The Truth Behind Private Equity’s Megaboom

25:53Again, that depends on the vintage. Private credit has demolished public fixed income. Demolished. I mean, it's not even a horse race anymore. So that's a good point. What do you say to the people who would listen to that talking point about the lack of day-to-day volatility because there are no marks for 90 days? I'm sure you've heard the criticisms of that. I'm sure you've heard great defenses of that criticism from the industry. So Cliff Asness calls this volatility laundering and he flies into a rage over this. And I totally - He's rightly bitter. I get it because he has, so he has a portfolio of public stocks and bonds.

26:29He has to answer to clients, why am I in a 15 % drawdown over the last month? Whereas the private equity manager kind of gets to skate through a lot of that unless it's a sustained drawdown and then the marks will come down, usually on a delay. So like, how does the industry respond to that? That, I don't want to call it a charge, but like that criticism, like don't tell me lower volatility. It's not a charge. That's the point. I think there's - Right. It's one of the benefits of the asset class. That's like the selling point. So I think there's definitely on both sides, there's some where you sit is where you stand element to it.

27:06So - We all have our biases. Philosophically, people will have their biases. People who are in private markets will have their biases. And people who are in public markets or in hedge funds will have their biases when it comes to how they're thinking about that. I think there's valid points on both sides. I think it really comes down to what does a client need and what do they want and what's appropriate for their portfolio. I think whether you're a traditional asset manager, whether you're an alternative asset manager, the most important thing is you have the right product structure at the right time that's delivered to the right investor.

27:41And that could be for a certain client. Maybe that's a closed-end drawdown fund for a QP client who has$100 million in net worth and they want to invest in private equity, they can take that illiquidity risk. And maybe they're working with an advisor or a team that can build out that private equity program and that understands that they're going to have a J-curve in the first few years, so they're going to be paying out money effectively for capital calls. They're not going to be seeing money come back. So the IRRs might not look great relative to if you put it into public equities today or maybe not four or five months ago, but eight months ago or something like that, right?

28:22And then you have to think about it over a longer term. But then by year eight or nine, you'll have the harvest period and you'll be getting capital back. And in an ideal world, in a private equity fund, you're getting more capital back than you put in. So over a 10-year period, if you smooth out the IRRs, then that would have bested what you could have done over that same period in public. You have to wait a really long time to be able to determine this 10 % allocation we put into private markets was a good alternative or a bad alternative. Like you really have to wait for that harvest period when you start pulling your money back out.

28:55And look, this is why it's predominantly an institutional market because most normal people, it's hard for them to wrap their heads around investing with a 10-year, I mean, we do it all the time with 401ks, but it's just, it's still hard. Yeah, I mean, great point in two contexts. One is maybe 401ks, again, with the right managers, with the right structures for investment, and there's the regulatory and legal side that needs to be figured out. That, I think, is still in question despite the executive order. Maybe that's the right vehicle for that because it's capital. The money's locked up anyway.

29:33You're not going to take the money out and you don't need it. And you don't need it in a year from now. You don't need it in three years from now. So I think that's an important piece of this is you need to match the right vehicle or the right duration with what you're trying to achieve as an investor. I think the other piece of this too is like there is an element of private markets and building a private markets or private equity program that is very institutional in quality and in nature. And you need to have the ability to do that in order to invest in more traditional private equity. So that 10-year drawdown closed-end vehicle.

30:07We're starting to see that change in this industry with the creation of Evergreen Funds, where I do not call them liquid. They are very much not liquid. Tell our listeners what an Evergreen Fund is. So Evergreen Funds are not closed-end drawdown vehicles. closed-end drawdown vehicles means you commit capital, and it's generally over a three - to five-year period that it's called. The fund closes. The fund closes. You can't get your money out. You can't call up and say, hey, I want to redeem. You also don't put new money in. You commit a million dollars. That capital gets called 30 % in year one, 30 % in year two, 40 % in year three, just making up numbers.

30:50But based on the cadence of the investment managers, processing of deals, sourcing companies, and deciding to invest. An evergreen fund is different in that there's continuous ability to invest. There's also the ability to withdraw capital. There's nuances based on the type of evergreen fund. Yes, they limit the amount that an investor or investors can redeem in any given time. because they need to manage the liquidity, but they're constantly looking at different investment opportunities. And I think this is the important piece of evergreen structures, is that the firm needs to have enough deal flow to be able to handle both the amount of capital they raise, because they can raise in continuous offering format.

31:38It's not like most private equity funds in the historical context would say, I'm going out, I'm raising a$25 billion fund. that was more less common maybe a few firms do that yeah exactly right but like a cvc they raised 26 billion euros in their last fund so like we're gonna go raise 26 billion dollars or 26 billion euros they do that fundraise for six to 18 months once that fund is closed it's closed to your point you can't get in if you if you miss that close i think that's an important point though for the advisor community and why evergreens can make sense for certain using evergreen and interval synonymously?

