:43:00,360
Speaker 3: going to have a terrible result. The winners won't be

765
00:43:00,400 --> 00:43:02,240
Speaker 3: big enough to outweigh the losers.

766
00:43:03,040 --> 00:43:08,160
Speaker 2: Really interesting. So two related questions. The first is what

767
00:43:08,239 --> 00:43:11,839
Speaker 2: do you think is next for the private markets? And

768
00:43:11,880 --> 00:43:14,920
Speaker 2: the related question is what are your strategic priorities for

769
00:43:14,960 --> 00:43:15,840
Speaker 2: Hamilton Lane.

770
00:43:15,920 --> 00:43:17,960
Speaker 3: I think they're both related. Actually the answer is going

771
00:43:18,000 --> 00:43:20,120
Speaker 3: to be sort of one and the same. I think

772
00:43:20,160 --> 00:43:23,239
Speaker 3: what's next is there is going to be this adoption

773
00:43:23,640 --> 00:43:27,920
Speaker 3: and influx of retail capital. We're seeing it, but it's

774
00:43:27,920 --> 00:43:31,120
Speaker 3: still very early innings. If you look at the institutional world,

775
00:43:31,200 --> 00:43:34,680
Speaker 3: most institutional investors have an allocation to the private markets

776
00:43:35,040 --> 00:43:37,920
Speaker 3: that's north of ten percent. If you look at the

777
00:43:38,000 --> 00:43:42,120
Speaker 3: average retail investor, their exposure to the asset class is

778
00:43:42,160 --> 00:43:45,320
Speaker 3: about zero percent. And if you look at just wealth

779
00:43:45,360 --> 00:43:48,960
Speaker 3: statistics around the globe, there are trillions and trillions and

780
00:43:49,000 --> 00:43:53,880
Speaker 3: trillions of dollars in the hands of individual savers globally.

781
00:43:54,840 --> 00:43:58,359
Speaker 3: So if you believe that they over time, we'll have

782
00:43:58,440 --> 00:44:02,640
Speaker 3: portfolios that look much more more similar to an institutional portfolio.

783
00:44:03,360 --> 00:44:06,640
Speaker 3: There's a huge amount of capital that's going to get migrated,

784
00:44:07,280 --> 00:44:11,080
Speaker 3: but that capital is coming from a different type of investor,

785
00:44:12,080 --> 00:44:15,520
Speaker 3: one who is accustomed to everything being on their phone

786
00:44:15,520 --> 00:44:18,799
Speaker 3: and everything being available now, think about how we all

787
00:44:19,200 --> 00:44:22,719
Speaker 3: interact with the public equity world as individual investors. I'm

788
00:44:22,760 --> 00:44:25,000
Speaker 3: sitting here in front of a Bloomberg terminal. I have

789
00:44:25,239 --> 00:44:29,360
Speaker 3: unlimited access to information, and I can execute on anything

790
00:44:29,440 --> 00:44:33,279
Speaker 3: I want to do right here without moving more than

791
00:44:33,320 --> 00:44:37,960
Speaker 3: a couple of fingers. The private markets today technologically are

792
00:44:38,000 --> 00:44:40,719
Speaker 3: not built that way, and so there's a lot of

793
00:44:40,800 --> 00:44:43,600
Speaker 3: change I think that's going to be coming around private

794
00:44:43,640 --> 00:44:47,120
Speaker 3: market infrastructure, and I mean the infrastructure for our industry

795
00:44:47,600 --> 00:44:50,640
Speaker 3: and how we interact with the customer. And that flow

796
00:44:50,680 --> 00:44:53,480
Speaker 3: through is going to not only start with the retail investor,

797
00:44:53,480 --> 00:44:55,840
Speaker 3: but it will then flow back to the institutional investor.

798
00:44:56,320 --> 00:44:59,799
Speaker 3: So strategically, for Hamilton Lane, we're very focused on making

799
00:44:59,840 --> 00:45:03,520
Speaker 3: sure sure that we're getting that market segment right, that

800
00:45:03,560 --> 00:45:07,440
Speaker 3: we're purpose building, to make sure that we're properly caring

801
00:45:07,520 --> 00:45:10,800
Speaker 3: and feeding of that customer base, which is again different

802
00:45:10,840 --> 00:45:13,520
Speaker 3: than the customer base that we've historically dealt with, and

803
00:45:13,640 --> 00:45:15,960
Speaker 3: making sure that all of that is oriented to sort

804
00:45:15,960 --> 00:45:20,320
Speaker 3: of achieving success there is right now a huge strategic priority.

