June 17, 2025 • 19 mins
Private markets by their very nature lack the same transparency that’s standard in public markets. But Morningstar, a leading provider of independent investment insights and ratings, is conducting more due diligence on private markets to help investors navigate the sector. Morningstar Chief Executive Officer Kunal Kapoor joins host Merryn Somerset Webb on this personal finance edition of Merryn Talks Money to tell us more.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. Welcome to MEREN Talk
to Your Money, the personal finance edition of Merin Talks Money.
In these bonus podcasts, we talk about the best strategies
(00:23):
for making the most of your money. I'm mere in
Sunset Web and this would be focusing on private markets.
It's not a topic John and I discussed that often,
except for in a minthly disparaging way, but it is
something many of you have written in about. So we
have decided to invite in a guest to help us
talk about why you might want to get into private credit,
private equity, etc. And if is an investment path that
(00:43):
you want to go down, what exactly are the smart
ways of interpreting what is out there? So with me
Morning Star Chief executive Officer kun Al Capol. Morning Sara
is a leading provider of independent investment insights and rating
space in Chicago. Can not thanks so much for jo
us today.
Speaker 2 (01:01):
Thank you for having me. Mary.
Speaker 1 (01:02):
Now, all of our listeners and readers will be very,
very familiar with Morning starb because lots of them the
first thing they will do when they go and look
for a fund is they'll look up your rating on
it and they'll see what they'll see, whether it's a
go silver fund, a bronze fund. Except for the various
different ways of rating, but everyone is familiar with the
idea that when it comes to ordinary listed funds holding
assets in the public markets, you are one of the
(01:25):
go tos in the markets for information and also for education.
You provide a lot of research and education for ordinary investors.
But you're moving into a new ish area which is
looking more at rating the private part of the market,
so private credit, private equity, infrastructure, real estate, these kinds
(01:47):
of funds. So tell us a little bit about why
you're doing that and what sort of funds you'll be
looking at. Vehicles should I say.
Speaker 2 (01:55):
Yeah, let's dive right in, and let me just start
by saying that I think your skepticism is warranted anytime
you see a flood of money chasing a trend or
anything like that, I do think putting a skeptical view
on things is appropriate, and I have no doubt that
(02:16):
as there's some new products that come out in this space,
there are going to be some allusy products and it's
going to be a morning storage job to help investors
navigate them. But if I back up further and kind
of try to provide a broader view of what's going
on around the world. As you know, there's just been
a preponderance of money that's flowed into the private markets,
(02:40):
and it's happened in private equity, where you see the
number of companies in private markets that have taken funding
from private equity far exceeding what's available in the public markets.
In Europe alone, you have double the number of pe
back companies relative to public company. So just to contrast.
Speaker 1 (03:01):
That, that is absolutely true in terms of numbers of companies,
but in terms of value of companies, the listed markets
still remain the higher value area.
Speaker 2 (03:10):
Right. Yes, the largest companies for sure are listed, and
that makes sense, but it's notable that the size of
private companies has gotten larger and larger, and so that's notable.
Speaker 1 (03:22):
Yeah, it is one of the things that we talk
about a lot, which is this idea that companies list
later and later and later if they list at all.
So an awful lot of the growth that one might
have previouly expected to get access to all the public
markets is now only in the private markets.
Speaker 2 (03:37):
Correct. Now, while private equity gets a lot of the headlines,
and you can see why it's much more I think
enticing to write about it and talk about unicorns and whatnot.
The reality is that most of the action is really
in private credit, and where investors like you and I
(03:58):
and wealth managers are going to first encounter the private
markets is really in private credit. And so if you
go back to post global financial crisis, a lot of
the big money center banks around the world came out
of that, either facing new regulations or generally taking a
more cautious approach to how they wanted to manage things,
(04:19):
or candidly being in a situation where they didn't have
the capital to lend as much as they previously might have.
And so that opened the door to what i'll call
sort of non large banking lenders emerging, and you saw
particularly private equity firms starting to step into the space,
(04:40):
some built up insurance capabilities and whatnot to invest here.
