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Private Markets

This August I asked a very simple question and attempted to answer it with a balance of humor and seriousness that led to a massive response from the readers. Some people loved the post and some people very much wish I hadn’t published it.

I asked, rhetorically, “Why be an LP when you can be a GP?” and I contrasted the returns of the private equity industry’s funds with the publicly traded stocks of the alternative asset managers themselves. You can probably guess at what the results of the research we did were. Yes, the stocks win, albeit on a very short and possibly unfair backward-looking time horizon.

Needless to say, my conclusion was not terribly popular on upper Fifth Avenue, Madison Avenue, Park Avenue, etc. Nor was I invited to a lot of dinners in Greenwich, Darien, Westport or Rye. There are thousands of Wall Street executives who are very invested in seeing private equity become a significantly larger category within the mass affluent retirement investing space and beyond. There are some observations they’d rather not hear, some questions they’d prefer not be asked.

And because of this congenital anti-authority disease I’ve been afflicted with since I the day I was born, I went ahead and began asking the same questions about their sister industry, the juggernaut asset class known as private credit. Now I’m twice as unpopular in the wealthiest towns and enclaves of the Northeast. You can read that piece here in case you missed it or just take my word for it - there are some uncomfortable questions that are, as yet, unanswered.

I’m not as cynical on these topics as I might have been years ago when unconstrained, relentless cynicism about everyone and everything on Wall Street was kind of my whole brand and identity. I’ve mellowed in recent years as events have proven my skepticism occasionally overblown and I’ve evolved my thinking on a great many topics. But I’m still cynical enough to protect myself (and my clients) from a lot of potential heartache coming down the pike. At least, when I look at myself in the mirror, this is what I say to myself about what I actually stand for. I hope it’s true.

The Compound and Friends Starring Sonali Basak!

Sonali read what I wrote last week about private credit fears and the industry’s sales pitch to American investors and she wanted to fight. I love a good fight if it’s good natured and in the spirit of getting to the truth. Her belief is that private market assets are going to represent an important and increasingly large portion of the retirement portfolios of regular investors. I am not so sure and I believe a lot of the activity we’re seeing in the wealth channel is misguided at best and potentially hazardous in a worst-case scenario.

We ended up agreeing on about 90% of the issues raised during our debate on this week’s new episode of The Compound and Friends, with Michael as an extremely well-informed referee.

In my not so humble estimation, this is one of the best discussions of the topic I’ve heard anywhere. You can’t do this on stage at a conference and you can’t do this on television. A podcast like ours is one of the only venues for something like this and I really and truly believe we’ve done the topic justice. Having my colleague Ben Carlson along for the ride was the icing on the cake to make this an instant classic episode.

Without further preamble, I invite you to this no holds barred conversation about the biggest debate in wealth management - to allocate or not to allocate. Please enjoy on the platform of your choice!

Thanks for reading, watching and listening. Have an awesome week. - JB