Private Markets: st Mega Trend in Financial Services

• Most of our investment dollars are invested in the casino called public markets.
• Roughly 90% of companies are private
  ; investors are missing a large market opportunity.
• The average investor has very little or no private market exposure. This is changing.

Investors Have Virtually No Exposure to the Largest Market in the World:
Privates.

As a consumption-based investor, there are several powerful mega-trends happening around the world. One of these trends is happening in the financial services industry and is still a game in the early innings.

Assets are migrating on the margin away from public equities and fixed income and into private market strategies. Institutions have been heavily invested in privates for decades. Its individual investors turn to benefit.

The investment opportunity:
Invest in private market funds or invest in the brands gathering the lion’s share of the assets in the wealth management channels:
Blackstone, KKR, and Apollo Global. The brands portfolio has chunky allocations to these wonderful brands and the opportunities for growth in assets and fee revenue remains robust.

Why Consider Private Market Exposure?

The stock market has roughly 4600 listed companies with trailing twelve-month total revenues of roughly $23 trillion. That’s a pretty big market. Blackstone recently stated that about 90% of companies with >$250 million in annual revenue are PRIVATE, not public. There’s an estimated 22 million private companies across small, medium, and large sized companies just in the U.S. The estimated annual revenue is roughly the same as public markets, so most investors are missing half the total opportunity-set by staying “public-only.”

(Advisorpedia). For many years, investing in private companies was quite difficult, but that’s changed dramatically over the last 10 years. Private market access has become easier and often doesn’t require locking up our capital like it used to. New innovations in semi-liquid strategies seem to be introduced every day and are being consumed at a rapid rate but it’s still inning 1-2 given the estimated $80 trillion size of the wealth management channel.

There’s a significant amount of fee-revenue and asset growth to come.

Blackrock, an asset manager with >$11 trillion in assets has recently made several large acquisitions of private market asset managers clearly see’s what we see. Goldman Sachs, in this week’s earnings call also stated a major initiative to grow their alternative asset management capabilities. Everyone sees the flows and they have done the same math.

Why Are HNW Investors Allocating to Privates?

In one word: diversification. But there’s more to the story. The bulk of the wealth in the U.S. and around the globe is with older consumers. They have been working, saving, and collecting assets for many decades. As we get older, our appetite for risk and volatility tends to fall. Because of algorithms, a wild index options market, and the voracious appetite for short-term trading, the public markets have become much more casino-oriented and volatile than at any time in my 30-year career.

Wild volatility wears most investors out. People get emotional and emotions often drive poor decision making which ultimately hurts their ability to generate attractive returns. For a variety of reasons, even the public bond market feels more and more like a casino. And returns have been sub-par across most of the bond complex.

So, all or most of the largest pool of assets ever collected is invested in assets that are more volatile than ever and at a time when the owner of these assets wants a less volatile experience with lower risk of losses. That profile does not seem to jive with today’s public markets. Enter private markets. Here’s a few key reasons Advisors are allocating more and more to private markets.

And I do not see this stopping, the problem is acute and the desire for other options is extreme:

• Lower daily volatility – because these do not have to mark to market daily, the volatility is significantly muted. That helps reduce total portfolio volatility meaningfully which keeps investors…