Goldman Sachs' Kyle Kniffen - the arc of alternatives at Goldman Sachs: AGM Live at SuperReturn

0:02Hi, everyone. I'm Michael Sijmore, founder of the Alco's Mainstream Podcast, co-founder of Broadhaven Ventures. I am here at Super Return for AGM Live. I'm here with Kyle Kniffen, Global Head of Alternatives, Third Party Wealth at Goldman Sachs. We have a great conversation on tap. So much to talk about. We're here in Europe. We'll start there because there's a lot going on and you have such a fascinating purview in a number of ways. is one, global perspective, global team, different nuances within each region that you work with. Two, you've been on both sides. So you've been on the private bank side at Goldman.

0:36You now are doing the TPW side, third-party wealth, working with other firms in the wealth channel. So we'd love to get into all that first, just to set the stage, and then we'll get into Europe a bit. We'd love to hear a bit about your background and how you've thought about the evolution of private markets and the intersection with private wealth that is related to your career. Fantastic. Well, it's great to be here and it's always nice to see you and fun to do it in Berlin. We are both fortunate to sort of be at this intersection of the growth of private markets, as well as the role that wealth is playing in it.

1:05And I've been fortunate to sit in a few different businesses that are both on the client side and then on the investing side and asset management at Goldman. And it's been energizing because over the last 20 years, the role that wealth has played here has just grown substantially. And I think we're at the very, very beginning of it. But really, the combination of wealth being the biggest pool of capital, the fastest growing pool of capital, and the least allocated pool of capital, all while the private market is becoming a more and more interesting place to invest, has really caught the attention of individuals and led to a desire to allocate, a desire to get educated in it.

1:39And they're really seeing the outcome of that. Now, my background, I've kind of been fortunate enough to work on the product side and then on the client side. I started my career working on the hedge fund product development team at Merrill Lynch, which was one of the first wealth businesses that was offering those sorts of strategies to individuals and is an unbelievable place to learn. And still today, an unbelievable wealth business and partner of ours at Goldman. And from there, the range of alternatives over the last 15 or 20 years that I've seen individuals invest in and that I've had the ability to work on has just been astounding because you have this resurgence of interest in the hedge fund strategies today because of the vol and dispersion, which we welcome and Goldman plays a big role in.

2:19But you also now have a lot of participation in private credit. You have a lot of participation in private equity, a real recognition of secondaries being an important part of portfolios, a ton of attention on venture capital, and a renewed appreciation for the role that even hard assets and infrastructure can play in a portfolio. What do you think the private markets industry broadly can learn from the hedge fund industry, which did get into all things like liquid alternatives? There were the hedge funds, hedge fund funds, early days of kind of this concept of opening up access to a strategy within, to some extent, private markets.

2:58Hedge funds focus on public markets for the most part. But what do you think that the private markets can learn from that experience? You were at the forefront of that. I think some of the principles that we think are the most important principles today are rooted back from experience that I've had both at Merrill Lynch and at Goldman Sachs when it comes to really talking about alternatives in a sense of what's the goal of the end client and what's the objective? And what are you looking for? What kind of risk or liquidity can you tolerate? So do you have a yield objective? If you're a hedge fund, absolute return.

3:30What are you looking for? You're looking for returns. You're looking for kind of vol dampening. or again, as I said, kind of like growth strategies and privates and hard assets, like what is your objective? So talking to clients with what is the utility, what is the purpose from a portfolio construction, a holistic perspective, more than it is like strategy by strategy. I think that helps get people to a place where they really understand the exposure that they have, which is so important today. You're getting to such an important point in terms of where we are as it relates to this evolution of private markets into the wealth channel, which is thinking about it from a holistic experience.

4:02What do you mean by that? And what is the next phase of investors, allocators thinking about private markets holistically as part of their portfolio? I think what we all spend time on and always should is helping people appreciate why a strategy is interesting or why a theme is interesting or why we as an investment manager are excellent in that space. But we almost always have that conversation coupled with where does it sit in a portfolio? What's the purpose of it? And then increasingly, we're really recommitting to making sure that everybody understands what are the terms of that investment?