805
00:45:20,680 --> 00:45:24,240
Speaker 2: So many of the topics we're discussing are very much

806
00:45:24,560 --> 00:45:28,200
Speaker 2: front page headline sorts of news. Let me ask a

807
00:45:28,200 --> 00:45:31,680
Speaker 2: little bit of an under the radar question. What are

808
00:45:31,760 --> 00:45:37,920
Speaker 2: investors not talking about? What topics? Assets, geography, I don't know, policy,

809
00:45:38,040 --> 00:45:42,120
Speaker 2: data points is getting overlooked, but perhaps should not be.

810
00:45:43,400 --> 00:45:46,000
Speaker 3: I think one of them is back to this retail question,

811
00:45:46,080 --> 00:45:50,200
Speaker 3: which is, how is the emergence of this new investor

812
00:45:50,280 --> 00:45:53,359
Speaker 3: class going to impact the industry, Because I believe it's

813
00:45:53,360 --> 00:45:57,200
Speaker 3: going to impact it dramatically in the technology and the

814
00:45:57,200 --> 00:46:01,000
Speaker 3: flow of capital, in the style of investor. And so

815
00:46:01,080 --> 00:46:03,680
Speaker 3: what are the ripple effects. I suspect they'll be positive

816
00:46:03,760 --> 00:46:07,080
Speaker 3: and negative of that, And so what does that sort

817
00:46:07,120 --> 00:46:10,160
Speaker 3: of shake out and impact then do to the industry.

818
00:46:10,680 --> 00:46:12,320
Speaker 3: One of the things I think we're going to clearly

819
00:46:12,400 --> 00:46:15,120
Speaker 3: see is that if you want to be a player

820
00:46:15,160 --> 00:46:18,400
Speaker 3: in the industry, a fund manager, a service provider, the

821
00:46:18,520 --> 00:46:22,200
Speaker 3: need for your own infrastructure, your own technology to be

822
00:46:22,440 --> 00:46:27,319
Speaker 3: substantial is very real. And that's adding a whole other

823
00:46:27,480 --> 00:46:31,359
Speaker 3: layer of expense to the management of these businesses. Some

824
00:46:31,480 --> 00:46:33,520
Speaker 3: will figure that out, and we'll have the size and

825
00:46:33,560 --> 00:46:35,400
Speaker 3: the scale and the growth to sort of do that,

826
00:46:36,000 --> 00:46:40,000
Speaker 3: and I suspect a number of firms will simply not so. Today,

827
00:46:40,040 --> 00:46:42,800
Speaker 3: while the industry has been growing from both a number

828
00:46:42,840 --> 00:46:46,560
Speaker 3: of managers and asset perspective. I think if we were

829
00:46:46,600 --> 00:46:48,719
Speaker 3: to fast forward and come back and have this conversation

830
00:46:48,800 --> 00:46:51,680
Speaker 3: in ten years, I think the asset base will have

831
00:46:51,800 --> 00:46:54,919
Speaker 3: continued to grow. I think the number of participants will

832
00:46:54,960 --> 00:46:56,200
Speaker 3: actually have gone down.

833
00:46:56,239 --> 00:46:59,680
Speaker 2: Really, I do. Even as you're adding more and more

834
00:47:00,400 --> 00:47:03,840
Speaker 2: mom and pop mainstream investors to the client base.

835
00:47:03,640 --> 00:47:06,279
Speaker 3: Of private I think the number of firms that are

836
00:47:06,280 --> 00:47:10,600
Speaker 3: going to be capable of successfully servicing that investor base

837
00:47:11,160 --> 00:47:12,240
Speaker 3: is relatively small.

