# The Future of Private Credit with Erik Hirsch

An episode of [Masters in Business](https://invisiblenetwork.ai/podcast/730188152), 31 Jul 2025, 58 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/4e4cd910-40a1-4619-a5f3-ae2b0012ffff/73d4628e-58ee-4ab5-b6ce-b32b01399e96/audio.mp3?utm_source=Podcast&in_playlist=5873a3cb-298f-40bc-b71f-ae2b0013000d

Barry speaks with Erik Hirsch, Co-Chief Executive Officer at Hamilton Lane, previously serving as CIO and Head of Strategic Initiatives. As co-CEO, he is responsible for the firm’s strategic direction and operations. Erik is also Vice Chairman and a trustee of the University of Virginia’s College Foundation, and serves on the board of the Philadelphia 76ers Youth Foundation. In this episode, they discuss the future of private credit, private capital, private equity, See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
[0:11] Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
[0:16] Speaker 2: This week on the podcast, I have yet another extra
[0:20] Speaker 2: special guest. There are few people in the world of
[0:23] Speaker 2: private equity better positioned to identify and discuss the explosive
[0:29] Speaker 2: growth and changes coming to the field. Eric Hirsh has
[0:33] Speaker 2: been with the firm Hamilton Lane for nearly thirty years,
[0:38] Speaker 2: both as CIO and Head of Strategic Initiatives. Now he's
[0:42] Speaker 2: co CEO. I found this conversation to be absolutely fascinating.
[0:47] Speaker 2: If you want to get a sense of why this
[0:50] Speaker 2: space has been growing so dramatically and what the future
[0:56] Speaker 2: of private credit, private capital, private equity, etc. Is going
[1:00] Speaker 2: to look like, then you're gonna find this conversation to
[1:02] Speaker 2: be absolutely fascinating. With no further ado, Hamilton Lane's co CEO,
[1:08] Speaker 2: Eric Hirsh thrilled to be here. So let's start with
[1:15] Speaker 2: your background. Bachelor's degree from University of Virginia in nineteen
[1:20] Speaker 2: ninety five. Would just study what was the original career plan?
[1:24] Speaker 3: I think I had no career plan because I originally
[1:27] Speaker 3: studied philosophy, which I think is pretty much the definition
[1:30] Speaker 3: of I'm not sure what I'm gonna do with my life.
[1:32] Speaker 3: I think I was probably thinking lawyer back then, and
[1:36] Speaker 3: I luckily got on a different track and ended up
[1:39] Speaker 3: in finance.
[1:40] Speaker 2: Huh, really, that's really amusing philosophy. I have discovered that
[1:44] Speaker 2: a number of people who have studied philosophy have said
[1:49] Speaker 2: it's useful for developing frameworks and thinking about the way
[1:53] Speaker 2: to approach management. We'll get to that in a bit.
[1:57] Speaker 2: So from philosophy, what drew you to a career in
[2:00] Speaker 2: finance and investment management?
[2:02] Speaker 3: I was not highly sought after when I was graduating
[2:05] Speaker 3: from college. I think it was a combination of the
[2:08] Speaker 3: philosophy degree and perhaps a little lack of studying. But
[2:12] Speaker 3: I ended up getting lucky and found myself in a
[2:15] Speaker 3: public finance firm in Philadelphia called Public Financial Management, And
[2:19] Speaker 3: there we were really servicing governments and trying to help
[2:22] Speaker 3: them with budgets and bond offerings and the like, and
[2:25] Speaker 3: that really taught me the fundamentals of finance. They had
[2:29] Speaker 3: an incredibly strong training program Excel modeling and just learning
[2:34] Speaker 3: kind of the ins and outs of finance. And it
[2:36] Speaker 3: was from there that was sort of the launching point.
[2:39] Speaker 2: Did I read this correctly. You specialized in sports stadium financing.
[2:44] Speaker 3: Back in the mid nineties, governments were paying for stadiums.
[2:47] Speaker 3: They were not being privately financed. They were The belief
[2:51] Speaker 3: back then was that this was going to be a
[2:53] Speaker 3: big revenue draw for cities if they had these great complexes,
[2:56] Speaker 3: and so we had developed one of the expertise early
[2:59] Speaker 3: on to help cities go through that process of raising
[3:04] Speaker 3: bonds financing that.