4:37Over what period of time should you expect to invest in it? And so our principle is almost never today just focusing on the strategies. Where's the Finder portfolio and what are the terms of the investment? Because then it leads to a much more enduring relationship with the client because they really know what to expect. And it just sets the stage for a very long relationship. What does this concept of thinking about private markets as part of a more holistic portfolio construction mean as it relates to product innovation? I think over the course of the last 20 years, we've seen remarkable innovation in products, which we welcome and we played a role in a lot of that innovation at Goldman, honestly.

5:13but having opportunities to invest in drawdowns, having opportunities to access strategies in a diversified way in evergreens on a more frequent basis at lower minimums, not having to think about cashflow is a huge benefit to be able to do portfolio construction, not waiting for the next vintage. If you have a client that's looking for a certain exposure, they can get it and access it on a monthly basis. If you feel like you wanna make tactical decisions with trimming an exposure that you've had and reallocating someplace else, Even if it's just on a limited basis, you're able to do that a little bit better than waiting for a full term.

5:46So even what has evolved in Evergreen, which has been remarkable growth in Evergreen, 30%, 35 % of your compounding, it's just it contributes a lot to the flexibility that one can have when building portfolios. Do you think Evergreens will still continue to exhibit that type of growth? I think so. We're very optimistic in the growth of Evergreens with one caveat that is very near and dear to us in much of the industry is the Evergreens are very useful. They're often available to a wider set of individuals, been able to invest in privates, but paired with really, really robust education. So I think the growth is going to continue.

6:21I do think performance dispersion is going to happen. And I think perhaps that's a healthy thing. But I think investors that are delivering performance that are real education partners, it will grow. What was the intent of Evergreen's from a structure perspective? Why were they actually created? I think there's a few reasons why the Evergreen part of the industry has really grown and evolved. Part of it is because that ability to deploy on a predictable basis, on a month-by-month subscription basis, is really important for clients. It's really important for portfolio construction, as I said. But I do think features like diversification for a lower minimum, not having to allocate at a closed end fund minimum by fund, by strategy, by vintage to build a balanced portfolio, but being able to put in$25 ,000 minimum to have an equity portfolio with 50 positions that are vintage across five or 10 years is a huge feature.

7:13And so I think there's diversification, a minimum, and then an operational intensity feature to it, which is not having to wonder about cash flows or what do I invest in the meanwhile while I get called. And so I think a lot of that has led to it just being a more flexible solution for a big piece of the individual investor market. I think that's such an important point because there's a lot going on in the evergreen space and there's certainly nuance. Like you say, one, education is really important. Two, there are different structures. but the reality is that this was an operational construct.

7:43There was a reason why this was created. If you want to enable the Wealth Channel to invest in access, they had to do it in a certain construct. So I think that's such an important point as we think about like phase one of Evergreen Development. You at Goldman are one working with the third-party Wealth Channel. So custody of a big RA custody business. You recently are coming off of your RA summit, which is fantastic. Smash success. And you have pretty interesting partnerships or investments, things like GeoWealth, things like the T. Rowe Price Partnership. How do you think the next wave of product innovation as it relates to evergreens in the context of portfolio construction will evolve based on some of those things and the different ways in which you're working with the Wealth Channel broadly?

8:27Absolutely. And before I jump there, one last point on why the growth of Evergreens that I think is really fascinating that I think we're all seeing play out is, while they may have been created to create more flexibility on when you can invest and help individuals with eligibility and diversification, it's interesting to see a lot of different types of clients invest in Evergreens, including institutions. So some of these features, turns out, are really appealing to institutions, insurance companies, individuals, ultra high net worth individuals that can invest in drawdowns are participating too.