32:15Evergreen funds, I look at, I think of as the broad umbrella term for interval funds, tender offer funds. Those are different types of structures. What's a tender offer fund? Tender offer fund and interval funds are both, they can be closed-end or open-ended. But tender offers mean that there's a period where investors can actually tender some of their capital for redemption. versus interval fund. There's specific intervals. Yes, generally quarterly. Although in a tender, there's a board. How tender are we talking? Medium rare? Some people like their state a little more well done. So just on the surface, the interval fund, the evergreen fund, makes way more sense for wealth management than the traditional closed fund because we're not institutions.

33:08We're human beings. Things happen in our lives. And maybe we don't We can't demand the right to get 100 % of our capital out. But if you tell me, God forbid, you go into a stretch in life where you need to reinvest in your own business or something horrible happens to a family member, it's not 0 % liquidity. And vice versa, regular people don't typically make their money via windfall. They make money over time, over years. So having a vehicle that they can add a dollar amount into every year makes it more utilitarian for that person. So I totally get why that structure has become so popular. What percentage of the assets that the Wealth Channel is putting into alts would you say is going into interval funds right now?

34:01Most of it. I don't know the exact number. It's like almost all? Depends on how you define the Wealth Channel. Again, like if you think about family offices, then I think that's different. It's mostly interval funds. RIAs and Waterhouse is mostly interval. So, and this is public data, but iCapital had talked about this because they have over 240 or so billion, maybe I'm off by a few billion at this point, of assets on their platform. They do both closed-end funds, but they do a lot of evergreen funds on the private market side. A good portion of their flows have been evergreen funds. They're working with the wealth channel.

34:40And it's all advisor-led. It's wire houses and it's RIA channel or independent channel. The majority of the flows are through evergreen structures. You refer to the I capitals as placement agents? Is that or is that not the right term? I think it's more of the pipes and plumbing of the… So they call… I know they call themselves a platform. Everybody wants to be a platform now. They are. But they're also directing advisors toward one fund, not another. So there's different models. iCapital has multiple models. And for context, I was an early employee at iCapital. I helped build the investor network or distribution team.

35:18Crushed it with that. Crushed it with that. Thank you. Just saying. Look at it. I mean, look at it now. You've got to be very proud of that. Yeah. I mean, look, I think the market structure needed to be built, just like the pipes and plumbing of equities, fixed income derivatives needed to be built and has evolved over time and has become more electronified over time. Private markets is obviously much younger. I mean, Blackstone is a 40-year-old company. They're the biggest, a trillion plus of assets. It's still a young industry when you think about the size and scale. And if it is$25 trillion of total assets in private markets, I mean, equities is what, $110 trillion?

35:55Fixed income is a similar number. The reason I love what you did is that I existed in this industry prior. and there were a lot of advisors who wanted to sell private investments to their clients. It was a wild west. There was no platform where you could look and say, compare this fund to three of its nearest peers and let me rank in on different, did not exist. There was no way to automate the paperwork process or explain what the paperwork means that your client's about to sign, did not exist. You had guys running around with PPMs, private placement memorandums, doing reg D offers, like just ridiculous conversations, extra legal in many cases.

36:38And what you have done, and I know there are others, but like those platforms that now exist, I think they have brought order to a very chaotic process. I think the operational - Even if you don't like the investments, you gotta agree that they are good for investors, the fact that this exists. I think that's a big piece of the puzzle to making sure that the wealth channel is served properly. Because if you think about it, yes, the investment is important. So I don't want to minimize that. And selecting the right fund is absolutely critical. It's probably even more critical in private markets than it is in public markets.

37:15But putting that aside for a second, just the operational challenges of investing in a private fund, whether it's a drawdown, closed-end fund, or even an evergreen fund, unless you create the straight-through processing system, leveraging technology, it's much harder to do. And that's why it's been so important. And I don't think the private wealth investing in private market story can actually take place without the technology market structure evolution. Those two things can't be decoupled. You need that evolution from pre to post trade in private markets, just like you had in equities, fixed income and derivatives.

37:51And that's the other piece of this is you have to create the right packaging and the right post trade processes. because the example you gave earlier about the client needing to make sure that it's easy for them. I think part of the reason why an evergreen structure is important for the wealth channel is it also helps the advisor run their business. They don't want to have to wait to the next drawdown fund to be able to put a new client who comes in. You deal with this all the time. You have new clients who come in. Yeah, sorry. We'll allocate you in five years. Right, you can't do that. You want to have an evergreen offering that you can say, hey, I just had a new client came in.

38:25I can allocate to this manager because this is part of our private equity program. We've vetted this fund or our private credit program. We like this manager. We have an account with them already. We've worked with them across our client base. And that could be an accredited and qualified purchaser. And you can put a$10 ,000 minimum or$100 ,000 minimum in for one client. And then you could put a$5 million investment in for another client. And it makes it easy for the advisor. And I think that's a big piece of this too, is you have to meet the advisor where they are. One of the other big parts of the story, the less cynical part of it, because we address that part, institutions are full, the wealth channel's next, okay, is that the actual investment story here is that 83 % of the companies in the United States that are doing$100 million in revenue are privately held.

39:13I'm sure a lot of them are private equity backed. The other side of it is the private credit side. And private credit, it's bonds for these private companies. It's loans. uh the non-traded junk bonds they prefer no no no these these sorry jk this part of the market banks were regulated out of and so instept these blackstones of the world and said we could do it quicker we don't have to syndicate it we have an endless supply of money we can do the underwriting better we can negotiate if things go wrong and it's all playing out and that is a huge part of how we got to where we are today. Oh, 100%.