[3:06] Speaker 2: I'm always fascinated by that because you mentioned excel. If
[3:10] Speaker 2: you have a spreadsheet, it's pretty obvious this ain't a
[3:13] Speaker 2: money maker for cities. Maybe it's good for the municipal
[3:19] Speaker 2: morale or town spirit, but it's a money loser, isn't it.
[3:23] Speaker 3: I think what you found was it depended on the location.
[3:25] Speaker 3: So Camden Yards in Baltimore, if you remember when that
[3:28] Speaker 3: sort of first opened, was a money maker. It totally
[3:32] Speaker 3: altered the landscape of that city. Now that didn't prove
[3:36] Speaker 3: to be true everywhere that stadiums began to be created,
[3:39] Speaker 3: and so today we no longer see a lot of
[3:41] Speaker 3: public finance capital going into stadiums. But there was again
[3:45] Speaker 3: a moment in time where in the right location it
[3:48] Speaker 3: did make sense.
[3:48] Speaker 2: That was a deeply depressed area and you pour a
[3:51] Speaker 2: billion dollars into it. It certainly helps. But when we
[3:55] Speaker 2: look around at other stadiums, it's kind of amazing. To me,
[4:00] Speaker 2: looks like socialism. We're going to pay for your means
[4:02] Speaker 2: of production as the government, and you get to keep
[4:05] Speaker 2: the profits. But it's amazing. It took decades for the
[4:10] Speaker 2: taxpayers to kind of and the elected officials to reach
[4:13] Speaker 2: that conclusion. You also focused on mergers and acquisitions work
[4:19] Speaker 2: in the nineteen nineties. What was that like?
[4:22] Speaker 3: Grueling?
[4:23] Speaker 2: Gruel?
[4:23] Speaker 3: I don't miss it. I think I am happy to
[4:25] Speaker 3: have been moved on. I think the good thing about
[4:28] Speaker 3: my time as an investment banker was that it really
[4:30] Speaker 3: introduced me to private equity. We were mostly looking at
[4:33] Speaker 3: selling businesses for privately held businesses with families most often,
[4:38] Speaker 3: and selling them into private equity, and so having come
[4:41] Speaker 3: from the public finance side, it was really the first
[4:43] Speaker 3: time that my eyes got opened up to the fact
[4:45] Speaker 3: that there was this whole other industry out there that
[4:48] Speaker 3: seemed pretty interesting. And again, in sort of the mid
[4:51] Speaker 3: later nineties, the private equity world was just beginning to
[4:55] Speaker 3: start to grow up and start to have its first
[4:58] Speaker 3: real growth movement.
[5:00] Speaker 2: Brothers Harriman a storied firm. What was your experiences like there?
[5:03] Speaker 3: Great people. It is a lot of tradition, incredibly long history,
[5:07] Speaker 3: particularly interestingly in Philadelphia. The firm had been there going
[5:12] Speaker 3: back into the eighteen hundreds where it was more of
[5:14] Speaker 3: a sort of a mercantile business, and it was just
[5:18] Speaker 3: a good place again to kind of get the basics
[5:21] Speaker 3: and the fundamentals of what it meant to be on
[5:23] Speaker 3: the corporate side of finance again as opposed to the
[5:26] Speaker 3: public side of finance.
[5:27] Speaker 2: And if memory serves, they stayed a private partnership way
[5:31] Speaker 2: longer than a lot of their peers. Am I am
[5:33] Speaker 2: I remembering.
[5:33] Speaker 3: I think they still remain.
[5:34] Speaker 2: Yeah, I think that's right ship correct, which is despite
[5:37] Speaker 2: all the other partnerships having either gone per public or
[5:41] Speaker 2: getting acquired by other public firms.
[5:43] Speaker 3: Correct.
[5:43] Speaker 2: I've always wondered if that's the reason they never ran
[5:47] Speaker 2: into trouble during the Great Financial Crisis.
[5:50] Speaker 3: I suspect it's a lot of reasons. Again, there's a
[5:53] Speaker 3: lot of it's a conservative place by nature. I think
[5:57] Speaker 3: it's one of the reasons why clients are attracted to them.
[6:00] Speaker 3: Partners have a lot of their capital invested in the
[6:02] Speaker 3: business alongside of customers. Also a good business model, and
[6:06] Speaker 3: so I think it's just a company that has had
[6:08] Speaker 3: tremendous success, but as you said, has kind of remained
[6:11] Speaker 3: true to its roots in that private partnership.