8:56Before we get to the question about the next phase of product innovation, I want to hit on one point there, which is as institutions also invest in Evergreens to create a solution for them as well. How do you think both GPs and LPs start to think about the LP composition in these vehicles? What are some of the conversations that are being had? And what does that look like as it relates to who's in the vehicle, who wants who in the vehicles, and how you are really thoughtful and responsible about that, both from the GP side as well as the LP side? Incredibly important topic, a topic that we're talking about all week here and in a lot of client conversations.

9:35People are placing a really high value to having their peers in the fund be a real balanced set of investors that understand the terms, who are going to be more predictable, who aren't going to be somebody that is going to overstrain a liquidity cap on any given quarter. And so you do have institutions that may like, let's say, a credit fund that is$100 into a credit strategy that they're looking to, they want to do that evergreen fund. They will want to know that their constituents in the LP base are an even mix of ultra high net worth, wealth broadly, insurance, other institutions, they're going to want to know.

10:09And then the other dynamic that I think is maybe born out of a new recognition for this over the last few quarters is wealth platforms are really placing value on who else is in the fund. Are you working with investors that are leveraging the position? Are there institutions here too that are longer locked? So this is a key conversation and it's going to become more important. I think you're hitting on a really important trend at this moment in time, which is the institutionalization of the wealth channel. So in a few contexts, one is you have the centralization of the CIO function as many of these wealth platforms expand either nationally or internationally, as they centralize that CIO function, as they acquire OCIOs, Hightower NEPC, Serity, Varus Agility, et cetera, Hall Pathstone.

10:56How does the institutionalization of the wealth platform play into what we were just talking about? I think it's a tailwind too. I think that kind of domain expertise, view and relationships across the marketplace and lived experience of what liquidity should look like, what terms should look like, what valuation policy should look like. I think the marriage of a lot of those longstanding kind of advisory businesses are a real tailwind for a lot of these wealth businesses. So I think it's going to inject whole new energy and research capacity and again, recognition for what a good product looks like and what you need.

11:28How much does that change how you as the GP may interact with the Wealth Channel? We cover these client segments comprehensively, consultants, the Wealth Channel broadly, institutions and insurance. And so the marriage of some of these is something we welcome. I think relationships that we've built across both of those benefit from a conversation that has a lot more dimensions to it now, which is, again, exciting for us. So we view it as a tailwind and we expect to see more of it. I think it also ties in Goldman as a broader platform. The origins of the asset management business were actually in the pension world.

12:00You thought about early on when you read the books that they, thinking about acquiring, decided to build, and obviously a massive franchise on the public side. What does that mean in terms of one, how you can serve the wealth channel and two, what it means in terms of the types of things you can do around product innovation going forward? Absolutely. I mean, it is such a benefit for us. And it's something that we work really hard to make sure clients feel the value of that because we are a top five asset manager on the public side and a top 10 asset manager on the private side, $625 billion. And those businesses are longstanding.

12:34And on the private side, we have a lot of experience actually innovating some of those markets that now exist as a mature market today. Secondaries, private credit, GP stakes from Peter's Hill. So there's a long list. And so that gives us more ingredients to use when it comes to creating strategies. And one good example of that is a lot of our evergreen suite takes advantage of our secondaries business. So whether it's infrastructure, whether it's the equity fund, its asset liability like health is really furthered because we're able to use shorter duration secondaries. And so we use ingredients across the firm, public and private.

13:07We also think a lot about that and what the future could look like. And then on top of all of it, it's kind of leveraged by all these things that make Goldman different, world-class global investment research, world-class banking franchise, global purview. Those are the things that allow us to deliver excellent performance for clients. If you want to cook a big meal, you got to feed the Evergreen engine with a lot of different ingredients, right? And I think that's such an important point, though, right? Because there's very few platforms that have the scale and ability to feed the Evergreen engine.

13:35And to do an Evergreen well, you have to have all the ingredients to be able to do that. What's some of the things that you're thinking about as it relates to the continued development, the private markets platform at Goldman? So a few categories. So you mentioned GeoWealth. We're super excited about that investment and that partnership. We think what they're doing is really creating the frame for how a lot of model portfolio allocation to alternatives and public and private combinations is going to play out over time. And it gives us a lot of optimism that much more adoption in privates on the back of really impressive technology platforms like GOL are really going to drive that.