And so private credit has really taken off and in
many large markets around the world, and increasing amount of
debt is issued via private markets. And so what you're
starting to see in some parts of the world is
the arrival of products available to retail wealth investors that
(05:07):
essentially allow them to access the private credit markets.
Speaker 1 (05:11):
So what we're talking about when we talk about private
credit is companies that are unable to borrow from banks,
are unwilling to borrow from banks, looking for alternative places
to borrow money and going to private companies to do that.
Is that that simple? That's what we're talking about exactly.
Speaker 2 (05:29):
They're raising the money the non banking financial institutions in
many instances.
Speaker 1 (05:35):
Yeah, but that debt remains tradable, just not on a
listed exchange. Yeah.
Speaker 2 (05:39):
I think tradable it could be, obviously, but they tend
to be held in private hands and so they don't
trade as much. Obviously. That's a bit of a distinction
from what we call public high yield, which does trade,
although it's very debatable as to how liquid that is
as well.
Speaker 1 (05:56):
Okay, so we're talking about entirely a liquid high yield
to debt.
Speaker 2 (06:01):
Yeah, that does not trade by the moment for sure.
Speaker 1 (06:03):
I mean, what is the crossover between modern private credit
and olden day's sub private ending.
Speaker 2 (06:09):
Yeah. I think what you want to be careful about
is you don't want to throw the baby out with
the bathwater. There's certainly, as in the public markets, when
you're investing in debt, the higher the chance of default,
the greater the interest rate that you're going to demand.
And you see that in private markets as well. Candidly,
(06:31):
man and there's a high degree in my view of
likely correlation between public and private markets because we are
kind of in a period where you know, things have
generally gone well in the public and the private markets,
and so generally speaking, risk is something that I think
people have been de emphasizing in a way that is
(06:53):
going to probably be problematic regardless of whether you're looking
at public or private markets if you have a correction,
so I think your line of questioning maybe is heading
down the path that private is maybe more risky. There's
certainly some factors that make it so, but I wouldn't
say that in a wholesale manner. If you look at
some of the lenders and firms that have got involved,
(07:14):
you have large firms like the Blackstones and the Apollos
of the world. They come with solid reputations and the
ability to do the research, just as you would expect
on the public side as well.
Speaker 1 (07:25):
No, sure, I suppose. My question really is that if
you are a company and you need burrows of money,
your first point of call is going to be a
bank or publicly listed markets, because maybe that would be
cheaper for you. So if you end up not going
to a bank, no.
Speaker 2 (07:38):
Not anymore. It certainly used to be the case that
one could generalize in that way. But you're starting to see,
even when there's large m and A taking place, that
many firms are not going to the public markets and
they find it quite efficient to go to private markets
to raise money. And so I think that is the
underlying point here, both in terms of equity and credit,
(08:01):
is that what used to just be the purview of
public markets is no longer just that you're right to
be skeptical at a high level, but the underlying trends
show that there is some change in terms of the
nature of what's available to invest on the private side.
Speaker 1 (08:19):
Letter although we vaguely wonder if there won't come a
day when in the equity side we'll move back to
people being more interested and enlisted than private Given that
as rates don't go back to their previously low level,
that becomes increasingly obvious that the private equity app performance
is not quite what maybe we thought it was. So
we wonder if on the equity side at least you
might see US wing back towards listed.
Speaker 2 (08:41):
I think that's a really important point. But in general,
I would say that investors should expect lower returns from
public and private markets going forward.
Speaker 1 (08:51):
Now I would probably agree subtainly in the US maybe
if not elsewhere. But I suppose the point about that
is that if it is the case that in times
of normal interest rates, private equity returns are more or
less the same as public equity returns, i e. Turns
out that private equity is simply equity with not much
transparency and a whole balladett why would you take private
equity over public equity? And that's a question that I
(09:13):
think we will have answered over the next decade.