[6:14] Speaker 2: Yeah. No, that's worked out really well for them. So
[6:16] Speaker 2: from Brown Brothers, how'd you make your way to Hamilton Lane?
[6:18] Speaker 3: Headhunter came knocking. I was again familiar with the concept
[6:22] Speaker 3: of private equity, and I had met some private equity
[6:24] Speaker 3: firms in my short time as an investment banker, but
[6:27] Speaker 3: the concept of Hamilton Lane and what they did is
[6:30] Speaker 3: this kind of solutions provider intermediary was not something that
[6:34] Speaker 3: I was familiar with. They were also you're going to
[6:37] Speaker 3: continue to have the Philly theme here. They were also
[6:39] Speaker 3: headquartered in Philadelphia, so I didn't move very far, but
[6:43] Speaker 3: I went over and met some people. Thought it was interesting.
[6:45] Speaker 3: Firm was very tiny at the time. It was probably
[6:49] Speaker 3: twenty twenty five people. This would have been in nineteen
[6:51] Speaker 3: ninety nine and essentially single office business. And the firm
[6:56] Speaker 3: had been around for a few years and had had
[6:58] Speaker 3: some early success, but at that point in time was
[7:01] Speaker 3: still very tiny.
[7:03] Speaker 2: And when you began at Hamilton Lane. What was your
[7:06] Speaker 2: role there.
[7:06] Speaker 3: I joined the investment side as an associate, so I
[7:09] Speaker 3: was still a pretty young person and I joined the
[7:12] Speaker 3: investment team. Back then was simply one group. There was
[7:15] Speaker 3: no areas of specialization like we have today. But within
[7:19] Speaker 3: a couple of quick years, I became the chief investment
[7:21] Speaker 3: officer and we began to sort of think about the
[7:24] Speaker 3: business in a slightly different way. It had been historically
[7:27] Speaker 3: solely focused as a consulting company, and once we got
[7:30] Speaker 3: into the early two thousands, we began a bit of
[7:33] Speaker 3: a migration of adding more of an asset management service offering.
[7:36] Speaker 2: So you stayed CIO for like thirteen years.
[7:40] Speaker 3: Yeah, fourteen, maybe fourteen or fifteen years.
[7:42] Speaker 2: But so that must have been fascinating because the firm grew,
[7:47] Speaker 2: the entire private space exploded over the past twenty five years.
[7:52] Speaker 2: How did your role as CIO evolve? What did you
[7:55] Speaker 2: begin investing in? And then we'll talk a little later
[7:58] Speaker 2: about what your investment currently.
[8:01] Speaker 3: Everything was changing. So, as I said, the firm itself
[8:03] Speaker 3: was very tiny when I first took that role, and
[8:07] Speaker 3: while we've grown a lot, I still think of us
[8:08] Speaker 3: today as a relatively tiny company in the grand scheme
[8:12] Speaker 3: of things. On our tour in here you were mentioning
[8:14] Speaker 3: the employee count were one tenth of the Bloomberg employee count.
[8:19] Speaker 2: So that's just this building right exactly globally right.
[8:22] Speaker 3: So we're a total of a little under eight hundred
[8:24] Speaker 3: employees today. And so despite having gone from sort of
[8:27] Speaker 3: twenty so odd employees when I got there to about
[8:29] Speaker 3: eight hundred today, I still think of us as a
[8:32] Speaker 3: small business, but in the CIO role. Everything was evolving.
[8:35] Speaker 3: When I first came in, the concept of secondaries was
[8:39] Speaker 3: very new, the concept of co investing was relatively new.
[8:43] Speaker 3: People were not specializing products in any great way. Fund
[8:47] Speaker 3: of funds, which is something that we don't talk much
[8:49] Speaker 3: about today, was sort of the norm. That was mostly
[8:53] Speaker 3: how limited partners were accessing the private markets. The private
[8:57] Speaker 3: markets themselves had not really developed back then. Private credit
[9:01] Speaker 3: wasn't really much of a thing, whereas today it's a
[9:05] Speaker 3: huge driver of the growth. So I was witnessing and
[9:08] Speaker 3: got the experience change on lots of different axes. And
[9:13] Speaker 3: it was also for me growing up in the business.
