#131 - Jason Schwarz: Scaling Institutional Private Markets

0:00Jason Schwarz:Welcome to the Insightful Investor podcast, a weekly series that seeks to share industry, investment, and market insights. Learn more about our show at insightfulinvestor.org.

0:15Jason Schwarz:Jason Schwarz is today's guest on the podcast. Jason is CEO of Bullshare, a diversified investment firm with approximately$1.76 trillion in assets under advisement and$176 billion in assets under management. Today, we're going to discuss how Wilshire is evolving from an institutional advisory firm into a broader investment solutions platform, and what that shift might say about portfolio construction, private markets, and the future of investing. Thanks for joining us, Jason. Thanks, Alex. Thanks for having me. Let's go back a few years. What were the earliest experiences in your career that most shaped how you think about investing?

0:53I would say two early experiences taught me early that investing requires both analytical discipline as well as a real world understanding of business, of people and incentives. I should began my career around the technology bubble. It was an extraordinary period of innovation, but also a really powerful reminder that a compelling story and a compelling investment are not always the same thing. And that experience really made me focus on valuation, on discipline, and the assumptions behind an investment thesis. I also spent early time in my career in Hanoi, in Vietnam, shortly after the normalization of trade relations between the United States and Vietnam.

1:39And I saw really firsthand how capital and entrepreneurship and market development could create opportunity and economic growth. And those experiences both together shape in many respects how I think today. Investing is analytical. The markets are not abstract. They're driven by people and businesses and incentives and behavior and capital allocation. And you need to understand all of that. So, I mean, effectively, investing requires analytical discipline, but also judgment about people and how capital moves through the economy. So those two early experiences stay with me today very much.

2:15Jason Schwarz:I think it's a very insightful observation because either one on its own may seem like it can stand alone. For example, when you have a very compelling story, a lot of optimism, that could drive markets not just for quarters, it could be years or maybe even a decade. And so if you ignore that part of it, you could look like you're missing the picture for an extended period. And obviously, fundamentals matter as well. Completely. And, you know, we look at many of the sort of hot trends today and AI and disruptive technologies and the new big thing and, you know, needing to kind of remain disciplined through those periods that, you know, there's constant reminders of that.

2:53Jason Schwarz:Well, you spent more than two decades at Wilshire. How do you think your perspective on the firm has evolved from when you first joined to now leading it as CEO? So I joined Wilshire in 2005, and I really saw firsthand a firm with very powerful institutional heritage and a really strong analytical foundation. And so I became involved in building what was then a newer part of the business, which was really oriented to bringing institutional investment capabilities into wealth and retirement markets through what we refer to as financial intermediaries. And over time, that gave me a much broader view of the firm.

3:33And so I came to see Wilshire not as a collection of separate businesses, but really as one integrated investment engine incorporating institutional advice and asset allocation and manager research and alternatives and analytics and portfolio implementation. And so for me, what has changed over the time is really where that institutional capability can now be applied. And so the traditional institutional market remains really important, but it's mature. And the growth is increasingly coming from wealth and defined contribution and the model portfolio marketplace, private markets and technology-enabled implementation.

4:15And so that's what made the Wilshire opportunity over the last 20 years. So really much more powerful to me over time. The firm had the really strong institutional foundation, but it also increasingly has had the ability to translate that foundation into faster growing parts of the market where advisors and retirement plan record keepers and wealth platforms and ultimately individual investors need more sophisticated solutions. And so as CEO, my focus increasingly became and is now really connecting and scaling those capabilities so that clients can increasingly access the full power of the firm more easily.

4:56Jason Schwarz:Will Schur was founded with a strong analytical and scientific foundation. How do you feel that origin still shows up in the way the firm approaches investing and decision making? Very much so. And, you know, the firm has a rich history dating back to 1972 when it was first founded. And, you know, interestingly, the first kind of innovation that came out of Wilshire was really the first way to measure an equity beta using software. And so, you know, that early analytical foundation, the Wilshire 5000 Index, which is a common measure of the U.S. equity market, was founded, was created in 1974. And so, you know, that analytical foundation, understanding that really the essence of investment management is the essence of managing risk effectively, is still central to how the firm thinks and behaves today.

5:48It still shows up in how we measure risk, evaluate managers, test assumptions, analyze asset allocation, and think about how portfolios behave across different environments. And what has really changed is, I would say, the breadth of the problems to which that analytical mindset can now be applied. So historically, analytics often meant understanding markets and exposures and risk. Today, it also means understanding cost, implementation efficiency, manager economics, liquidity, operational friction, and ultimately the total net outcome that's delivered to an investor in the form of a net return.