Speaker 2 (09:16):
Yeah, that's totally the case, and we'll need to look
at that. I think it's hard to generalize, and at
least so far, our data so we own pitchbookens, we
have years and years of data on this. It does
show that while you're trading liquidity, you do get a
little bit of return premium, and so you're right, we'll
have to see. But my hunch is that the markets
are going to be way more correlated on the public
(09:37):
and private side than most people believe, and so we'll
see how it clays out.
Speaker 1 (09:42):
We are contact me being told that we use private
equity as a diversifier, but you're rather suggesting that going
forward unity that is the case.
Speaker 2 (09:50):
I think it's true of most asset classes today that
because they've all had strong runs, there's a higher degree
of correlation and it's going to be harder to differentiate.
That's my personal view. I realize others feel differently, but
you know, you just have to look at this here.
And even what happened in April, you had the public
(10:10):
markets kind of fall sharply before recovering, and similarly, in
private markets, while you didn't have a marked to market event,
so to speak, you certainly didn't see deals getting done.
And now again with the public markets back, you're sort
of starting to see a desire to get deals done again.
So it seems to me that there's more correlation than
(10:31):
is the case. Clearly, if you can hold something for longer, though,
which is the case with private equity, I think potentially
the benefit is you're not trying to trade in and out.
Maybe that explains some of why the returns have been.
Speaker 1 (10:44):
Kind of less. You can hold it for longer than
you have to hold it for longer, right, correct. So
when you talk about going into this market, you're talking
about beginning to rate what you call semi liquid funds.
Explain to us what we mean by semi liquid.
Speaker 2 (11:00):
Notion of a semi liquid fund in the US, it's
large in the category what we call interval funds. In Europe,
it's in the category of things such as altaffs, so ltafs.
And the notion with these types of investment vehicles is
that you can come in and out of them on
a schedule or a schedule. And what I would say
(11:23):
is that they are different, obviously from the funds that
you and I started this conversation talking about, because those
have instant liquidity. Essentially, if you're in an ETF, for example,
it's near instant liquidity. If you're in a regular mutual fund,
you at least have daily liquidity, and what you have
(11:43):
in semi liquid funds is a situation where you get
liquidity let's say once a quarter, so there's a predetermined
date where you can buy in or sell out, and
this allows the manager to take the assets and then
put them to work in investments that are not liquid
but The benefit at least of these types of vehicles
(12:06):
is that they do provide access with some degree of
liquidity relative to what a traditional private equity of private
credit fund would do, which is not provide liquidity for
a longer period.
Speaker 1 (12:16):
Tough on a manager if they know when they have
to produce cash, they don't know how much cash, and
if in private equity and private credit you are holding
for the long term, particularly in private equity, you can't
be sure that you can exit at any particular time.
It's still a tough way to manage money.
Speaker 2 (12:31):
It's a tough way to manage money, but it's no
tougher than on a daily basis when you have to
provide liquidity, you know based on who's coming in and out.
So I don't find that to be an insumuntable challenge.
Daily liquidity funds have all kinds of challenges too. You
have to kind of anticipate and hold cash for instance,
to think about what's coming in and out. So I
don't view that as insumountable. I think, what's the bigger challenges?
(12:53):
Are you really adding value and providing a premium for
the reduced liquidity that you're providing in that vehicle, and
our ratings essentially go to try to answer that question
and also to put public in private on an equal footing.
So if you're going to buy a private vehicle, not
only do you want to make sure that you get
(13:16):
the benefits, but you want to make sure you outperform
the public vehicles. And so we want to be conscious
of not separating the public and private universes entirely. And
you'll see that in our methodology when we roll out
these ratings beginning here in the US and the back
half of this year, that the idea is also to
(13:36):
really rate them based on our view of whether they're
going to outperform similar strategies in the public markets.
Speaker 1 (13:42):
And how are you going to film that view?