[9:15] Speaker 3: I arrived there probably a twenty six year old. I'm
[9:18] Speaker 3: fifty two today, and so I've also kind of grown
[9:22] Speaker 3: up alongside of the industry.
[9:24] Speaker 2: Really interesting when you were first appointed CIO. What sort
[9:30] Speaker 2: of investments were you making back then? Was it strictly
[9:33] Speaker 2: private equity or was it a smattering of everything.
[9:36] Speaker 3: It was primarily private equity. The firm was at that
[9:39] Speaker 3: point not really engaged in things like private infrastructure or
[9:44] Speaker 3: real estate, and as I had mentioned, credit wasn't a
[9:47] Speaker 3: huge part of the industry, so it was mostly leverage
[9:50] Speaker 3: buyout's venture capital. And we were again a manager of managers,
[9:55] Speaker 3: so most of our investment activity was selecting fund managers
[9:59] Speaker 3: on behalf of our clients. Really, the genesis of the
[10:02] Speaker 3: firm was quite simple. It was sort of late eighties
[10:05] Speaker 3: early nineties. The institutional world was just beginning to make
[10:10] Speaker 3: their move into the private markets. Prior to that, kind
[10:13] Speaker 3: of in the seventies and into the early eighties, most
[10:16] Speaker 3: of the activity, small as it was, was primarily financed
[10:20] Speaker 3: by large families, high net worth families, endowments and foundations.
[10:25] Speaker 3: Things like public and corporate pensions were not a big
[10:28] Speaker 3: participant in the private markets. And with some regulatory changes
[10:32] Speaker 3: and with greater awareness, that began to shift, and the
[10:36] Speaker 3: founders of Hamilton Lane had a very simple concept, which
[10:39] Speaker 3: is people are going to want and need help, and
[10:42] Speaker 3: so we were really designed then as we are today
[10:46] Speaker 3: to really be a solutions provider to help whichever kind
[10:50] Speaker 3: of client is trying to access the private markets, to
[10:54] Speaker 3: do so in a way that most and best fits
[10:56] Speaker 3: their needs. Our view was that we didn't think that
[10:59] Speaker 3: most limited partners, we're going to invest the time, resources
[11:03] Speaker 3: and energy to build out large internal teams to cover
[11:07] Speaker 3: this asset class, and that has proven to be correct.
[11:09] Speaker 3: Most don't. They primarily find a partner, a solutions provider,
[11:14] Speaker 3: and we've been that partner of choice now for over
[11:16] Speaker 3: thirty years. But that was the business model, and so
[11:20] Speaker 3: our evolution has really just kind of mirrored what the
[11:23] Speaker 3: industry itself has been doing. Is as credit came online
[11:26] Speaker 3: and became bigger, so did we in that space. As
[11:29] Speaker 3: infrastructure and real estate developed, so too did we in
[11:31] Speaker 3: that space. And so I sort of say that we've
[11:34] Speaker 3: been kind of growing right alongside of the asset class.
[11:37] Speaker 2: Really really interesting. I'm also intrigued by the idea of
[11:42] Speaker 2: quote unquote consultants but with some skin in the game.
[11:46] Speaker 2: It's one thing to give advice, good or bad as
[11:49] Speaker 2: it might be, but it seems like something else entirely
[11:52] Speaker 2: to say, here's our recommendation, and by the way, we're
[11:56] Speaker 2: going to co invest our dollars, our personal dollars alongside
[12:00] Speaker 2: with you. Tell us a little bit about how that
[12:03] Speaker 2: developed and what does that mean for the clients you
[12:06] Speaker 2: work with.
[12:07] Speaker 3: So, as I said, the firm really began as a
[12:10] Speaker 3: consulting firm. That the idea originally was these were going
[12:15] Speaker 3: to be new decisions, new asset class for these public
[12:18] Speaker 3: pensions and corporate pensions primarily at that time, and that
[12:22] Speaker 3: they were going to want someone to make a recommendation
[12:24] Speaker 3: that they then could kind of ultimately take the decision themselves.
[12:29] Speaker 3: What we found was that the clients realized that this
[12:33] Speaker 3: industry was growing quite rapidly, and their need for resources
[12:36] Speaker 3: was growing quite rapidly, and the decision making needed to
[12:40] Speaker 3: also happen on a quicker pace, and so that consulting
[12:44] Speaker 3: model began to morph to the client simply saying we
[12:48] Speaker 3: want to just have you handle.