14:12So expect us to really lean into that partnership. I also think we think about how can we combine our capabilities with complementary partners who share a lot of the same philosophy and principles. Our partnership with T. Rowe Price is a great example of that. We have a couple new products that we're working on that we'll roll out later this year that are sort of the best of both businesses delivered by two world-class client coverage organizations. And it's something that is getting a lot of buzz within the two firms. How do you think about build by partner framework as it relates to your brand, making sure people understand the Goldman brand and that whatever you do, whether it's build by partner, that retains what the Goldman brand is?

14:55Striking that balance is important and it's a challenge. I think I would say we're open minded to all three of those and you've seen us do all three of those. But we're very judicious about which across those categories we think really makes sense. The acquisition of Industry Ventures, which closed earlier this year, is a good example of where we saw something from an acquisition perspective that was highly additive, really hard to replicate, world-class business, the original VC secondaries strategy with an incredibly talented team. That made a lot of sense to add as an acquisition to our XIG platform.

15:27And then another example of, again, a joint venture or a partnership with T. Rowe Price, I think the alignment in principle of the two organizations and how we think about servicing clients and what's most important and how to lead with education. And I think that really created a partnership that was ready made. I think we're open to all that I would expect us to do more across each category, but we're going to be very judicious about it to make sure that it reflects kind of the principles of Goldman Sachs. On that point, the principles of Goldman Sachs, what is something that those who are not as familiar with the Goldman Sachs alternative franchise, what's something that maybe they don't know but should?

16:07Interesting. There's so many to choose from. If we extend the session by a half hour and I'll dip into each of the categories. No, but so look, our alternatives franchise is about 40 years old and it's got a long heritage to it. And it takes advantage of a lot of these aspects that make Goldman different. Our power to convene, the clients we cover and other businesses, being able to find opportunities that are overlooked, being able to traffic across more geographies than most people because of our franchise and length of time in all of those geographies. I would say one business, why don't I choose two?

16:41Two businesses that we were pioneers in that are very interesting today is probably why I would choose these two. One is GP Stakes. So the Peters Hill business, we were the first GP Stake investors in the world. And that was at a time where the beginning of the growth of the private markets was at a very different place, but it was very prescient strategy because buying minority pieces in alternative asset managers has proven to be a remarkably effective strategy. The size of that market has grown. And the reason why that strategy is so interesting is because it's a total return strategy. There's a coupon there, but you get to participate in the equity.

17:16And you've seen a lot of M &A and consolidation in our space as it's grown. So there's actually been a reasonable amount of liquidity recently. And I think that's a strategy that's run really well within Goldman Sachs because a safe pair of hands, a credible minority owner, an owner that can help you grow your business, whether it's the way you operate it, the way you hire talent, the way you raise money. GP Stakes for us and Peters Hill is fantastic. And we were the first GP Stake investor in the world. So I think that's a great example. And again, it's talk about interesting today because of all the consolidation and the exit opportunity and the growth of private markets were long GP Stakes.

17:51The other one is probably just secondaries in general. We think about it as a very ubiquitous thing now. I think a lot of private clients are awake to the fact that that's really helpful for a portfolio. We started that business as well. We've been investing in that business since 1998. Back when we were intermediating more like an odd secondary, I would say now it's a much more mature market. But again, it's origins of businesses that are now big in the marketplace today. Interesting, I think, as we take stock of where we are in the evolution of private markets in general, I think you referenced a few important things there.

18:23One is the evolution of the industry and evolution of business of asset management. But it's interesting you referenced both secondaries and GP stakes, because if you think about it, as private markets has evolved, these kind of feel like more of the end points of private markets, not that private markets isn't going to continue to grow. I don't mean that, but just in the sense of like, as you think about rolling out the tape of like from primary private equity, which is a massive ecosystem in and of itself and will continue to grow. And honestly, secondaries will help that grow. But like GP stakes is kind of the apex predator of private markets in a sense of like, it's the culmination of everything about the market structure, as well as a bunch of different flavors of credit, secondaries and private equity all wrapped into one.