Speaker 2 (13:44):
Well, our analysts obviously are going to do the diligence
as they do on public market vehicles today. So you know,
it starts by working to understand the parent you know,
building these vehicles, so we have a parent rating, and
then from there we dig into the actual management of
the fund and produce an opinion based on a view
of management's ability to deliver our performance as well as
(14:08):
you know, key factors such as.
Speaker 1 (14:09):
Expenses, expenses and fees are an interesting part of this
whole sector. I mean that was more opaque than one
would like. A lot of the time. The fee structure
is something that ordinary investors have some trouble getting to
grips with quite a lot of the time. The wire
being included and rated right.
Speaker 2 (14:25):
Yeah, Yeah, it's no different than the fight morning store
of art in public markets to get common investors access
to knowledge about what they are paying today. And so
I think transparency is a good thing investors. I think
we'll have that opportunity here in the private markets by
bringing some transparency in competition.
Speaker 1 (14:43):
With your sense of how private equity, private credit is
becoming part of the investing universe. And I talked to
earlier about you know, the likes of Larry Think and
how much they think one should have in a private portfolio.
What do you think a portfolio should look like these
days in terms of allocation to private assets for.
Speaker 2 (15:02):
Most rank and file investors. Let me just start by saying,
simplicity really matters. And if you feel good about your
portfolio and you're all in public markets of public equity
and public data, I think that's fine. You don't have
to change that. This isn't for everybody, and one of
the most important things about investing is that it should
(15:22):
allow you to sleep at night and to hit your goals.
And if you can do that with the portfolio you have,
you don't necessarily need to change that. I think for
most rank and file investors going forward, if you have
an interest in the private markets, the reality is, at
least in the near term, it's going to be hard
to get true access to private equity, and so I
(15:44):
have a hard time saying you should be allocating X
or Y, because the vehicles as yet aren't in place
to provide that at scale. They will be in toime.
My personal view is that where these belong is in
your retirement assets. In your retirement assets, if you've never
owned something like this, it's probably good to start with
(16:06):
a very small allocation to the extent that you're interested,
so that you can start to get a feel for
what it means to have something like that in a portfolio,
because you will really immediately understand what it is to
not have the type of liquidity that you otherwise might have.
And so I would say that for most investors today,
(16:27):
starting off with no more than about five to ten
percent of your retirement assets parked in these vehicles is
probably an appropriate way to learn a little bit about
how you feel about them, how they behave, how you
want them in a portfolio.
Speaker 1 (16:43):
So if you are already retired plausibly even you have
started draw down, this may not be the asset for you.
Speaker 2 (16:50):
I would say that's accurate.
Speaker 1 (16:51):
Well, while on the subject of retirement assets, how do
you feel about the British government about Rachel Reeves's idea
that some of our penchophones should be obliged to have
ten percent of their assets in private market.
Speaker 2 (17:06):
I think it's a good idea for long dated asset
pools to have exposures to the private market. So I
like that idea. I'm personally not off the mindset that
it needs to be prescriptive. I think ultimately these are
pools of money that are and should be managed by
(17:27):
professionals who should have clear opinions and what types of
allocations they want. And you know, you certainly see around
the world different pools of asset owners that have different
views on this, going from some that don't put anything
in private markets to some that are well known and
have chosen to put close to half their assets in
private markets. So I think at a high level, I
(17:49):
absolutely agree that it's a good idea for long dated
asset owners to be looking at the asset class. But
I think the ultimate drivers should be matching the time
wherese into the liquidity needs of those that you're serving,
and so I would sort of leave that up to
(18:10):
the individual investment officers there.
Speaker 1 (18:13):
That is all fascinating and really useful, and I think
that we all be really really pleased with what you're
doing and the idea of bringing transparency with a little
bit more due diligence, et cetera to a market like
this and helping people get intowitter is super helpful. Thanks
for listening to this week's Marin Talks to Your Money.
(18:34):
If you like us, share rate, review, and subscribe wherever
you listen to your podcasts, although be sure to follow
me in John on ex or Twitter. I'm at marinsw
and John is John Underscore Stepic. This episode was produced
by Samasadi Production, Sport and sound designed by Blake Maple's
questions and comments on this show and all our shows
are always welcome. Our show email is Merri Money at
(18:54):
Bloomberg dot net.