838
00:47:12,760 --> 00:47:17,279
Speaker 2: I will tell you from personal experience working with individual investors,

839
00:47:17,920 --> 00:47:23,120
Speaker 2: some of whom want exposure to various alternatives. The back ends,

840
00:47:24,000 --> 00:47:28,560
Speaker 2: the legal, compliance, reporting, custodian all those different things that

841
00:47:29,160 --> 00:47:34,720
Speaker 2: have really become frictionless on the public markets. It's really challenging.

842
00:47:34,760 --> 00:47:38,839
Speaker 2: It's really difficult on the private market. It's everything is

843
00:47:38,880 --> 00:47:41,560
Speaker 2: its own unique I don't even want to say CSIP

844
00:47:41,640 --> 00:47:45,200
Speaker 2: its own unique animal that is pet in a different way.

845
00:47:45,520 --> 00:47:47,280
Speaker 2: It has no standardization at all.

846
00:47:47,200 --> 00:47:50,799
Speaker 3: Has to change. The investor will not tolerate it. That's

847
00:47:50,840 --> 00:47:55,280
Speaker 3: the reality is that you can't expect that individual investor

848
00:47:55,719 --> 00:48:00,400
Speaker 3: who has been so trained and has adopted that friction

849
00:48:00,520 --> 00:48:05,120
Speaker 3: in less environment for the for their entire portfolio, and

850
00:48:05,160 --> 00:48:07,560
Speaker 3: now to say to them, well, for this five percent

851
00:48:07,600 --> 00:48:11,000
Speaker 3: of your portfolio, it's going to be a gigantic pain

852
00:48:11,040 --> 00:48:15,200
Speaker 3: in the rear. They're gonna say, I'm not dealing with that.

853
00:48:15,880 --> 00:48:19,000
Speaker 3: So it can't stay this way. So one of the

854
00:48:19,040 --> 00:48:21,400
Speaker 3: things that we believe will be one of the change

855
00:48:21,560 --> 00:48:26,200
Speaker 3: agents is the world of tokenization. That does make things

856
00:48:26,320 --> 00:48:30,560
Speaker 3: much cheaper, faster, and without friction. And so Hamilton Lane

857
00:48:30,560 --> 00:48:34,080
Speaker 3: has been a very early and aggressive adopter of that technology.

858
00:48:34,320 --> 00:48:37,160
Speaker 3: We've tokenized more funds, we believe than anybody else in the.

859
00:48:37,080 --> 00:48:39,400
Speaker 2: World to find that. What does tokenization mean for an

860
00:48:39,440 --> 00:48:40,880
Speaker 2: individual investor.

861
00:48:40,600 --> 00:48:44,240
Speaker 3: It's moving from a physical world to a digital world.

862
00:48:45,440 --> 00:48:50,319
Speaker 3: Tokens are simply tracking of investments using blockchain technology, and

863
00:48:50,400 --> 00:48:54,319
Speaker 3: so instead of dealing with subscription docs and all of

864
00:48:54,360 --> 00:48:58,560
Speaker 3: the pain points of all of the legal and regulatory structure,

865
00:48:59,040 --> 00:49:02,279
Speaker 3: imagine doing that in a point and click world where

866
00:49:02,320 --> 00:49:06,720
Speaker 3: you can access a fund digitally using a digital wallet

867
00:49:07,160 --> 00:49:09,640
Speaker 3: and storing it in a digital wallet and tracking it

868
00:49:09,680 --> 00:49:12,839
Speaker 3: in a digital wallet. And that is the world of tokenization.

869
00:49:12,960 --> 00:49:16,120
Speaker 3: So today there are a number of token exchanges around

870
00:49:16,160 --> 00:49:19,640
Speaker 3: the globe. Hamilton Lane is an investor and owner and

871
00:49:19,680 --> 00:49:22,280
Speaker 3: a number of them. And if you go on today

872
00:49:22,400 --> 00:49:25,760
Speaker 3: to firms like Republic or Securitize here in the US,

873
00:49:26,480 --> 00:49:31,440
Speaker 3: you would see product offerings there. Investors can still access

874
00:49:31,800 --> 00:49:35,800
Speaker 3: documents and information, but when it's time to actually purchase

875
00:49:35,960 --> 00:49:39,320
Speaker 3: or invest, they can just simply click the buy button.