39:51I mean, so you mentioned the, let's talk about the private company side. 87 % of companies in the US with 100 million in revenue or greater are private. Similar numbers in Europe and Asia. So I think it's a really important, it's an important point to me, right? Which is - It's the whole universe of investable assets and almost none of them are traded. And if you don't have access to that, you're missing out on all of that in a world where what nvidia is seven eight percent of the s &p 500 and you have indexation of correlation you have concentration and the rise of passive all of those things i think if you're shut out of investing in private in the private markets and again i want to put the disclaimer on because it's important that you need to make sure you're investing in the right companies or the right funds oh is that all so so that's the important piece you can't just buy and just fire up the spaghetti cannon and just start throwing.

40:46Okay. But part of that story - Are you writing this stuff down for me, Duncan? Michael, part of that is this. So I totally understand private credit. It is, wherever it's going, 25 trillion, it's going to 40, whatever. I believe it. I 100 % believe it. The problem is, as I see it, I get legitimately a dozen emails like this a week. And I picked the most recent one. I partnered with REA's family offices and institutional investors seeking differentiated private market opportunities as a blank billion dollar private credit manager. We originate loans in niche markets. Our portfolio is 100 % senior secured, producing 12 % annual cash distributions and a 17 % IRR with a$2 billion track record and blah, blah, zero credit loss.

41:24Okay. Is there too much money chasing too few deals where the terms are getting shittier because there is just a torrent of capital because the advisors, the easiest thing in the world to sell is 12 % income returns. And they're steady. and there's no volatility. It's the easiest thing in the world. Is that the danger? You said there's 11 ,000 private equity and private credit managers. That's not sound like too many. There's too many. It's a lot. And I think that that number is going to shrink because there's going to be consolidation in the market because the biggest players are going to buy smaller firms.

42:00But to his point, so it is crowded today and everyone's getting increasingly desperate to raise money. Not the big firms, but everyone else. And the terms are getting worse. and like, what do you make of that level of activity just generating bad outcomes? I'll talk about both sides because I think there's credence to both sides. And I think - Michael, look at that chart. Sorry to cut off, but percentage of covenant-like term loans. It's basically a hundred percent. Is this - Covenant-like meaning the protections for the end investors are lesser because the desperation to raise money is higher.

42:34Is this misleading? What's going on here? No, that's, look, I think - You will answer for it now. That's the case. There's an increase in PIC coverage, right? Payment in kind, where the company can't come up with the cash, so they'll just issue more bonds or more shares in lieu of the—that's never a good sign. All of those things are true, and that is a cause for concern for the private credit industry. I think it's worth zooming out for a second on this, which is private credit is a$2 trillion or so industry today. It was a few hundred billion a few years ago. So it's grown massively. Anytime an industry grows fast, I think you have to take stock and step back and say, okay, is this growing too fast?

43:20Is there too much capital being raised and then deployed? All of that is true. I think what I would also say is if you believe what some in the industry are saying, so like Mark Rowan from Apollo, one of the biggest credit managers, close to 700 billion of AUM. A large portion of that is in credit. And he would say that it's a$40 trillion marketplace over time. And that's because banks have been retrenching. There's been regulatory reasons for that. $2 trillion to$40? No wonder there's 11 ,000 firms chasing it. Yeah, I bet it gets there. So 11 ,000, just to be clear, that's Dave Layton said that from Partners Group.

43:58They're a big manager. That's private equity managers. That could be private equity managers who also have a private credit arm as well. Well, I think the lines are blowing So very rapidly. I think they're all doing it. A hundred percent. Yeah. There are a lot of managers chasing private credit and the opportunities there. And private credit and private equity are related too, right? Because a lot of the private credit activity to date has been in to sponsor back deals. So private equity, you need the leverage to do the private equity deals, et cetera. That's changing a little bit. They're doing private credit across different categories within the space.

44:32So things like asset-based finance, so like aircraft leasing, as an example, that's a different part of private credit. There's real estate credit. There's infrastructure credit, which is starting to grow as the infrastructure asset class grows. So I think private credit actually might be a lot bigger when you think about it. It's anything that, not anything, but a lot of things that could otherwise have been on a bank balance sheet. Again, we could take both sides of this argument, and I think there's probably worthy arguments on both sides. But those in private credit would argue that it actually is – it may be a concern for those who are investing in private credit if the space grows too fast and people start to compete for deals by loosening up terms.

45:16That might be bad for the investors, but there's also a set of people in the private credit industry who would say that it's actually good if you're taking that off a bank balance sheet because there's less leverage in private credit than there is in the bank system. What does leverage look like in private credit? A few turns at most. So what does that mean exactly? Two to three times, maybe. It's usually, I mean, some managers are doing less than a turn of leverage or one times leverage. But banks are generally leveraged, what, eight to ten times or so? So, again, I'm not here to defend private credit.