Bloomberg Audio Studios, Podcasts, radio News. Welcome to MEREN Talk
to Your Money, the personal finance edition of Merin Talks Money.
In these bonus podcasts, we talk about the best strategies
(00:23):
for making the most of your money. I'm mere in
Sunset Web and this would be focusing on private markets.
It's not a topic John and I discussed that often,
except for in a minthly disparaging way, but it is
something many of you have written in about. So we
have decided to invite in a guest to help us
talk about why you might want to get into private credit,
private equity, etc. And if is an investment path that
(00:43):
you want to go down, what exactly are the smart
ways of interpreting what is out there? So with me
Morning Star Chief executive Officer kun Al Capol. Morning Sara
is a leading provider of independent investment insights and rating
space in Chicago. Can not thanks so much for jo
us today.
Speaker 2 (01:01):
Thank you for having me. Mary.
Speaker 1 (01:02):
Now, all of our listeners and readers will be very,
very familiar with Morning starb because lots of them the
first thing they will do when they go and look
for a fund is they'll look up your rating on
it and they'll see what they'll see, whether it's a
go silver fund, a bronze fund. Except for the various
different ways of rating, but everyone is familiar with the
idea that when it comes to ordinary listed funds holding
assets in the public markets, you are one of the
(01:25):
go tos in the markets for information and also for education.
You provide a lot of research and education for ordinary investors.
But you're moving into a new ish area which is
looking more at rating the private part of the market,
so private credit, private equity, infrastructure, real estate, these kinds
(01:47):
of funds. So tell us a little bit about why
you're doing that and what sort of funds you'll be
looking at. Vehicles should I say.
Speaker 2 (01:55):
Yeah, let's dive right in, and let me just start
by saying that I think your skepticism is warranted anytime
you see a flood of money chasing a trend or
anything like that, I do think putting a skeptical view
on things is appropriate, and I have no doubt that
(02:16):
as there's some new products that come out in this space,
there are going to be some allusy products and it's
going to be a morning storage job to help investors
navigate them. But if I back up further and kind
of try to provide a broader view of what's going
on around the world. As you know, there's just been
a preponderance of money that's flowed into the private markets,
(02:40):
and it's happened in private equity, where you see the
number of companies in private markets that have taken funding
from private equity far exceeding what's available in the public markets.
In Europe alone, you have double the number of pe
back companies relative to public company. So just to contrast.
Speaker 1 (03:01):
That, that is absolutely true in terms of numbers of companies,
but in terms of value of companies, the listed markets
still remain the higher value area.
Speaker 2 (03:10):
Right. Yes, the largest companies for sure are listed, and
that makes sense, but it's notable that the size of
private companies has gotten larger and larger, and so that's notable.
Speaker 1 (03:22):
Yeah, it is one of the things that we talk
about a lot, which is this idea that companies list
later and later and later if they list at all.
So an awful lot of the growth that one might
have previouly expected to get access to all the public
markets is now only in the private markets.
Speaker 2 (03:37):
Correct. Now, while private equity gets a lot of the headlines,
and you can see why it's much more I think
enticing to write about it and talk about unicorns and whatnot.
The reality is that most of the action is really
in private credit, and where investors like you and I
(03:58):
and wealth managers are going to first encounter the private
markets is really in private credit. And so if you
go back to post global financial crisis, a lot of
the big money center banks around the world came out
of that, either facing new regulations or generally taking a
more cautious approach to how they wanted to manage things,
(04:19):
or candidly being in a situation where they didn't have
the capital to lend as much as they previously might have.
And so that opened the door to what i'll call
sort of non large banking lenders emerging, and you saw
particularly private equity firms starting to step into the space,
(04:40):
some built up insurance capabilities and whatnot to invest here.
