Hamilton Lane co-CEO on investing in private markets

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While big tech stocks have had their moment in the sun, it may be time to think about broadening out as strategist sentiments for a bullish market continue. One of those sectors investors may want to consider is the private market sector.

Hamilton Lane (HLNE) Co-CEO Erik Hirsch joins Market Domination to give insight into how investors can best navigate opportunities in the private market.

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

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Nicholas Jacobino

Video Transcript

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

But today we’re looking at how to navigate the private markets with the Yahoo Finance playbook.

Lack of liquidity has raised concerns for private investors, but our next guest sees some opportunities ahead.

We’re joined now by Eric Hirsch, Hamilton Lane co CEO Eric.

It is good to see you.

So maybe just start high level with us, Eric, you know, um when you’re talking to investors, clients about private markets, um what are you telling them, Eric?

How do they look?

Well, first of all, happy to be here.

So thanks for the opportunity.

I think what you’re seeing is tremendous amount of flow, particularly from retail investors coming into the private markets.

I think what we’ve all been seeing, seeing and hearing for the last couple of years is reality, which is the public markets right now are dominated by a very small number of high performing stocks and that is carrying all the indices.

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

If you think about where jobs are being created, where growth is occurring in the economy, it is by and large happening in private companies.

And so the way to access that is actually coming through the private markets and the performance has been there, the opportunities are there and that’s why we’re seeing the flows of capital like we’re seeing them and what’s happening to the valuations there.

Eric because as you say, in the public markets, yes, they’re dominated by a few names.

But that means that we have been seeing a lot of records for the major averages in the public markets.

But on the private side, there haven’t been that many deals right there, haven’t been a lot of exits.

So I wonder what that picture looks like.

I think private capital has been a little more patient.

And so I think what you’re seeing is deal doing is there, it’s not at record levels or anything close to it.

I think the markets are kind of adjusting to a lot of instability right now.

So rate cuts coming election cycle coming.

And I think the result of that is that you’ve got buyers and sellers kind of squaring off against each other.

Questioning is now the time that’s beginning to and I think the sort of the pictures are becoming a little bit more clear and so we’re expecting to see and are beginning to see the volumes picking up on the valuation levels.

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

You have a tremendous number of unprofitable public companies trading at really high multiple still.

And that has not yet sort of flushed out.

I think again, sort of the rise of the, these sort of big tech businesses are kind of pulling everybody along with them.

That’s not what we’re seeing across the private market segment right now.

You know, one data point, I’m curious about Eric and I bet you have it, which is, you know, when we talk about uh the retail investor, your average retail investor, what is their private market allocation Eric?

And has that evolved, has that changed at all over the last few years?

For the vast majority?

The answer is simple, it’s zero.

They have not really had a good opportunity, good access point, right?

Price structure, right?

Legal structure to access these markets by and large.

It’s basically been 50 years of this asset class dominating by institutional investors.

And that finally is over, there’s now a multitude of products that are attractive that are more easily available and the technology changes are coming to make that access point even easier in the form of things like tokenization.

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

Uh And I’m I’m curious if you do see more of that in on the private side, you know, will will individual investors, retail investors still have to have, you know, will they still have to be accredited?

Will they still have to have a certain amount to invest?

For example, how will all that shake out?

Yeah, I think, think it, I think we think about tokenization more around kind of an access point.

So think about sort of the private markets kind of heretofore have really been about writing a check and no one wants to write checks these days.

We want to use something like an apple pay.

And so I sort of more equate that the token world to more of the apple pay, just simple ease of use.

That is not structurally changing, kind of who the investor type is.

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

You wanna make sure that you’re sort of tracking things again in that more digital way.

And so tokens are the way to go about doing that.

So I think it’s just simple and more of an easier way to transact Eric.

I wanna get you out of here on this.

Let’s say, you know, you’re a retail investor, you’re listening to this, you’re curious, you’re like, you know what, maybe I will shift uh somewhat from, from public to private, what are, what do they need to know Eric about that just in terms of, you know, some big picture themes in terms of duration, time, horizon volatility.

Well, I think it’s interesting, I mean, most of the capital that we’re talking about for the retail investor is not money that they’re gonna spend on groceries next week, it’s really about capital that people are putting away for retirement.

So by definition, it’s already long term capital and we would say investors should adopt that long term mindset.

So if we look at the institutional world today, on average, about 15 to 20% of their assets are in the private markets, not alternatives, just the private markets.

And so that has served them well, typical institutional investor has a higher return than the typical retail investor again because adding that kind of higher return mix, but you’re right duration, longer, less liquidity.

Uh But again, if we’re talking about retirement assets, I would think that investors would be happy to trade off things like longer duration and liquidity for much, much higher returns.

If this is capital, it’s already gonna get locked up for a long time.

Eric, thanks a lot.

Appreciate it.

Thank you.