45:52I am not the foremost expert on private credit, to be clear. But I think when you listen to what the likes of Mark Rowan from Apollo is saying about this being a very big market, that could be things that banks could be. You better hope so because the banks are not going to stay out of this any longer. I listened to what JP Morgan had to say on the subject. Jamie Dimon spent like eight to 10 years subtweeting this industry. Yeah, you think Cliff Asus is mad. Right. So the bankers. They looked at buying Monroe Capital, which is a$20 billion. So Jamie is like, yeah, we know about these fly-by-night lenders.

46:28They're not going to be here in the next crisis. Well, two things. We haven't had a crisis is one. and then two, we are now going through this massive deregulation wave. And I guarantee you by the time Trump's term ends, all of the banks, the big ones, are going to have their own products competing with Aries, Apollo, etc. They're not just going to watch this shit anymore. If you tell me private credit is$2 trillion going to$40, do we honestly think like Goldman, Morgan, JP Morgan, they're going to just sit here and watch it? Or they're going to take a slice of fees for introducing a fund to their clients?

47:06No way. What I'm with Goldman and T-Row today, what was in his there? So I have this. Can I read this? Yeah. I would love to get your reaction to it and whether or not you think we're going to see more. T-Row Price had a really big upside day today. Bear with me. T-Row Price shares rallied Thursday after the asset manager struck a billion-dollar deal with Goldman Sachs to sell private market products to retail investors. Goldman will buy up to a billion dollars in T-Row price common stock through open market purchases, bullish. The two financial firms will team up to offer wealth and retirement funds that give access to private markets for individuals, financial advisors, plan sponsors, and plan participants.

47:45And then David Solomon did like a PR quote. But basically like T-Row has the infrastructure to sell funds in 401ks to advisors through banks. Goldman has the private equity assets to put into those funds by virtue of all of their whole ecosystem. T-Row doesn't have what Goldman has. Goldman doesn't have what T-Row has. It's brilliant. I totally get it. We're probably going to see a lot more of these tie-ups. Okay. A hundred percent. Yeah. We've seen it in the reverse with BlackRock trying to build out its private markets capabilities by acquiring HPS and GIP. How about Vanguard partnering with Blackstone?

48:30Blackstone and Wellington. And Wellington, okay. That was a three-party partnership. So I think that what we're seeing is… These are going down though if this continues because like these are mass market players that they can afford to undercut, charge less. I don't know. It seems like a double-edged sword for the industry. Depends on the product construction. but yes absolutely I think we're going to see more of this I think this is the type of thing where firms will try to match their capabilities Goldman to your point they have the private markets capabilities they have 550 billion or so of AUM in private markets they're not a pure play alternatives manager but if they were they'd be a top 5 in terms of AUM so that's meaningful they get to distribute their products through the T.

49:20Rowe Wealth Channel. T. Rowe, and it could be Franklin. It could be BlackRock. It will be BlackRock. BlackRock is going to have model portfolios for advisors very soon. And Larry Frank's annual letter, on like page five, he just went all in. He said, BlackRock has always had a foot in private markets, but we've been first and foremost, a traditional asset manager. That's who we were at the start of 2024, but it's not who we are anymore. In the past 14 months, we've announced the acquisition of two of the top firms in the fastest growing areas of private markets. That's Global Infrastructure Partners and HPS.

49:52And HPS. We bought another firm to get better data and analytics. That's Prequin. So we can better measure risks, spot opportunities, and unlock access to private markets. We've transformed our company. That is the biggest asset manager in the world going all the way in on private markets. If it feels late, we're just getting started. We are just getting started, right? Because think of how much capital can go in to private markets from the wealth channel, a lot of the advisors who BlackRock or T. Rowe or Franklin and then all these alternatives managers are working with and certainly on the traditional side are selling traditional products, mutual funds, ETFs, et cetera, they're very underpenetrated in alts, whether they're wire houses or RIAs.

50:37So I think we're going to see more of this just because you have to be able to spend a lot to do distribution well. Blackstone has 600 people or so and a huge team and budget. And they've spent a lot of resources to build out their footprint in private markets because it is a ground game to sell. Now, what do traditional asset managers have? They have distribution. How do advisors figure out which of these firms to talk to and who's best at what product type? Is it just like you learn from just like weeding or? Michael, part two of that question is when hedge funds came along, not when they came along, but it was often said that assets are an enemy of performance.

51:21I feel like with private markets, private equity, especially private credits, scale is really important. Yeah, I think it might work the other way around. So how do advisors know who to work with? Just call Blackstone and BlackRock and call it a day. Is that all you need? I think there will be a portion of the market that probably does that because what you're getting at is reputation. Brand wins. And so I think the nuance to your question, which is a really good one, because it, I think, gets to the core of what all of these asset managers are thinking about in their C-level strategy discussions, boardrooms, et cetera, is how do we show who we are?

52:03What's our DNA? What are our values? What's our culture? And how does that transmit itself in terms of our investment culture and our brand? and how do we market that brand to the wealth channel? I got to be honest with you. Advisors don't care about that stuff. I think it's, I think it's what is a big enough name that when I say it to my clients, they're not afraid anymore. And what's the price? I have to be honest with you. I don't, that branding culture shit, like nobody cares about that. So that, but that's a really instructive, I'm glad you said that because that's really instructive and an important piece to all this.