And so private credit has really taken off and in
many large markets around the world, and increasing amount of
debt is issued via private markets. And so what you're
starting to see in some parts of the world is
the arrival of products available to retail wealth investors that
(05:07):
essentially allow them to access the private credit markets.
Speaker 1 (05:11):
So what we're talking about when we talk about private
credit is companies that are unable to borrow from banks,
are unwilling to borrow from banks, looking for alternative places
to borrow money and going to private companies to do that.
Is that that simple? That's what we're talking about exactly.
Speaker 2 (05:29):
They're raising the money the non banking financial institutions in
many instances.
Speaker 1 (05:35):
Yeah, but that debt remains tradable, just not on a
listed exchange. Yeah.
Speaker 2 (05:39):
I think tradable it could be, obviously, but they tend
to be held in private hands and so they don't
trade as much. Obviously. That's a bit of a distinction
from what we call public high yield, which does trade,
although it's very debatable as to how liquid that is
as well.
Speaker 1 (05:56):
Okay, so we're talking about entirely a liquid high yield
to debt.
Speaker 2 (06:01):
Yeah, that does not trade by the moment for sure.
Speaker 1 (06:03):
I mean, what is the crossover between modern private credit
and olden day's sub private ending.
Speaker 2 (06:09):
Yeah. I think what you want to be careful about
is you don't want to throw the baby out with
the bathwater. There's certainly, as in the public markets, when
you're investing in debt, the higher the chance of default,
the greater the interest rate that you're going to demand.
And you see that in private markets as well. Candidly,
(06:31):
man and there's a high degree in my view of
likely correlation between public and private markets because we are
kind of in a period where you know, things have
generally gone well in the public and the private markets,
and so generally speaking, risk is something that I think
people have been de emphasizing in a way that is
(06:53):
going to probably be problematic regardless of whether you're looking
at public or private markets if you have a correction,
so I think your line of questioning maybe is heading
down the path that private is maybe more risky. There's
certainly some factors that make it so, but I wouldn't
say that in a wholesale manner. If you look at
some of the lenders and firms that have got involved,
(07:14):
you have large firms like the Blackstones and the Apollos
of the world. They come with solid reputations and the
ability to do the research, just as you would expect
on the public side as well.
Speaker 1 (07:25):
No, sure, I suppose. My question really is that if
you are a company and you need burrows of money,
your first point of call is going to be a
bank or publicly listed markets, because maybe that would be
cheaper for you. So if you end up not going
to a bank, no.
Speaker 2 (07:38):
Not anymore. It certainly used to be the case that
one could generalize in that way. But you're starting to see,
even when there's large m and A taking place, that
many firms are not going to the public markets and
they find it quite efficient to go to private markets
to raise money. And so I think that is the
underlying point here, both in terms of equity and credit,
(08:01):
is that what used to just be the purview of
public markets is no longer just that you're right to
be skeptical at a high level, but the underlying trends
show that there is some change in terms of the
nature of what's available to invest on the private side.
Speaker 1 (08:19):
Letter although we vaguely wonder if there won't come a
day when in the equity side we'll move back to
people being more interested and enlisted than private Given that
as rates don't go back to their previously low level,
that becomes increasingly obvious that the private equity app performance
is not quite what maybe we thought it was. So
we wonder if on the equity side at least you
might see US wing back towards listed.
Speaker 2 (08:41):
I think that's a really important point. But in general,
I would say that investors should expect lower returns from
public and private markets going forward.
Speaker 1 (08:51):
Now I would probably agree subtainly in the US maybe
if not elsewhere. But I suppose the point about that
is that if it is the case that in times
of normal interest rates, private equity returns are more or
less the same as public equity returns, i e. Turns
out that private equity is simply equity with not much
transparency and a whole balladett why would you take private
equity over public equity? And that's a question that I
(09:13):
think we will have answered over the next decade.
Speaker 2 (09:16):
Yeah, that's totally the case, and we'll need to look
at that. I think it's hard to generalize, and at
least so far, our data so we own pitchbookens, we
have years and years of data on this. It does
show that while you're trading liquidity, you do get a
little bit of return premium, and so you're right, we'll
have to see. But my hunch is that the markets
are going to be way more correlated on the public
(09:37):
and private side than most people believe, and so we'll
see how it clays out.