[12:50] Speaker 1: This for us.
[12:52] Speaker 3: I think the advantage that we've had came from that
[12:55] Speaker 3: consulting DNA because it rooted the firm in an incredible
[13:00] Speaker 3: client centric mindset that still is a hallmark of our
[13:04] Speaker 3: service offering today. So today, while we're primarily doing asset management,
[13:09] Speaker 3: we're still doing it in a very bespoke model, a
[13:12] Speaker 3: very customer oriented. But to your point, as an asset manager,
[13:16] Speaker 3: we're making the decisions, we have the discretion, and we're
[13:19] Speaker 3: putting our own capital at risk alongside of the clients.
[13:22] Speaker 3: And I think that alignment of interest rings true today
[13:25] Speaker 3: as it rang true many many years ago, and so
[13:28] Speaker 3: today it's still the biggest user of our balance sheet capital.
[13:33] Speaker 3: The firm has invested a huge amount of money alongside
[13:35] Speaker 3: of our clients over our history. But doing that sort
[13:38] Speaker 3: of asset management alongside of in combination with that really
[13:42] Speaker 3: strong customer focus, I think that has been one of
[13:45] Speaker 3: the reasons why we've been such a winner.
[13:47] Speaker 2: Really interesting, you've been at Hamilton Land for nearly thirty years.
[13:51] Speaker 2: I want to talk about the growth of the firm
[13:54] Speaker 2: and the parallel growth of the sector private markets. The
[13:59] Speaker 2: growth has just been amazing over the past twenty five years.
[14:03] Speaker 2: To what do you attribute this explosive increase in size
[14:08] Speaker 2: of this sector.
[14:10] Speaker 3: I think there's a variety of factors. One the most
[14:13] Speaker 3: simple is just performance. If you take a look at
[14:15] Speaker 3: aggregated private market performance, and you compare that over five, ten, fifteen,
[14:20] Speaker 3: twenty year time periods to the public markets, you're going
[14:23] Speaker 3: to see meaningful outperformance. I think the second thing, though,
[14:27] Speaker 3: is becoming more recognized, which is diversification. Today our public
[14:33] Speaker 3: equity markets have never been more concentrated. A very very
[14:37] Speaker 3: small number of companies, all technology oriented, make up a
[14:41] Speaker 3: huge portion of the overall market cap. And I think
[14:45] Speaker 3: when you sort of see that occurring, in combination with
[14:48] Speaker 3: the fact that more and more investors have moved to
[14:50] Speaker 3: a passive public equity mindset, it means that you're ending
[14:54] Speaker 3: up with these oddly concentrated portfolios and a small number
[14:57] Speaker 3: of stocks. The other thing that's happen is that the
[15:00] Speaker 3: public markets themselves are growing from a market cap standpoint,
[15:04] Speaker 3: but they're not growing from a number of publicly listed companies.
[15:08] Speaker 3: In fact, if we go back to the eighties and
[15:10] Speaker 3: sort of draw a chart of number of publicly listed
[15:12] Speaker 3: companies in the US, that chart is essentially moving down
[15:15] Speaker 3: into the right. It's shrinking. So today about four thousand
[15:19] Speaker 3: publicly traded businesses. But think about, Barry, how many businesses
[15:23] Speaker 3: you interact with every day that are private.
[15:25] Speaker 2: It's just of them right, the vast.
[15:27] Speaker 3: Majority, and so they employ a huge amount of people
[15:31] Speaker 3: in the country and all around the globe. So as
[15:34] Speaker 3: an investor, if you want to get access to that
[15:36] Speaker 3: part of the economy, a substantially large portion of the economy,
[15:41] Speaker 3: the only way to do that is through investing in
[15:43] Speaker 3: the private markets. So I think when you combine the performance,
[15:47] Speaker 3: the diversification, all of that is resulted in the growth.
[15:50] Speaker 3: And yet the private markets remain very, very small. If
[15:54] Speaker 3: you took all of the capital raised last year across
[15:57] Speaker 3: all of the sub sectors in the industry, it wouldn't
[16:00] Speaker 3: be enough to buy Apple.
[16:03] Speaker 2: Wow.