52:34Hold on, but think about it this way. Think about it this way. I think you're right to a certain extent, but to the extent that culture is the people, it matters a lot because how many relationship managers have we worked with that have had a very impactful part of our decision-making process and who we will and won't work with? Right? So from that respect, it does matter. No, no, no. But how do they even get to the table to begin with? Because the company was sufficiently large and we believed in them. But they have to have great people that are trustworthy, that can educate, build relationships.

53:03No, I totally agree with that. What I'm saying doesn't matter, these highfalutin mission statements that have been crafted by a publicist, Yeah, nobody cares about that. Advisors don't give a shit. They're not reading the marketing materials. That's why I think asset managers really need to think about how they want to evolve their brand to work with the Wealth Channel. To your point earlier, Blackstone has figured that out. They have John Gray being very authentic, doing running videos, being on LinkedIn. Is he rapping? So they're all going to start rapping? Is that what's going on? Maybe. I mean, I think every firm needs to be— Can we have a little bit of fun?

53:39can we do a little free association sure um you were saying on on another uh lesser podcast that every one of these uh companies has sort of its own brand and its own like idiosyncrasies um so i'm not terribly aware of the difference from one to the other um i know there are a lot of memes being made about this now which is fun and i follow all those guys and gals um so i'm to tell you the name of one of these firms. Yep. You don't have to do it in one word. Name an animal that you associate it with. No, you don't have to do it in one word, but like help us understand the cultures of which you speak.

54:17Sure. Okay. Apollo. Purchase price matters. No, God of life. No, say that again. What is it? Purchase price matters? Purchase price matters. So they're disciplined on what they're - They're price sensitive. They're disciplined. They're DNA. Okay. All right. Aries. God of war. God of war. Okay. My Greek mythology wasn't good. I probably need to study up on that if I want to know all these matters. Why do they all have to be Greek gods? Is this like a superiority complex or? Inferiority. Could be. Aries, I think of, they obviously do a number of things, but when I think of Aries, I think of a fantastic credit franchise and an innovator and structure around credit and BDC world.

55:01Okay, KKR. Everybody's going to say barbarians. I actually think they've, they've, I think of them as a, you could say pass when it, no, when it comes to private equity and that they do other things, obviously I think of them as a private equity firm to start. They've done a lot of other things, but. So just, just do a minute on GP stakes. We haven't spoken about that. Wait, wait, I got two more. I got to, I got to, I got to get to these people care. Uh, Carlisle group. Private equity heritage. So, okay. So, so like the heritage. Rubenstein. I mean, they were, they were one of the, I mean, they were obviously.

55:36a few firms that were first kkr apollo blackstone carlisle's in that group i think of them as private now they've obviously expanded beyond that but they're uh they're also a high quality brand i mean these are all high quality brands just in slightly different ways blackstone the biggest right he myth they and they use steve schwarzman said a quote i had this former cfo blackstone on on my podcast a while ago he made a really important point a really instructive quote, which was quoted Steve Schwarzman, who apparently always used to say, scale begets skill. So his view is scale is their advantage as a firm, because scale begets skill.

56:20If you can put enough scale against an investment opportunity that required a that requires skill, but B, you then have an advantage. And that's why I think they've leaned so hard into scale. they've raised very large funds but scale is what enables them to have an advantage in winning deals i think this actually relates to private credit a little bit too is like there are like an ibm thing where there was like the old saying like nobody ever gets fired for choosing ibm does blackstone sort of have that aura about them where it's like when in doubt we'll just use blackstone i feel like they the b we think sort of blew over and by a scale they did they They did a deal with CalPERS.

57:01They figured it out because they have the scale to figure it out and they have the brand. And I think they've used their brand to be early and educate the market very early on. Blackstone University was an innovation in the space to educate advisors. But they've also put a ton of capital. And I do think that in order to work with the Wealth Channel effectively, and this is partially why we're seeing partnerships, this is why we're seeing consolidation, you need to invest enough capital. You need people. You need wholesalers. You need people. But you actually have to invest enough capital to do that.

57:35The firms that have the scale to put their balance sheet and invest capital to do all of that and are willing to spend on marketing. You need local area, like shock troops who could show up and be friends. You need John McEntee. I need John McEntee. How do you go to Edward Jones? If you want to work with them, right? You got to be right there. I have a guy who covers me for BlackRock. No, no, no. He's at Allspring. Oh, he's at Allspring now? Yeah, of course he is. Forget the story I was going to tell you. Everywhere I go, I just run into this guy. He covers me so well. I'll like show up randomly in a restaurant somewhere and he's like, hey, good to see you.

58:12Did you share your location with him or something? No, it's crazy. He's so good at what he does. Unbelievable. Michael, what area of the private markets, there's so many different areas. We haven't even spoken about really data centers, infrastructure, GP stakes. What area are you most excited by? And or what do you think resonates most with advisors? I think what I'm most excited about is not necessarily the same as what resonates most with advisors. I think private credit resonates most with advisors now for the reasons you discussed. And I think it's also a very, it's an entry point into private markets because it's not as illiquid as private equity.