876
00:49:40,320 --> 00:49:43,719
Speaker 3: And as that world matures over time, you will have

877
00:49:43,800 --> 00:49:47,080
Speaker 3: exchanges that have buyers and sellers, and so some of

878
00:49:47,080 --> 00:49:49,960
Speaker 3: that ill liquidity issue that we've always been mired with

879
00:49:50,000 --> 00:49:53,680
Speaker 3: given the long duration, should start to lessen because you'll

880
00:49:53,719 --> 00:49:55,440
Speaker 3: be able to trade more freely.

881
00:49:56,000 --> 00:50:01,160
Speaker 2: My assumption is that if you're trading private law assets,

882
00:50:01,200 --> 00:50:04,280
Speaker 2: regardless of what they are, Hey, if you want to sell,

883
00:50:04,640 --> 00:50:08,760
Speaker 2: you're going to be getting a discounted price versus holding

884
00:50:08,800 --> 00:50:09,920
Speaker 2: it for the duration.

885
00:50:10,120 --> 00:50:13,360
Speaker 3: That certainly has been the case historically. I think what

886
00:50:13,480 --> 00:50:17,280
Speaker 3: remains to be seen is that still true in a vibrant,

887
00:50:17,320 --> 00:50:20,480
Speaker 3: healthy token world where you have lots of buyers and

888
00:50:20,520 --> 00:50:23,239
Speaker 3: sellers on these exchanges. I think what you're going to

889
00:50:23,280 --> 00:50:27,040
Speaker 3: see is that discount is going to greatly reduce because

890
00:50:27,280 --> 00:50:30,360
Speaker 3: access to information and the ability to move assets is

891
00:50:30,400 --> 00:50:32,040
Speaker 3: going to become much easier and quicker.

892
00:50:32,120 --> 00:50:35,279
Speaker 2: So what does this mean for the illiquidity premium. The

893
00:50:35,320 --> 00:50:38,520
Speaker 2: fact that investors who agree to tie up their money

894
00:50:38,520 --> 00:50:42,680
Speaker 2: for five years, seven years, nine years get a theoretically

895
00:50:42,760 --> 00:50:46,360
Speaker 2: higher payout than they might in a liquid public market.

896
00:50:46,400 --> 00:50:47,880
Speaker 3: Well, this is going to be what the managers are

897
00:50:47,880 --> 00:50:49,080
Speaker 3: going to have to deal with. They're going to have

898
00:50:49,120 --> 00:50:52,279
Speaker 3: to continue to deliver some level of outperformance. Now, if

899
00:50:52,320 --> 00:50:55,840
Speaker 3: the ill liquidity issue completely evaporates because tokens become so

900
00:50:55,960 --> 00:50:59,160
Speaker 3: freely exchangeable, then I think what you're going to simply say,

901
00:50:59,200 --> 00:51:02,160
Speaker 3: as well, it's an equid strategy, so it might be

902
00:51:02,239 --> 00:51:04,719
Speaker 3: the exact same return as a public equity, as long

903
00:51:04,760 --> 00:51:08,120
Speaker 3: as it's mirroring that, you still get the benefit of

904
00:51:08,160 --> 00:51:12,160
Speaker 3: a diversification. You're still accessing assets that are non public

905
00:51:12,160 --> 00:51:14,040
Speaker 3: and so the only way to access them is in

906
00:51:14,080 --> 00:51:16,640
Speaker 3: the private world. But I think that will sort of

907
00:51:16,719 --> 00:51:19,680
Speaker 3: cause a change in how people think about benchmarking and

908
00:51:19,680 --> 00:51:22,839
Speaker 3: how they think about portfolio construction. We're a long ways

909
00:51:22,880 --> 00:51:26,520
Speaker 3: away from that. So today the ill liquidity premium exists

910
00:51:26,560 --> 00:51:28,719
Speaker 3: and the il liquidity issue is still very much front

911
00:51:28,719 --> 00:51:31,120
Speaker 3: and center. But I think you can sort of see

912
00:51:31,719 --> 00:51:35,239
Speaker 3: the building blocks are being put in place that could

913
00:51:35,280 --> 00:51:37,160
Speaker 3: really begin to alter how that all works.

