Hamilton Lane co-CEO on investing in private markets

Hamilton Lane co-CEO on investing in private markets
Hamilton Lane co-CEO on investing in private markets

While big tech stocks have had their moment in the sun, it may be time to think about diversifying as strategists continue to feel bullish about the market. One such sector investors may want to think about is the private markets sector.

Erik Hirsch, co-CEO of Hamilton Lane (HLNE), joins Market Domination to provide insight into how investors can best take advantage of private market opportunities.

For retail investors, Hirsch suggests: “We would say investors need to take that long-term mindset. So if we look at the institutional world today, on average, about 15 to 20% of their assets are in private markets, not in alternatives, just in private markets. And that’s served them well. The typical institutional investor has a higher return than the typical retail investor. Again, because adding that kind of higher-return mix… Longer duration, less liquidity.”

For more expert insights and the latest market activity, click here to watch the full episode of Market Domination.

This post was written by Nicholas Jacobino

Video transcript

There are just over 20 minutes left until the closing whistle.

Today we look at how to navigate the private markets using the Yahoo Finance Handbook.

The lack of liquidity is a concern for private investors, but our next guest sees opportunities.

We are now joined by Eric Hirsch, co-CEO of Hamilton Lane Eric.

It’s good to see you.

So maybe you better start with us at a high level, Eric. You know, when you talk to investors and clients about private markets, what do you tell them, Eric?

How do they look like?

Well, first of all, I’m glad I’m here.

Thanks for the opportunity.

I think you’re seeing a huge influx, particularly of retail investors entering the private markets.

I think what we’ve all seen and heard and heard over the last few years is the reality: the public markets right now are dominated by a very small number of high-performing stocks, which drive all the indices.

Once we get past that, the picture becomes a lot less attractive.

If you think about where jobs are created and where economic growth happens, it’s largely happening in private companies.

The way to access that is through the private markets. The performance is there and the opportunities are there. That’s why we see the capital flows as we see them now and what’s happening to valuations.

Eric, because as you say, the public markets are indeed dominated by a few names.

But that does mean we’ve seen a lot of records for the major averages in the public markets.

But on the private side, there haven’t been that many deals, and not that many exits either.

I wonder what that photo looks like.

I think private capital has been a little more patient.

I think deals are indeed being closed, but not at record levels or anything close to them.

I think the markets are adjusting to the major instability right now.

So rate cuts are coming in the run-up to the elections.

I think the result of this is that buyers and sellers end up being pitted against each other.

Now is the time to ask questions and I think the picture is becoming clearer and we expect volumes to increase and we expect to see that based on valuation levels.

I think the story is a lot less compelling for the public markets.

There are a huge number of loss-making listed companies that are still trading at very high prices.

And that’s still not entirely clear.

I think it’s the rise of these big tech companies that is pulling everyone along.

That is not what we currently see in the private market segment.

You know, there’s one data point that I’m curious about, Eric, and I bet you already know it. Namely, you know, when we talk about the retail investor, the average retail investor, what is their private market allocation, Eric?

And has that evolved in recent years, has that changed?

For the vast majority?

The answer is simple: zero.

They didn’t really have a good chance, a good entry point, right?

Pricing structure, right?

Legal structure to gain broad access to these markets.

This asset class has been dominated by institutional investors for 50 years.

And that’s finally over. There are now many attractive products that are more readily available. And there are technological changes coming that will make that access point even easier, in the form of things like tokenization.

I know you’re a big proponent of tokenization, right?

Uh, I wonder if you see that more often in the private sector. Do private investors and private investors still have to be accredited?

Do they still have to invest a certain amount?

For example, how will all this work out?

Yeah, I think, I think we see tokenization more as kind of an entry point.

Think about the private markets. Up until now it was all about writing a check, and now nobody wants to write checks.

We want to use something similar to Apple Pay.

I compare the token world more to Apple Pay, simply because of the ease of use.

That is not structural change, the type of investor is not.

It’s really more a matter of meeting the investor where they are, and that is, you want to operate in a digital passport environment with a digital wallet.

You want to make sure you’re keeping track of things in a more digital way again.

Tokens are the way to do that.

So I think it’s just a simple and easier way to do business, Eric.

I want you to get out of here.

Imagine you’re a retail investor and you’re listening to this. You’re curious and you’re thinking, you know what, maybe I’ll go a little bit from public to private. What do they need to know about that, Eric, in terms of big themes like duration, time, horizon volatility.

Well, I find it interesting. The majority of the capital that we are talking about for the retail investor is not money that they are going to spend on groceries next week, it is capital that people are putting aside for their retirement.

So by definition it is already long-term capital and we would say that investors should adopt that long-term mindset.

If we look at the institutional world today, we see that on average about 15 to 20% of their assets are in the private markets, not in alternative markets, but just in the private markets.

And that has served them well. The typical institutional investor has a higher return than the typical retail investor, because they have a mix of higher returns, but you are right: the duration is longer and there is less liquidity.

But again, when we talk about retirement investments, I think investors are happy to trade things like longer duration and liquidity for much, much higher returns.

If this is capital, it has been tied up for a long time.

Eric, thank you.

Appreciate it.

Thank you.