58:47Very easy to understand. It's loans to companies. Yeah, we get it. There's a current yield. I think that's an important piece of this too, which is advisors - Income. Yeah, they want income generating assets. And guess what? In 2022, when rates went up, these things are floating rates. They didn't get killed. The opposite, they did great. Exactly. So I think private credit has been the first foray for many advisors. Secondaries, I think, is also very popular right now because similar thing. There's a structural imbalance in the market. So there's a lot of capital that needs to be unlocked. And there's been a lot of capital raised in secondary space.

59:22but there's still reason to believe that the secondaries firms can have their pick of what assets they want to go after. Now there's structural challenges in private markets, and there's innovation around different kinds of funds. Well, prior to secondaries becoming as big as they have, you really had to rely on going public. That's increasingly difficult to do these days. A number of private companies has stayed. A lot of companies don't want it. Investors, their risk appetite after the first day or two, they abandon these companies. You don't have the research coverage on Wall Street to support a small cap or a mid cap company.

59:55Like analysts aren't, you know, there aren't enough analysts to cover all these. So for that reason, that's the structural imbalance. You don't have the liquidity from public markets. I guess philosophically, when you have secondaries, these are almost like public securities at that point. Well, OpenAI just did one. It was a secondary, but their employees were able to set a$500 billion valuation. And yet, and yet a lot of these private companies, even the giants like OpenAI and the others. Is OpenAI not a public company at this point? It's$500 billion. I mean, it's going to be past Walmart soon.

1:00:25That's a great example, though, of what private markets has become, right? There's this evolution in broader markets where the number of public companies has halved from 2000 to today. We have like 3 ,500 public companies. That's it. It's tiny. And so how do you get access to the universe of company? Like a$500 billion company that's private. and if they're doing secondary offerings, there's some level of the, it's not liquidity in the same sense as there's daily liquidity, but SpaceX does tender offers on a regular basis. So these big companies need to figure out how to create liquidity mechanisms for their employees and or investors.

1:01:06That I think is a great example of what private markets has become. I mean, it's an entire universe that probably should be, at the very least, if people are investing in meme stocks and crypto, they should also have the ability if they want to invest in these assets. That part of the market is still not built out for the everyday investor. Not even close. Sure. Even for REAs, it's difficult to get your hands on those shares. Sure. And it's a pain in the ass. And that's why I think this is going to be advisor-led for a while, as it should be. The brokerage firms are starting to do this. Schwab announced earlier this year that they're rolling out private markets offerings to their QP client through brokerage, it still has to be advisor-led.

1:01:49Either the brokerage client has to call up their advisor or they have to ask for a Schwab advisor who sells private markets to be able to invest in it through their brokerage account. But soon you're going to see private markets, products, probably evergreen structures in brokerage accounts. We're coming to the end of this, but I can't let the moment pass without asking you. Is the douchiness quotient of the industry being like overplayed on social media? Is it not as bad? because you probably know a thousand people working in the industry. I probably know a hundred or 200. I don't really find that these people are any worse than any other people I've ever met in finance.

1:02:28But like, let me play this for you. John, can you hit that link for me? Topic sex industry. Do you know who Johnny Hillbrand is? No. Oh, you're in for a treat. All right. Do you have to log in in order to play it? So Michael, what else is going on? what'd you have lunch today I'm ready for football season who are you guys open with you're a commanders fan is that because private equity owned makes sense of course I mean private equity came to save the day honestly like it's so much better now than it was so is that does that say that private equity is we're gonna it can be a good thing we're gonna see we're gonna see a lot of I think minority stakes in sports teams and those are gonna be very popular the Koch brothers just took a 10 % stake in the Giants at a$10 billion valuation.

1:03:16Yeah. I mean, if you think about it, so sports teams are an interesting one though, right? Because it's, the media deals have just consistently grown in lockstep as more people continue to watch sports, as the streamers get involved. So, and I think there's been data from Arctos and others that sports are relatively uncorrelated assets to other parts of the market. No, they are uncorrelated. Come on. They will be less uncorrelated if and when thousands of people are invested in them. And then all of a sudden, yeah, because it's... Dude, people are going to the next game. It doesn't matter what the environment is.

1:03:51I think everything becomes correlated as more people invest in it. You don't think so? No. I'm not a thousand percent sure if I agree with that. Who's the buyer once the Giants get to 20 million? Saudi Arabia. I'm pretty sure Saudi Arabia is going to end up owning several major sports. It looks like they own golf. they forced a merger with the PGA. Like that happened in a year. It didn't really take that much money either. So if you think that they're not going to end up owning franchises in sports or owning entire leagues, you're crazy. Of course they will. You think the leagues will ultimately let that happen?

1:04:29They'll have no choice. You'll never have enough money to come. How are you going to compete with Saudi Aramco? No, it's, it's, it's trillions versus billions. 4-1-Ks. We already know 4-1-Ks. I'm going to hold the Knicks in my 401k. All right. Are we not going to be able to do this? I'm having issues getting it in. Yeah. All right. Can I play the audio? Yeah, you can just play the audio. All right. F*** it. We'll go audio. Leveraged by, yeah, Sycamore. Yeah, Sycamore just dropped an insane$23.7 billion on Walgreens. Ah, it's so sick. It's the largest retail LB on history. And it's, so they took the company off the NASDAQ.