Speaker 1 (09:42):
We are contact me being told that we use private
equity as a diversifier, but you're rather suggesting that going
forward unity that is the case.
Speaker 2 (09:50):
I think it's true of most asset classes today that
because they've all had strong runs, there's a higher degree
of correlation and it's going to be harder to differentiate.
That's my personal view. I realize others feel differently, but
you know, you just have to look at this here.
And even what happened in April, you had the public
(10:10):
markets kind of fall sharply before recovering, and similarly, in
private markets, while you didn't have a marked to market event,
so to speak, you certainly didn't see deals getting done.
And now again with the public markets back, you're sort
of starting to see a desire to get deals done again.
So it seems to me that there's more correlation than
(10:31):
is the case. Clearly, if you can hold something for longer, though,
which is the case with private equity, I think potentially
the benefit is you're not trying to trade in and out.
Maybe that explains some of why the returns have been.
Speaker 1 (10:44):
Kind of less. You can hold it for longer than
you have to hold it for longer, right, correct. So
when you talk about going into this market, you're talking
about beginning to rate what you call semi liquid funds.
Explain to us what we mean by semi liquid.
Speaker 2 (11:00):
Notion of a semi liquid fund in the US, it's
large in the category what we call interval funds. In Europe,
it's in the category of things such as altaffs, so ltafs.
And the notion with these types of investment vehicles is
that you can come in and out of them on
a schedule or a schedule. And what I would say
(11:23):
is that they are different, obviously from the funds that
you and I started this conversation talking about, because those
have instant liquidity. Essentially, if you're in an ETF, for example,
it's near instant liquidity. If you're in a regular mutual fund,
you at least have daily liquidity, and what you have
(11:43):
in semi liquid funds is a situation where you get
liquidity let's say once a quarter, so there's a predetermined
date where you can buy in or sell out, and
this allows the manager to take the assets and then
put them to work in investments that are not liquid
but The benefit at least of these types of vehicles
(12:06):
is that they do provide access with some degree of
liquidity relative to what a traditional private equity of private
credit fund would do, which is not provide liquidity for
a longer period.
Speaker 1 (12:16):
Tough on a manager if they know when they have
to produce cash, they don't know how much cash, and
if in private equity and private credit you are holding
for the long term, particularly in private equity, you can't
be sure that you can exit at any particular time.
It's still a tough way to manage money.
Speaker 2 (12:31):
It's a tough way to manage money, but it's no
tougher than on a daily basis when you have to
provide liquidity, you know based on who's coming in and out.
So I don't find that to be an insumuntable challenge.
Daily liquidity funds have all kinds of challenges too. You
have to kind of anticipate and hold cash for instance,
to think about what's coming in and out. So I
don't view that as insumountable. I think, what's the bigger challenges?
(12:53):
Are you really adding value and providing a premium for
the reduced liquidity that you're providing in that vehicle, and
our ratings essentially go to try to answer that question
and also to put public in private on an equal footing.
So if you're going to buy a private vehicle, not
only do you want to make sure that you get
(13:16):
the benefits, but you want to make sure you outperform
the public vehicles. And so we want to be conscious
of not separating the public and private universes entirely. And
you'll see that in our methodology when we roll out
these ratings beginning here in the US and the back
half of this year, that the idea is also to
(13:36):
really rate them based on our view of whether they're
going to outperform similar strategies in the public markets.
Speaker 1 (13:42):
And how are you going to film that view?
Speaker 2 (13:44):
Well, our analysts obviously are going to do the diligence
as they do on public market vehicles today. So you know,
it starts by working to understand the parent you know,
building these vehicles, so we have a parent rating, and
then from there we dig into the actual management of
the fund and produce an opinion based on a view
of management's ability to deliver our performance as well as
(14:08):
you know, key factors such as.