914
00:51:37,280 --> 00:51:40,600
Speaker 2: Huh really very fascinating. All right, I don't have you

915
00:51:40,680 --> 00:51:44,640
Speaker 2: all day long, so let me jump to my favorite questions,

916
00:51:44,760 --> 00:51:49,040
Speaker 2: starting with who are your early mentors who helped shape

917
00:51:49,280 --> 00:51:49,960
Speaker 2: your career.

918
00:51:50,680 --> 00:51:52,880
Speaker 3: I'm a huge believer in mentors. I've had the benefit

919
00:51:52,920 --> 00:51:55,960
Speaker 3: of several. My first boss when I came out of

920
00:51:56,000 --> 00:51:59,239
Speaker 3: college is still a friend and mentor today. We were

921
00:51:59,239 --> 00:52:03,319
Speaker 3: recently on a VACA together and he still treats me

922
00:52:03,400 --> 00:52:05,440
Speaker 3: like I work for him, which is great, and I

923
00:52:05,440 --> 00:52:07,120
Speaker 3: think it's healthy and it's good to have someone in

924
00:52:07,120 --> 00:52:10,239
Speaker 3: your life who reminds you where you came from and

925
00:52:10,400 --> 00:52:13,279
Speaker 3: is quick to give you advice and perspective, and has

926
00:52:13,360 --> 00:52:15,040
Speaker 3: nothing but your best interest at heart.

927
00:52:15,840 --> 00:52:19,920
Speaker 2: Let's talk about streaming. What are you watching or listening

928
00:52:19,960 --> 00:52:20,520
Speaker 2: to today?

929
00:52:21,200 --> 00:52:25,800
Speaker 3: I consume a lot of news, and so I also

930
00:52:25,880 --> 00:52:28,680
Speaker 3: have a bit of a political junkie. So I've been

931
00:52:28,800 --> 00:52:32,880
Speaker 3: enjoying a new launch of a new kind of network.

932
00:52:32,920 --> 00:52:35,560
Speaker 3: I guess you'd call it called two Way, which is

933
00:52:35,600 --> 00:52:39,360
Speaker 3: an interesting series of political conversations and access to different

934
00:52:39,400 --> 00:52:42,200
Speaker 3: kind of political pundits and elected officials. So I've been

935
00:52:42,239 --> 00:52:44,439
Speaker 3: consuming a fair amount of news via two Way.

936
00:52:44,920 --> 00:52:47,319
Speaker 2: Huh. Interesting. Let's talk about books. What are some of

937
00:52:47,320 --> 00:52:49,040
Speaker 2: your favorites. What are you reading right now?

938
00:52:49,360 --> 00:52:52,400
Speaker 3: I am a voracious reader, so something is always open.

939
00:52:52,560 --> 00:52:54,880
Speaker 3: Not all of it's good or worthy of sharing. I

940
00:52:54,920 --> 00:52:58,440
Speaker 3: recently finished something that I think is worthy, which is

941
00:52:58,480 --> 00:53:00,560
Speaker 3: a book called When the c Came a Lot by

942
00:53:00,600 --> 00:53:03,240
Speaker 3: Garrett Graf. I think he writes in a really interesting

943
00:53:03,280 --> 00:53:07,560
Speaker 3: way where he's piecing together first hand accounts and diaries,

944
00:53:07,600 --> 00:53:11,160
Speaker 3: and so this book was really focused exclusively on the

945
00:53:11,280 --> 00:53:13,279
Speaker 3: landing on the beaches at D Day.

946
00:53:13,560 --> 00:53:16,680
Speaker 2: Huh. Interesting you said something. Not all of them are

947
00:53:16,719 --> 00:53:20,360
Speaker 2: good or worthwhile. My view is, if you're reading a

948
00:53:20,360 --> 00:53:23,319
Speaker 2: book and you're not enjoying it, well give it to

949
00:53:23,360 --> 00:53:25,080
Speaker 2: someone else and start the next book.

950
00:53:25,120 --> 00:53:27,239
Speaker 3: I should do that. I really struggle with that.

951
00:53:27,480 --> 00:53:28,400
Speaker 2: I am not homework.