[16:04] Speaker 3: So if you look at total fundraising again, all private
[16:07] Speaker 3: markets fundraising, it accounts for about two percent of the
[16:12] Speaker 3: MSCI market cap. So again there's been huge growth, but
[16:16] Speaker 3: the public markets themselves have also been growing quite a bit.
[16:19] Speaker 3: And so when we put it in context, just like
[16:22] Speaker 3: I say Hamilton Lane in context as a relatively small company,
[16:25] Speaker 3: so too are the private markets.
[16:27] Speaker 2: So how much growth is possible in this space? I'm
[16:30] Speaker 2: going to go off script and ask can the private
[16:35] Speaker 2: markets ever expand to where they're comparable to what we
[16:40] Speaker 2: see in the public markets.
[16:41] Speaker 3: You'd have to see an enormous amount of growth for
[16:43] Speaker 3: that to happen decades decades, But I think what you
[16:46] Speaker 3: see in front of you is I think there are
[16:49] Speaker 3: still decades more of growth to occur. The private markets
[16:53] Speaker 3: are expanding across lots of different axes, so they've expanded geographically.
[16:58] Speaker 3: So if we went back into sort of the eighties,
[17:01] Speaker 3: it was basically a US only business, and then you've
[17:03] Speaker 3: expanded into Europe, etc. So now it's becoming much more
[17:07] Speaker 3: of a global phenomenon. It's also expanded across strategy. We've
[17:11] Speaker 3: talked earlier about the fact that credit, for example, is
[17:13] Speaker 3: becoming a bigger part infrastructure, real estate, so we've seen
[17:17] Speaker 3: that expansion. Now you're also seeing expansion across the client
[17:21] Speaker 3: tell So we've gone decades. Were essentially the only entities
[17:26] Speaker 3: that were able to access this industry or institutional investors
[17:30] Speaker 3: and ultra ultra high net worth investors.
[17:33] Speaker 2: So family offices, foundations, endowments, etc.
[17:36] Speaker 3: Exactly Today you now see more mass affluent individuals able
[17:42] Speaker 3: to access this industry, people with say three to five
[17:45] Speaker 3: million dollars of investable assets, of which there are a
[17:49] Speaker 3: lot of those people all over the globe. They've been
[17:51] Speaker 3: again historically shut out, but with some regulatory changes and
[17:55] Speaker 3: new product offerings, they too are now accessing this industry.
[17:59] Speaker 3: So I go back to lots of different axis, all
[18:02] Speaker 3: of them kind of growing in different ways, and I
[18:04] Speaker 3: think that trend still has a long long way to go.
[18:08] Speaker 2: Huh, really really interesting, So let's focus on the firm's growth.
[18:12] Speaker 2: Obviously the tailwind of the whole industry is helpful, but
[18:16] Speaker 2: not every private equity has grown as explosively as Hamilton
[18:21] Speaker 2: Lane has. What's been the most surprising thing about the
[18:25] Speaker 2: firm's growth to you.
[18:27] Speaker 3: Well, I think no one would have predicted that we've
[18:29] Speaker 3: got that we would have gotten this large, So I
[18:32] Speaker 3: think that in itself has been a surprise. But I
[18:35] Speaker 3: think what's been noteworthy you hoped it was going to
[18:38] Speaker 3: be true, but you weren't sure, was that could you
[18:41] Speaker 3: continue to grow and could you continue to expand again
[18:44] Speaker 3: in different ways across geographies, across clientele, and at the
[18:48] Speaker 3: same time maintain the firm's core DNA. And I think
[18:52] Speaker 3: one of the reasons why the growth has occurred and
[18:54] Speaker 3: why the success has been there is that we have
[18:56] Speaker 3: done that. The roots of the firm are still very
[19:00] Speaker 3: present in how we interact with customers today, how we
[19:04] Speaker 3: interact with our own employees, how we interact as a team,
[19:07] Speaker 3: how we interact with shareholders. All of that still I
[19:09] Speaker 3: think remains kind of very true to the firm's values
[19:13] Speaker 3: and foundations, and so being able to achieve both of
[19:16] Speaker 3: those was always the goal. Again, always a risk that
[19:20] Speaker 3: you don't pull it off, but knock on wood, here
[19:23] Speaker 3: we are and we're still doing it.