Speaker 1 (14:09):
Expenses, expenses and fees are an interesting part of this
whole sector. I mean that was more opaque than one
would like. A lot of the time. The fee structure
is something that ordinary investors have some trouble getting to
grips with quite a lot of the time. The wire
being included and rated right.
Speaker 2 (14:25):
Yeah, Yeah, it's no different than the fight morning store
of art in public markets to get common investors access
to knowledge about what they are paying today. And so
I think transparency is a good thing investors. I think
we'll have that opportunity here in the private markets by
bringing some transparency in competition.
Speaker 1 (14:43):
With your sense of how private equity, private credit is
becoming part of the investing universe. And I talked to
earlier about you know, the likes of Larry Think and
how much they think one should have in a private portfolio.
What do you think a portfolio should look like these
days in terms of allocation to private assets for.
Speaker 2 (15:02):
Most rank and file investors. Let me just start by saying,
simplicity really matters. And if you feel good about your
portfolio and you're all in public markets of public equity
and public data, I think that's fine. You don't have
to change that. This isn't for everybody, and one of
the most important things about investing is that it should
(15:22):
allow you to sleep at night and to hit your goals.
And if you can do that with the portfolio you have,
you don't necessarily need to change that. I think for
most rank and file investors going forward, if you have
an interest in the private markets, the reality is, at
least in the near term, it's going to be hard
to get true access to private equity, and so I
(15:44):
have a hard time saying you should be allocating X
or Y, because the vehicles as yet aren't in place
to provide that at scale. They will be in toime.
My personal view is that where these belong is in
your retirement assets. In your retirement assets, if you've never
owned something like this, it's probably good to start with
(16:06):
a very small allocation to the extent that you're interested,
so that you can start to get a feel for
what it means to have something like that in a portfolio,
because you will really immediately understand what it is to
not have the type of liquidity that you otherwise might have.
And so I would say that for most investors today,
(16:27):
starting off with no more than about five to ten
percent of your retirement assets parked in these vehicles is
probably an appropriate way to learn a little bit about
how you feel about them, how they behave, how you
want them in a portfolio.
Speaker 1 (16:43):
So if you are already retired plausibly even you have
started draw down, this may not be the asset for you.
Speaker 2 (16:50):
I would say that's accurate.
Speaker 1 (16:51):
Well, while on the subject of retirement assets, how do
you feel about the British government about Rachel Reeves's idea
that some of our penchophones should be obliged to have
ten percent of their assets in private market.
Speaker 2 (17:06):
I think it's a good idea for long dated asset
pools to have exposures to the private market. So I
like that idea. I'm personally not off the mindset that
it needs to be prescriptive. I think ultimately these are
pools of money that are and should be managed by
(17:27):
professionals who should have clear opinions and what types of
allocations they want. And you know, you certainly see around
the world different pools of asset owners that have different
views on this, going from some that don't put anything
in private markets to some that are well known and
have chosen to put close to half their assets in
private markets. So I think at a high level, I
(17:49):
absolutely agree that it's a good idea for long dated
asset owners to be looking at the asset class. But
I think the ultimate drivers should be matching the time
wherese into the liquidity needs of those that you're serving,
and so I would sort of leave that up to
(18:10):
the individual investment officers there.
Speaker 1 (18:13):
That is all fascinating and really useful, and I think
that we all be really really pleased with what you're
doing and the idea of bringing transparency with a little
bit more due diligence, et cetera to a market like
this and helping people get intowitter is super helpful. Thanks
for listening to this week's Marin Talks to Your Money.
(18:34):
If you like us, share rate, review, and subscribe wherever
you listen to your podcasts, although be sure to follow
me in John on ex or Twitter. I'm at marinsw
and John is John Underscore Stepic. This episode was produced
by Samasadi Production, Sport and sound designed by Blake Maple's
questions and comments on this show and all our shows
are always welcome. Our show email is Merri Money at
(18:54):
Bloomberg dot net.
Host
Merryn Somerset Webb
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