952
00:53:28,440 --> 00:53:31,240
Speaker 3: It's not an assignment, I know, and yet I find

953
00:53:31,239 --> 00:53:35,120
Speaker 3: myself grinding through things that I'm sitting there thinking this

954
00:53:35,200 --> 00:53:37,400
Speaker 3: is really not worth my time, and yet I have

955
00:53:37,520 --> 00:53:40,920
Speaker 3: this compulsion of I started it, I have to finish it.

956
00:53:41,360 --> 00:53:45,319
Speaker 2: I I somebody turned me on to the idea of

957
00:53:45,560 --> 00:53:49,360
Speaker 2: not finishing books. You started, like, I don't know, fifteen

958
00:53:49,440 --> 00:53:53,399
Speaker 2: years ago, and it's changed. The average American reads four

959
00:53:53,440 --> 00:53:57,359
Speaker 2: books a year. The average quote unquote reader reads ten

960
00:53:57,440 --> 00:54:00,560
Speaker 2: books a year. I find if you don't like a

961
00:54:00,600 --> 00:54:03,680
Speaker 2: book and you close it, you're reading you two books

962
00:54:03,719 --> 00:54:05,080
Speaker 2: a month. It's a whole different.

963
00:54:05,360 --> 00:54:07,759
Speaker 3: Well, we're probably reading two books a month and I'm

964
00:54:07,800 --> 00:54:11,880
Speaker 3: not closing them. At least I should accelerate, and I

965
00:54:11,920 --> 00:54:13,520
Speaker 3: have to learn. That's a good lesson for me to

966
00:54:13,560 --> 00:54:14,480
Speaker 3: take takeaway from this.

967
00:54:14,960 --> 00:54:17,920
Speaker 2: Our final two questions, what sort of advice would you

968
00:54:17,960 --> 00:54:21,000
Speaker 2: give to a recent college grad interested in a career

969
00:54:21,640 --> 00:54:25,520
Speaker 2: in either a private equity or private capital or investing

970
00:54:25,560 --> 00:54:26,120
Speaker 2: in general.

971
00:54:26,560 --> 00:54:28,920
Speaker 3: I think I would give the same advice regardless of

972
00:54:28,920 --> 00:54:30,880
Speaker 3: the industry, and that goes back to your question on

973
00:54:30,920 --> 00:54:34,879
Speaker 3: the mentor piece. I think we employ a whole lot

974
00:54:34,880 --> 00:54:37,920
Speaker 3: of young people and I love that. In fact, we

975
00:54:38,080 --> 00:54:41,720
Speaker 3: literally just last week welcomed our brand new analyst class.

976
00:54:42,320 --> 00:54:44,279
Speaker 3: They seem younger and younger to me, and I am

977
00:54:44,320 --> 00:54:46,520
Speaker 3: clearly getting older. So I had the privilege of welcoming

978
00:54:46,600 --> 00:54:49,840
Speaker 3: them to the firm and addressing them, and I was

979
00:54:49,880 --> 00:54:53,480
Speaker 3: asked this question and my answer was, get a mentor.

980
00:54:54,160 --> 00:54:58,239
Speaker 3: I think right now, particularly with younger folks, there's a

981
00:54:58,320 --> 00:55:01,560
Speaker 3: belief that everything that you need to know you can

982
00:55:01,880 --> 00:55:04,799
Speaker 3: look up. I can just go online. I can ask

983
00:55:04,920 --> 00:55:08,200
Speaker 3: chat GPT, I can Google for it, and I just

984
00:55:08,280 --> 00:55:10,879
Speaker 3: don't believe that's true. I still think that whether it's

985
00:55:10,880 --> 00:55:14,840
Speaker 3: an investment industry or a legal profession or a medical

986
00:55:15,360 --> 00:55:19,120
Speaker 3: that while you can get a lot of knowledge via

987
00:55:19,160 --> 00:55:23,520
Speaker 3: the Internet and via other electronic resources, there is something

988
00:55:23,800 --> 00:55:27,480
Speaker 3: about learning from the mistakes that others who have gone

989
00:55:27,480 --> 00:55:31,839
Speaker 3: before you have made that is invaluable. And I think

990
00:55:31,880 --> 00:55:37,080
Speaker 3: aligning yourself in a really healthy mentor mentee relationship, I

991
00:55:37,120 --> 00:55:39,880
Speaker 3: think is an enormously important part of a good career.