[19:24] Speaker 2: So you described all the various sectors that you've expanded
[19:28] Speaker 2: into in the growth that's been there. Let's talk geography.
[19:32] Speaker 2: What are the plans for a global expansion.
[19:33] Speaker 3: So today we have twenty two offices around the globe,
[19:36] Speaker 3: so we already have a very large geographic footprint, and
[19:40] Speaker 3: our client base is also about equally split between kind
[19:44] Speaker 3: of North America and non North America. So while we're
[19:47] Speaker 3: a US headquartered business located outside of Philadelphia, we have
[19:51] Speaker 3: a very global feel to the firm in that you
[19:54] Speaker 3: have hundreds of employees who are operating outside of the
[19:58] Speaker 3: US and my partner in co CEO is a Hong
[20:01] Speaker 3: Kong resident and operates out of Asia. So that footprint,
[20:05] Speaker 3: combined with the client base, has already established us in
[20:10] Speaker 3: a very geographically diversified way. I think as we look forward,
[20:14] Speaker 3: I suspect the twenty two offices will continue to grow.
[20:16] Speaker 3: We have plans to open up in other locations. And
[20:19] Speaker 3: if you look at the map of where we are,
[20:21] Speaker 3: there are some very big places where we are not
[20:24] Speaker 3: at present. So India, for example, would be a fairly
[20:27] Speaker 3: large economy, but so far has had a very small
[20:31] Speaker 3: private markets industry. That will change over time, and I
[20:34] Speaker 3: think you'll likely see a Hamilton Land office there at
[20:36] Speaker 3: some point in the future. So there are a number
[20:38] Speaker 3: of places that you can look around the globe and say, well,
[20:41] Speaker 3: I can imagine that at some point in time that
[20:43] Speaker 3: would make sense to have an office presence there.
[20:45] Speaker 2: So in the public markets, the rest of the world
[20:49] Speaker 2: has lagged the United States for I don't know the
[20:51] Speaker 2: better part of fifteen years, decade and a half, certainly
[20:54] Speaker 2: since the end of the financial crisis. This year to
[20:58] Speaker 2: date or for the past twelve months, depending on where
[21:01] Speaker 2: you're looking around the world, the United States has become
[21:05] Speaker 2: a laggart, even though first half of the year we're
[21:08] Speaker 2: up six percent, pretty decent. Twelve percent run rate is
[21:12] Speaker 2: pretty typical. But Europe is doing really well. Asia is
[21:17] Speaker 2: doing really well, how do you look at those parts
[21:20] Speaker 2: of the world, especially I've been hearing Europe has structural problems,
[21:25] Speaker 2: Europe has all these cultural issues, Brexit, Grexit, all these
[21:29] Speaker 2: different things, and yet Europe really seems to be having
[21:33] Speaker 2: a banner year. How do you look at that part
[21:35] Speaker 2: of the world.
[21:36] Speaker 3: I think this is the luxury of being a global
[21:38] Speaker 3: firm with global deal flow, and most of our clients
[21:41] Speaker 3: take a global view on portfolio construction. They want the
[21:46] Speaker 3: best investment opportunities, the best managers that we can access
[21:49] Speaker 3: for them, and so in building portfolios, we have the
[21:53] Speaker 3: ability to move around the globe to take advantage of
[21:56] Speaker 3: whatever we think is interesting at that moment in time. Now,
[22:00] Speaker 3: unlike the public markets, we have to be making investment
[22:03] Speaker 3: decisions with an eye towards how's this going to play
[22:06] Speaker 3: out over the next sort of three, five, six years,
[22:09] Speaker 3: because most of the investments that we're making have a
[22:12] Speaker 3: fairly long duration, again long relative to public markets. So
[22:16] Speaker 3: once you're investing in a private company, the work then starts,
[22:20] Speaker 3: the value add then actually is happening, and that exit
[22:24] Speaker 3: ultimately comes years in the future. So I think our
[22:28] Speaker 3: investment view has to be balanced. We have to be
[22:32] Speaker 3: looking both at short term and long term simultaneously to
[22:36] Speaker 3: decide where you sort of see trends going, how that's
[22:39] Speaker 3: going to impact the company or manager that you're about
[22:42] Speaker 3: to invest in. But we don't have the ability that
[22:45] Speaker 3: the public market has, which is to say, two hours
[22:48] Speaker 3: after making a trade, I'm going to change my mind
[22:51] Speaker 3: and unwind that. Once we do something, we're going to
[22:53] Speaker 3: own it for a while.