6:29And so that is really the, I think, the natural extension of Wilshire's heritage. And so investors don't experience performance and risk and cost separately. They experience the combined result. And so while the analytical foundation hasn't changed, the application has broadened from markets and risk to the full investment lifecycle, including, you know, increasingly for us, cost and implementation.

6:54Jason Schwarz:So when we talk about that expansion over time, when you stepped into the CEO role, what did you see as the most important thing that needed to evolve inside Wilshire? So I think like a lot of businesses that have different areas of focus, we were a kind of multi-line business that had institutional consulting and OCIO and analytics and indexes and this sort of growing emphasis on model portfolios and packaging and delivery for wealth and retirement markets. And so the most important opportunity has been to make the whole of the business really more valuable than the sum of its parts. And so what does that mean?

7:34So Wilshire had exceptional capabilities, institutional advice and all of the components of that powerful investment process. And the opportunity increasingly has become how do we connect those capabilities more deliberately and make it easier for clients to access one integrated platform? And so it also meant orienting the firm more clearly towards markets where we see the strongest growth. And so while the institutional heritage and the Analytics Foundation is a major advantage, the fastest growing opportunities are increasingly in parts of the market where advisors, financial advisors are interacting with individual clients around areas like retail alternatives and the democratization of access around technology-enabled implementation.

8:21And so that means continuing, we continue to serve large institutional clients with excellence, while also using that institutional foundation to scale into markets where different types of participants, advisors and retirement plan record keepers and asset managers are all really translating investment capabilities into real portfolios. And so for Wilshire, that's meant a stronger emphasis on those areas, productization, improved distribution, sharper focus. But it's also meant building a more complete set of outcomes framework around performance, risk, and cost more holistically. So we had deep capabilities around performance and risk through that kind of institutional investment platform.

9:11And we've, over the last several years, really strengthened our ability to help clients understand and optimize cost through newer analytics capabilities. You know, I also think M &A can play a role in that evolution where it adds capabilities that deepen the platform and ultimately improve the overall value proposition that we deliver to clients. And so, you know, ultimately, it's how do we connect the platform, the scale and the capabilities and help clients solve more complex problems across really the three dimensions that matter of performance, risk and cost.

9:48Jason Schwarz:As you try to scale institutional quality investment solutions to a broader audience, would you describe what that means in practice? Institutional quality is not really a product label. It's, I think, a reference to a disciplined investment process. And that starts with clearly defining the objective. So then we move from defining the objective to allocating risk, selecting managers, constructing a total portfolio. It may mean choosing the right investment vehicle or structure, managing liquidity and cost and ultimately providing governance, monitoring over the entire solution. I think scaling institutional quality investing means translating that process into solutions designed for different markets.

10:41And for us, that's wealth and retirement markets. And wealth refers to the parts of the market that are serviced by financial advisors, working on financial plans and more of a holistic set of solutions for individual investors. And retirement markets increasingly workplace retirement. So defined contribution, people investing through their 401k. And so the growth opportunity is that more investors, I think, want the benefit and expect the benefit of institutional quality investing, but they don't necessarily access it through an institutional consulting relationship. They access it through an advisor or a wealth platform or a retirement plan record keeper, maybe inside of a model portfolio or a managed account, target date solution, or increasingly a private market vehicle, a semi-liquid or an evergreen vehicle.

11:33And so, you know, in wealth, we do a lot of work in the model portfolio space. We're one of the largest providers of model portfolios. And that is increasingly a vehicle that advisors are used to kind of bring forward an institutional caliber process into a more scalable, more sophisticated, but really easy to manage framework. And in retirement, that may be retirement managed accounts, custom target date strategies, or other fiduciary solutions that can operate inside of record-keeping systems and plan governance frameworks. And ultimately, that is, I think, where the industry is moving. And so advisors are outsourcing more.

12:18Wealth platforms are becoming increasingly sophisticated. dedicated retirement portfolios are becoming more personalized, more professionally managed, and private markets are increasingly moving into these channels, into wealth and retirement. And so, you know, Wilshire is increasingly sitting in the middle of this ecosystem at the center of many of those trends. So, you know, ultimately, I think, you know, institutional quality means taking an institutional process and making it usable inside of wealth and retirement frameworks.