992
00:55:40,280 --> 00:55:43,840
Speaker 2: Really interesting answer and our last question, what do you

993
00:55:43,880 --> 00:55:46,480
Speaker 2: know about the world of investing, be it private or

994
00:55:46,560 --> 00:55:50,720
Speaker 2: public today that would have been helpful had you learned

995
00:55:50,719 --> 00:55:52,560
Speaker 2: it back in the nineteen nineties.

996
00:55:52,840 --> 00:55:55,640
Speaker 3: I think just how much change is coming. It's so

997
00:55:55,840 --> 00:55:59,040
Speaker 3: easy to go to work every day and kind of

998
00:55:59,080 --> 00:56:01,560
Speaker 3: make the assumption I'm just thinking about what I have

999
00:56:01,640 --> 00:56:06,120
Speaker 3: to do today and tomorrow will be very similar to today.

1000
00:56:06,800 --> 00:56:10,480
Speaker 3: I think training yourself to step back and try to

1001
00:56:10,480 --> 00:56:13,400
Speaker 3: see around corners and try to think outside the box

1002
00:56:13,440 --> 00:56:16,440
Speaker 3: of saying, what if it doesn't work like this forever?

1003
00:56:16,600 --> 00:56:18,480
Speaker 3: What if there's going to be a big change, What

1004
00:56:18,520 --> 00:56:21,400
Speaker 3: if this new technology is going to take off, continuing

1005
00:56:21,400 --> 00:56:23,640
Speaker 3: to sort of push yourself to do that. I'm better

1006
00:56:23,640 --> 00:56:26,839
Speaker 3: at doing that now. I wish I had done more

1007
00:56:26,880 --> 00:56:28,120
Speaker 3: of that when I was younger.

1008
00:56:28,600 --> 00:56:31,440
Speaker 2: Huh, really really interesting, Eric, Thank you for being so

1009
00:56:31,560 --> 00:56:35,279
Speaker 2: generous with your time. We have been speaking with Eric Hirsh.

1010
00:56:35,360 --> 00:56:39,839
Speaker 2: He's co CEO of Hamilton Lane, which manages or advises

1011
00:56:39,920 --> 00:56:43,960
Speaker 2: on nearly a trillion dollars in private assets. If you

1012
00:56:44,160 --> 00:56:47,080
Speaker 2: enjoy this conversation, well, be sure and check out any

1013
00:56:47,120 --> 00:56:49,560
Speaker 2: of the past five hundred we've done over the past

1014
00:56:50,000 --> 00:56:54,960
Speaker 2: eleven years. You can find those at Bloomberg, iTunes, Spotify, YouTube,

1015
00:56:55,080 --> 00:56:58,640
Speaker 2: wherever you find your favorite podcast. Be sure to check

1016
00:56:58,680 --> 00:57:02,520
Speaker 2: out my new book How Not to Invest The Bad ideas,

1017
00:57:02,680 --> 00:57:06,760
Speaker 2: numbers and behavior that destroys wealth and how to avoid

1018
00:57:06,800 --> 00:57:10,719
Speaker 2: them How Not to Invest at your favorite bookseller. I

1019
00:57:10,760 --> 00:57:12,960
Speaker 2: would be remiss if I do not thank the Cracked

1020
00:57:13,000 --> 00:57:16,840
Speaker 2: team that helps put these conversations together each week. Meredith

1021
00:57:16,840 --> 00:57:21,160
Speaker 2: Frank is my audio engineer. Anna Luke is my producer.

1022
00:57:21,360 --> 00:57:25,280
Speaker 2: Sean Russo is my researcher. Sage Bauman is the head

1023
00:57:25,280 --> 00:57:29,640
Speaker 2: of podcasts at Bloomberg. I'm Barry Ritoltz. You've been listening

1024
00:57:29,680 --> 00:57:32,760
Speaker 2: to Masters in Business on Bloomberg Radio