Big tech stocks are having a good time, but as strategists continue to project a bull market, it may be time to consider broadening your investment horizons.One sector investors may want to consider is the private markets sector.
Hamilton Lane (HLNE) Co-CEO Erik Hirsch joins Market Domination to offer insights on how investors can make the most of opportunities in the private markets.
For retail investors, Hirsch offers this suggestion: “I think investors should adopt a long-term mindset. If you look at the institutional investing world today, on average, about 15 to 20 percent of assets are invested in private markets. Not alternative investments, just private markets. So that works for them. The typical institutional investor is earning higher returns than the typical retail investor. Again, when you add that mix of higher returns, you get longer duration and less liquidity.”
For more expert insights and the latest market trends, click here to watch this entire episode of Market Domination.
This post Nicholas Jacobino
Video Transcript
There are just over 20 minutes left until the final bell.
But today, we’re going to look at how to navigate the private markets using Yahoo Finance’s playbook.
While the lack of liquidity is causing concern for retail investors, our next guest sees some opportunities in the future.
Now we turn to Eric Hirsch, co-CEO of Hamilton Lane.
It was nice to meet you.
So let’s start with an overview, Eric, when you’re talking to investors and clients about the private markets, what are you telling them?
What does it feel like?
Well, first of all I’m happy to be here.
Thank you for the opportunity.
I think we’re going to see a huge influx of capital, particularly from individual investors, into the private markets.
I think what we’ve all seen and heard over the past few years is reality, which is that the public markets are currently dominated by a very small number of high-performing stocks that underpin all indexes.
Beyond that, the painting becomes much less appealing.
If you think about where jobs are being created and where economic growth is happening, you’ll find that it’s mostly happening in the private sector.
So the way to access that is really through the private markets, it’s proven, it’s opportunity-driven and that’s why we’re seeing the kind of capital flows that we’re seeing today and what’s happening with valuations there.
Eric, you’re right, in the public markets, a few stocks dominate the market.
But it does mean that a lot of records are being broken for major stock averages in the public markets.
But in the private sector, there weren’t as many deals, there weren’t as many exits.
So what does that picture look like?
I think private capital is becoming a little more patient.
So what you’re seeing is transactions taking place, they’re not at or near record levels.
I think the market is currently adapting to a lot of volatility.
That means an election cycle is coming up and interest rates will be cut.
And I think that as a result, it pitted buyers and sellers against each other.
The questions are starting to come up now and I think things are starting to become a little bit clearer, so I expect we’ll start to see volumes increase in line with valuation levels, and we’re starting to see signs of that happening.
I don’t think this story is very appealing to the public markets.
There are still many unprofitable publicly traded companies trading at extremely high multiples.
And that is yet to be revealed.
What I think again is that the rise of these big tech companies is kind of pulling everyone along.
We are not seeing that across the civilian market at the moment.
I’m just curious about one data point, Eric, which you probably know, when we talk about retail investors, the average retail investor, what is their private market allocation?
And has that evolved and changed over the years?
For the majority of people?
The answer is simple: zero.
Maybe they didn’t have good opportunities, good access points?
It’s a pricing system, right?
Generally, the legal structures for accessing these markets.
Essentially, this asset class has been dominated by institutional investors for 50 years.
And that is finally over, and now there are a lot of compelling, accessible products out there, and technology changes are happening in the form of things like tokenization that make that access point even easier.
I know you’re a big proponent of tokenization, right?
Um, so if we’re going to see more of that in the private sector, will individual investors, retail investors still, I mean, still need to be accredited?
Do I still need a certain amount of money to invest?
Like, how is all of this going to be resolved?
Well, if you think about it, I think we look at tokenization as kind of an access point.
The private market used to be about writing checks, and these days nobody wants to write checks.
I would like to use something like Apple Pay.
So, I think it brings the token world much closer to the simple ease of use of Apple Pay.
There is no structural change in what type of investor you have.
We are in a position to speak to investors who want to operate in a digital passport environment with digital wallets.
We need to make sure we’re tracking things again in a more digital way.
A good way to do this is to use tokens.
So I think that’s a simple and easy way to do business with Eric.
I want to get you out of here.
So let’s say, for example, you’re a retail investor and you’re listening to this and you’re interested and you’re shifting gears a little bit from public to private and you’re thinking about the big picture theme of period, time, horizon volatility, what does Eric need to know about that?
Yeah, I think that’s interesting, I mean, most of the capital that we’re talking about for retail investors is not money that’s going to go on groceries next week, it’s capital that people are saving for retirement.
So, by definition, this is already long-term capital and investors should adopt a long-term mindset.
So if you look at the institutional investing world today, on average, about 15 to 20 percent of their assets are in the private markets — not alternative investments, just the private markets.
And it’s worked out well for them. The typical institutional investor has higher returns than the typical retail investor by adding that mix of higher returns. But, as you say, the duration is longer, the liquidity is lower.
Um, but if you’re talking about retirement assets, I think investors would be willing to trade things like longer time horizons and liquidity for much higher returns.
If this is capital, it will have been locked up for a long time already.
Thank you so much, Eric.
appreciate.
thank you.