12:52Jason Schwarz:At the outset, you emphasize the significance of behavior as it relates to investing. So it seems like for this to work at scale, there needs to be a heavy educational component as well. Completely. I mean, I think much of this is, you know, focused on the right structure, the right framework, the right understanding of that, you know, communication risk becomes an important risk, making sure that investors understand what they're investing in, especially when we're talking about kind of newer, newer vehicles entering different markets. When we talk about private markets in particular, that becomes a really critical component, the ability to walk people through, understand separating, you know, complexity, you know, and sort of making sure that people really understand what they're investing in, differences in liquidity, differences in expectation.

13:53And, you know, investors often, you know, and this is very much, I think, the human condition, you know, we're sort of programmed to, you know, buy when things are trading up and sell when things are trading down. And what we also know inside of institutional portfolios that, and this is frankly one of the key roles of investment consultant, is to bring a process and a framework and a discipline to when we make buy decisions, when we make sell decisions, and keeping people invested and understanding what that looks like over a full market cycle.

14:30Jason Schwarz:Will Schur sits at the intersection of advice, analytics, and implementation. What advantage do you feel that vantage point gives you in understanding how portfolios actually work in practice? Sure. I think that the advantage here for us is that because we participate in several parts of the investment value chain, it really allows us increasingly to connect them in innovative ways. And so advice helps us define the objective and ultimately the problem to be solved. The analytics that we have help us understand the risk, the cost, and the tradeoffs. The asset allocation, the manager research helps us connect and really construct the solution.

15:14And the asset management capabilities and the implementation capabilities really make this solution real. And so when I refer to implementation, I'm referring to both portfolio implementation as well as ecosystem implementation. And so in wealth, inside of model portfolios, that really means kind of translating the institutional research and the asset allocation into model solutions and platform-ready solutions that advisors can actually use with clients. As we've talked about, advisors are outsourcing more portfolio construction and it's driving more growth in model portfolios. TAMP platforms and other wealth tech platforms are really emerging forces in this ecosystem.

16:01And in the retirement markets, it often means some sort of professionally managed account. And that integration with record keepers and being inside of fiduciary workflows is really critical. And so the DC market continues to grow and we're seeing, you know, broader levels of professional management as well as personalization. And then when we talk about retail alternatives, the question isn't simply whether a private market strategy exists. It's can that strategy be structured and sized and governed inside of the right type of portfolio? And so really, because we operate sort of at an intersectional level here, it gives us, I think, a distinct perspective on all of this because we see the manufacturing side of the ecosystem as well as the distribution side of the ecosystem.

16:57And ultimately, the end investor needs that those systems are ultimately designed to serve.

17:03Jason Schwarz:One of the big differences between institutions and individuals, and I get this gap is closing, is the use of alternatives. Institutions have been investing in alternatives for decades as individuals are just beginning to access them more broadly. Why has that translation taken so long? So I think access has been a barrier, but it was never the only barrier. And so private markets were originally built for institutions with very specialized teams, long investment horizons, and the ability to manage manager diligence, capital calls, valuation, liquidity, reporting, governance, right? All of these factors.

17:46And so, you know, simply like lowering the investment minimum and moving from qualified purchasers to accredited investors, you know, increasingly to subaccredited investors, that doesn't recreate the institutional experience. And so I think that the bigger challenge has been building the infrastructure and technology and education, as you mentioned, around creating and managing access more responsibly. And so to serve wealth and retirement investors more responsibly, I think the industry needs due diligence, needs effective portfolio construction, manager selection, diversification, liquidity management, operating and record-keeping integration, and ultimately advisor education and fiduciary oversight.

18:35And so that supporting architecture has taken more time to develop, and it's still developing. So I don't think the next phase here is simply about making just more alternatives available in vehicles that investors can can grab. It's making them usable within diversified, professionally managed portfolios. And so, yeah, effectively, like access gets an investor into the room. But implementation really determines what happens once they're there. And I think that's where the industry is at this stage. And that's where our focus is at this time.

19:11Jason Schwarz:To me, it seems like the industry has spent a lot more time focusing on access to date and maybe not enough on all the other things that you just described. Yeah. I mean, access matters, but it's the starting point. Right. Access tells us whether an investor can buy something. It doesn't answer the question of what role the investment should play, how much should be allocated. Like, where should it come? Like, if I'm buying something, then I'm selling something. Right. Which manager should I choose? What vehicle? You know, are we talking about an interval fund, an auction fund, a tender fund, a private fund?

19:49It doesn't tell us how liquidity should be managed. And it also, I think, importantly and interestingly, doesn't answer the question of how private assets should interact with public market exposure or the rest of a portfolio. And so that's where I think this implementation challenge becomes very real. And that's where I think the next phase of growth is not going to be simply defined by access. It's going to be defined by this reference to implementation quality and where and how something sits in a portfolio for real investors.