1:05:05Yeah. You know that play. Ah, it's going to be so sick by then. Well, yeah, Walgreens appears to have more annual revenue than any other company that's ever been acquired by PE. So that's substantial. And look, I know a couple of the guys over at Sycamore. They're really salt of the earth, fellas. I've golfed with a few of them. One of them has a son on Tarantino's squash team. And actually, Tarantino spars with one of the other guy's sons in jiu-jitsu. Yeah, they're four years old. Yeah. Yeah, very cool. Sorry, what was that? Oh, no, Sycamore has no health care experience. No, no, none. But those guys are awesome.

1:05:40Yeah, they're going to absolutely print. They already were. I know one guy that I know, he was rolling up pediatric dental offices. Yeah, in Arizona, California. Ah, he's absolutely printing. Yeah, yeah. Yeah, the guy only flies private. Oh, he's wearing a vest. Okay. I'm so sick, my man. It's going to be very cool. I'm so thrilled for everybody involved. All right, enough. That's Johnny Hillbrandt, one of my favorite creators on Instagram. He's absolutely hysterical. He, I don't know if nobody's ever sent that to you before. No. He's done like 500 of these videos as the same character. And like, it's the most pretentious asshole you've ever seen in your life.

1:06:20And all his videos are like, I'm in Nantucket. Now I'm in the Hamptons. Now I'm at F1 race, like just on and on and on. And they're never not funny. But he has this, he doesn't work in the industry. I think he's a standup comedian. He just has this persona down to a science. and don't like, it's not my fault. That video I played for you has 6 ,000 likes. All of his videos blow up because everybody knows one of these people. He's obviously an extreme version, but like, is it unfair? Or is it sort of on the mark? Or do you know these people and they don't represent the whole industry? Oh man, look at the pause before he could.

1:07:01I'm sure there are people like that. I think there's a lot of people in the industry who, one, really enjoy building companies. And that could be investing in and building companies that they're investing in. And also, I think at this point, like the firms themselves are business builders. And I think they find that fascinating and interesting. Obviously, it's good for them, no doubt. But I think there's a lot of people in the industry who are not like that. I will say those focused on the Wealth Channel, and I've spoken with many— Oh, yeah, this guy is not the one they would send to the Wealth Channel.

1:07:38I've spoken with many of the heads of private wealth on my podcast. They're business builders. They're building a business within a business. I think they take their job very seriously and believe in the merits of private markets. They understand the importance of educating the Wealth Channel. They know that's critical, both educating advisor and end client, if they want to actually be able to do this well. And I think they also know that if advisors don't have a good experience and clients don't have a good experience from the start, they won't work with them. Again, advisors are very fickle and rightly so.

1:08:11Got one shot. I totally agree with that. You have one chance. So I think a lot of those in the wealth channel who I speak with, I think they really do care about how they do this and making sure they do it right so that private markets does become something that is another tool that the advisors can choose. I think the other thing that is important to say is we don't live in a world without memes. We never have. And we certainly won't anymore. We've gone through the memification of everything, but certainly the memification of financial services. I think that's an important point and something for those in financial services, asset managers, to really think about and understand.

1:08:53Because I think they need to realize and think through how they want to work with the Wealth Channel. that might be different, they may have to evolve how they do things and think about things a little differently and lean into that a little bit in a way that's true to who they are and who their brand is. But also recognize that at the end of the day, finance is a serious business. It's people's money. That's probably, if not the most important thing, it's one of the most important things that people have and hold sacred because it enables them to do all sorts of things in life from take care of themselves and their family to do whatever they want.

1:09:26So making sure that advisors and end clients have a good experience, their money is safe kept, and they generate returns. Private equity and private markets don't work unless the returns are higher than public markets. Why do it? It has to be done well. Subject to the same pressure that every other asset class is subject to. I don't know, man. I take minus 50 basis points for no liquidity. I mean, for no marks. I'd pay it, honestly. So the guy that's being caricatured here is not the guy that they would send to interface with a wealth management firm. That's more of like a portfolio manager. And he keeps saying, due to my role, I have substantial wealth due to my role.

1:10:03Like that is, that is not the face that any private equity or credit firm would show to financial planners or fiduciaries. No, and it can't be. I mean, they, they really need to make sure they understand who the advisor is. There's different types of advisors. There's different types of clients. They need to make sure they're understanding what product they're selling and they need to build their brand in a way that reflects who they are. I think we're going through a huge brand evolution in asset management. I think we're seeing this collision of culture and finance. And I think firms are going to need to lean into that.

1:10:37I think they are going to need to think about culture and how to appeal to culture. Not just culture, but like how to broadcast, like show people what your culture is about. And they need to do it, but they need to do it in an authentic way. I think they need to be out there talking to people. They need to come on podcasts like this and just be able to chop it up. Can I tell you something, Michael? That's important. Can I tell you something? I think they could all learn a lot from paying attention to the way that you carry yourself and what you're doing. So I hope they are. I'm sure they are. And you do a really great job communicating the virtues of the industry.