19:01And secondaries too has some elements of that. So I think it's really emblematic of where we are in private markets that these two strategies are interesting. Now, one question there, because of the features of those strategies for newer wealth investors into private markets, do you think that they may bypass some of the more traditional strategies? Like, do you think a newer investor might say, Secondary is going to be my core private equity allocation. It's diversified, reduced J-curve, the capital back faster. Is that going to be their core strategy instead of saying, hey, I'm going to allocate to primary private equity?

19:40Perhaps some will, especially if a secondary's portfolio is maybe more appropriate for that client profile. Our principle is honestly max flexibility with how our wealth clients can access the Goldman platform. So all of these ingredients that we're so proud of and have existed for so long, our wealth partners can invest on a standalone basis in flagship scaled strategies that have existed for a very long time. Or those are all ingredients that are going into a lot of the diversified evergreens that we do. So we are working on a new strategy that we'll roll out later this year that takes advantage of a lot of the world class capabilities in XIG.

20:15So that GP stake strategy that, again, we're so proud of will be a part of that strategy. So what we really want is max flexibility with how we can work with wealth platforms. That might be the right answer. And you might skip past the kind of single food group allocation that might exist higher upmarket for wealth or for institutional. But you'll still get that capability in a diversified way through Evergrande. How do you think about balancing customization with scale as you deliver solutions and products to different parts of the wealth channel? Very, very hard. But I do think all asset managers are kind of self-reflecting on that question because our partnerships are varied and all of our partners are one of one.

20:53And they're sometimes looking for the same thing. We might have the same market view, but how you get there might be different or what their pain point is might be different. And so it is tempting to customize for all of these partnerships because they are very different. And in a lot of circumstances, we're willing to do that. But I think building flagship strategies that are done with sound principles that take advantage of the best institutional investing, that cover the main food groups, that offer flexibility, whether it's evergreen or single strategy, is a good way of reaching most of the market.

21:21And then from there, I think we do some very exciting things with some of our wealth partners where we're able to take those ingredients there of size where they can be strategic. We can do something specific for them. So in terms of not overproliferating, but making sure we reach everybody, it's a balance we try to strike. One thing to wrap on, what do you think that you've learned, you and the firm have learned from working with an ultra high net worth client based on the Goldman private wealth side in terms of customization and being able to serve clients well as you think about translating that to the DQW business?

21:56I've had a really interesting experience working on the Goldman Sachs private wealth management side for a lot of years, a world-class franchise that covers a very specific segment of the wealth market, but so much to learn from that channel because that group of clients have been investing in privates from the very beginning. And so there's a few things that I take from that that are very interesting. And that's the degree of patience, understanding that these are long-term market propositions. Strategic asset allocation is the North Star. Regardless of the size of client, you're going to go through market environments.

22:29You have this anxiety, but there's like a remarkable amount of lived experience in that channel and patience for how long a mature, high-quality private markets portfolio takes to play out. And if something does happen that's unexpected in the market, you don't need to reassess the entire strategic asset allocation. So I think that's encouraging. And I think that's an outlook that is really appreciated over there. And then I think the range of strategies. And again, I think that's what I was getting to earlier, which is it's really encouraging to see a big part of the wealth market begin to use more than just, okay, core real estate yield or private credit yield to appreciating infra, appreciating VC, appreciating secondaries, using more of what the private markets have to offer.

23:07And that segment has sort of always trafficked across that wide set of ingredients. I think that that's such a great way to wrap. You used the word patience. I think that's such an important term as it relates to investors thinking about private markets, farms building businesses in private markets. So such a great conversation as always, Kyle. Wonderful to be here. Thank you. Thanks so much.

23:34You