20:26Jason Schwarz:There's an emerging trend of bringing private markets into retirement portfolios and 401ks. What are the most underestimated challenges in that? I think here the most underestimated challenge is the fact that we're reconciling long-duration private assets with a participant-directed system built around frequent transactions, daily workflows, and ultimately individual behavior. And so, you know, retirement plans have ongoing contributions, withdrawals, participant transfers, there's rebalancing activity, and there's changing demographics for participants, right? And so private assets have, you know, less frequent valuations, more limited liquidity, and structures that weren't really designed for that operating environment.

21:19So the challenge is not simply adding a private market investment. It's determining how that exposure fits, where it fits, how liquidity is managed, how valuations are handled, how participant fairness is protected, and ultimately, inside of DC plans, how the record keeper supports the structure who carries fiduciary responsibility. And so, I mean, this is an area where we have highly relevant perspectives. I mean, we sit inside of those retirement ecosystems. We work with most of the large record-keeping platforms. We manufacture a manager of managed accounts and custom target date solutions.

21:59And we also work with a number of the managers, the asset managers and the GPs who are trying to determine how private market strategies should be structured for for these channels. So, you know, look, not every plan, every participant population product structure is going to adopt private markets in the same way or the same pace. And that implementation model, I think, increasingly depends on plan design and governance and delivery structure and all of these other components. To be fair here, I think private markets in retirement is not going to be solved just by product access alone. And most of these solutions, I think, are going to not be standalone options on a retirement plan menu.

22:48They are going to sit inside of some sort of professionally managed solutions, and they're going to be ultimately delivered by firms that can connect, you know, kind of be the connective tissue here. And, you know, I also expect, given, you know, some of the regulatory changes, that this will continue to be a growing theme that investors are going to want to, you know, understand and study carefully.

23:12Jason Schwarz:So when we look at this problem that we're trying to solve, is there real innovation happening in product manufacturing or in how portfolios are constructed and managed? It's an interesting question. I think product innovation still matters, but the industry's bottleneck essentially is increasingly moving downstream. And so what I mean by that is there are already many investment products and strategies available. And I think increasingly the question is, how should those products increasingly be combined? What role should each play? How much should be allocated? Which vehicle is appropriate? What type of liquidity profile is right?

23:56How do we rebalance and reallocate these types of solutions? And so, you know, ultimately, how are they actually monitored and incorporated into real world portfolios? And so that requires both portfolio construction insights as well as operational infrastructure. And so I think in many respects, Alex, that the center of gravity is going to move from just product creation to portfolio construction and implementation. And so, you know, the mechanisms to connect all of this are increasingly going to be model portfolios and TAMP platforms that are creating the wealth tech to really connect all of this custom target date solutions and ultimately like inside of advisor workflows and retirement platforms.

24:43And so those are the mechanisms that connect investment content to actual investment outcomes. And so the industry doesn't need more products. There will be more products created. It needs, I think, better ways to turn that content into institutional capability inside of actual real-world portfolios.

25:05Jason Schwarz:I've heard you point to changes like the SECURE Act and evolving guidance around retirement plans. Do you see this moment as a major inflection point? Yes, I do. I mean, I think that there are several forces that are developing, that have developed separately, that are all now beginning to align. These are, you know, things that you talk about a lot. Private markets, personalization, AI, retirement modernization, improved product structures, technology-enabled advice. That like all of this is converging at the same time now. And so that matters, I think, because the industry is moving from a world that is principally built around product menus to a world that's increasingly built around advice and managed solutions and more scalable implementation.

26:00And so like wealth and retirement platforms and, you know, those kind of two themes in plan and out of plan assets are also converging. Product structures are definitely improving. Technology is becoming more sophisticated that allows for, you know, portfolio management at scale. And the regulatory conversation is increasingly focused on like a prudent process for what evaluating private market exposure should look like. But regulatory permission does not necessarily automatically produce a good outcome for investors. And so the real work, I think, continues to be the things we've been talking about, portfolio construction, manager selection, valuation, fees, operational integration.

26:49And so I think we're in the early innings of a transformation from product-level access to scalable delivery. And, you know, even sort of recent DOL guidance, which is open right now, you know, is expected to drive, you know, things like safe harbor and other important changes inside of the retirement landscape, which, you know, is only going to grow and create more opportunities for investors to ultimately get, you know, better access to solutions that pensions and foundations and endowments have had access to for decades. So I think that's a net positive. And all of this is really converging at the same time.