1:11:10I could tell you're passionate about it. And we had a lot of tough questions for you. I thought you came through with flying colors. Can I just say one more thing? Nope. You know. So. I'm just kidding. Go ahead. Go ahead. No, no. I was rapping The moment passed No I know you were rapping Do you want to say something nice about Michael's No no no the moment passed That's okay Let's bring it back I want to hear you say it No no no really Really and truly It was a bad joke It would have played But the moment is over Wrap it up I'm so sorry I stepped on that That's okay Alright guys I want to say thank you to Michael Sijmore for coming by I want to tell people where they can follow you Because I think Like we did an hour Probably doesn't do justice To all the things that are happening in your space People are going to want to learn more As a result of this conversation I know I do.

1:11:53Where should they follow you? Where can they get more information about the things you talk about? So, Alt Goes Mainstream. Put the hat on. Put the hat on. Yeah. Oh, wait. You got a headphone on. Sorry. Forget it. Don't do it. This is coming your way. You look crazy. Take it off. I got some hats for you guys. Alt Goes Mainstream. So, that's the pod. But yeah. So, yeah. Alt Goes Mainstream is on Substack. So, I write every weekend. And I have a podcast at least once a week, sometimes more. Your Substack is amazing. I've told you that before. Excellent. Appreciate that. Do people want to hire you like every day?

1:12:24Like how many people are trying to just be like, we'll buy your thing, just come work here. It's got to be everybody. It has happened. I think, look, I think it's important to stay independent. I work with a lot of different firms. I think that's part of the importance of this is being able to talk about what's going on in the industry and putting the pieces of the puzzle together for everyone. Yeah. From a 40 ,000 foot view. I think every firm needs to have their own way of educating and their own amplification methods. That's through socials, through their own content that they produce. But I think also having independent platforms for that's important.

1:13:01So I want to stay independent. Well, you have probably the leading independent platform for it. So I think it's amazing. Thank you. Hey, we always end the show asking people what they're most looking forward to. I'd love to hear anything in your life or in your business or any events you're going to. What are you looking forward to right now? Future proof. You could say future proof. I am looking forward to future proof. I've written about this. I actually really am. I think Future Proof is this great intersection of finance and fun. You guys have figured it out. You guys have figured out how to celebrate advisors and make sure that they understand who they are and how to build their business, but do it in a way that's fun.

1:13:41And I think… Are you bringing the pot out? I'm moderating a panel. Okay. Is it on Ault's? It is on Ault's. Okay. All right. Cool. There's a traditional asset manager on there too, because we're going to talk about the conversion. But no, I think there's something that it's hard to explain other than seeing it in person, but people in casual outfits on a beach, but talking about really interesting intellectual topics within their industry, I think it creates this unique element that you can't get from sitting in an office or just doing a conference in Midtown. Totally great. And I think that's, I always look forward to it every year.

1:14:26I think it creates this way of, of just thinking about what you're trying to do as a business. I mean, the advisors are really, they're trying to learn from each other. You know who this guy is? No. My friend, Robert Bahari. And he's an independent financial advisor in Australia. How many Australians do we have coming, do you think? 25 or 30? 25 or 30 Australian. How cool is that? Right? So shout out to Robert for coming by the studio. We really appreciate you sitting in for this. We had an audience today. We're going to have, yeah. So we're going to have 30 financial advisors from Australia at Future Proof California.

1:15:04I think the Canadians are sending over 100. So it's like, it's really cool. I'm so glad you're going to be there. Yeah. And I'll try to catch your session. Michael, what are you looking forward to? Life. losing the commanders life life Giants yeah Giants football season's a good answer I'm looking forward to Russell Wilson getting out of New York it's enough already yeah I don't want him I don't want him you're on the Jackson Dart bandwagon is that what it is you know what's going to happen he's going to go 0-3 and the crowd is going to demand Jackson Dart that's my prediction for New York is a fickle market well yeah so we're very we're very discerning you're a Giants fan too no yeah so yeah so that's the thing I'm not looking forward to.

1:15:48I'm not going to focus too much on it, honestly. I'll watch all the games, but I'm not going to get upset. It's just, it's not our era right now. It's just not, right? You think that's fair? No, we bought them last summer or last season. I think we could be okay. It's just not, this is not like watching. It's so depressing. I can't. All right, guys, we're going to get out of here. Thank you so much to John, Duncan, Nicole, Rob, Graham, Chartkid, Matt, Sean, Keith, everyone who works on our shows, Daniel, Travis, what a week we've had huge thanks to our guest Michael please follow Off Goes Mainstream, great podcast great education, the sub stack is lit as well, guys next week, know what are your thoughts on Tuesday on the YouTube channel because we will be in Huntington Beach for Future Proof we will have a Compound and Friends episode though at the end of the week and it'll be live, we are hosting the CEO of Franklin Templeton, Jenny Johnson.

1:16:48Jenny is an absolute killer. Michael Batnick and I are so excited for that conversation. So look for that next week. Thank you so much for watching. Thank you for listening. We'll see you soon. All right, we're out. Do you want to do it one more time? We got it. What? The whole shot? Yeah. Is that good? Oh, is that fun? Okay.

1:17:16Thank you.