[22:55] Speaker 2: The liquidity premium is significant and real.
[22:59] Speaker 3: It's real. Well, it changes the mindset. I have the
[23:02] Speaker 3: benefit of interacting with lots of different investment heads who
[23:05] Speaker 3: run all kinds of different investment firms, and as a
[23:08] Speaker 3: public company ourselves, I'm also constantly interacting with our public
[23:13] Speaker 3: equity shareholders and research analysts, and it is just a
[23:16] Speaker 3: different mindset. The Hamilton Lane team is thinking about things
[23:20] Speaker 3: over many, many years. They're not fixating on what's going
[23:25] Speaker 3: to happen this week or this quarter with that company.
[23:28] Speaker 3: They're thinking, how can I invest a dollar today and
[23:31] Speaker 3: five years from now turn that dollar into three dollars
[23:35] Speaker 3: or four dollars. It's just a different orientation.
[23:39] Speaker 2: So, prior to becoming CIO, you were head of strategic Initiatives.
[23:43] Speaker 2: Is that timeline right? Or was that after after So,
[23:46] Speaker 2: after you are CIO, you become head of strategic Initiatives.
[23:50] Speaker 2: It sounds like the different sectors, the different geographies, the
[23:54] Speaker 2: different clientele fits nicely into that role. Tell us a
[23:58] Speaker 2: little bit about what that role was like and how
[24:02] Speaker 2: that eventually led to becoming co CEO.
[24:05] Speaker 3: What we realized, my partners and I and our board
[24:08] Speaker 3: was that as we were continuing to evolve, one of
[24:12] Speaker 3: the areas that we needed to have a real rethink
[24:15] Speaker 3: on was technology. Having spent fourteen or so years as
[24:19] Speaker 3: CIO and building out the various investment verticals and putting
[24:23] Speaker 3: senior leadership in place, really the thought was the best
[24:27] Speaker 3: place for me to spend the next part of my
[24:29] Speaker 3: career was doing the same thing on the technology side
[24:32] Speaker 3: of the business. While Hamilton Lane had embraced technology and
[24:36] Speaker 3: had various technologies that we had been using. I think
[24:39] Speaker 3: the view was we sort we foresaw growth accelerating and
[24:43] Speaker 3: the idea was we needed to really rethink the tech
[24:46] Speaker 3: stack and we took an interesting approach. So in my
[24:49] Speaker 3: job as the sort of head of strategic Initiatives, I
[24:52] Speaker 3: was afforded the opportunity to have access to Hamilton Lane's
[24:55] Speaker 3: balance sheet capital, and in using that balance sheet capital,
[24:59] Speaker 3: we went off into establish partnerships with a variety of
[25:02] Speaker 3: primarily tech startups that were focused on the private markets.
[25:07] Speaker 3: So what we were doing was we were starting to
[25:09] Speaker 3: meet with these firms who were trying to identify problems
[25:13] Speaker 3: and areas that we're going to impede scaling in the
[25:15] Speaker 3: private markets, and we took an ownership stake in a
[25:18] Speaker 3: variety of these businesses. To date, we've done over fifteen
[25:22] Speaker 3: transactions where we've taken anywhere from very small ownership stakes
[25:26] Speaker 3: to very very large ownership stakes. And the benefit of
[25:29] Speaker 3: doing it with balance sheet capital was we got to
[25:31] Speaker 3: be unlimitedly patient. There was no pressure of us to
[25:34] Speaker 3: have to exit. We weren't using client capital, we weren't
[25:37] Speaker 3: using fund capital, and thought our thinking was, if this
[25:40] Speaker 3: is going to be something that's good for us, it's
[25:42] Speaker 3: going to probably be good for others in the industry,
[25:45] Speaker 3: And if we're going to be helping to drive these
[25:47] Speaker 3: businesses and to help give them ideas and real time
[25:51] Speaker 3: feedback and become a customer, then we'd rather align with
[25:54] Speaker 3: them by actually being an owner as well. So I
[25:57] Speaker 3: spent several years developing and sourcing and working on these
[26:01] Speaker 3: various partnerships with some other Hamilton Lane people to try
[26:05] Speaker 3: to get us into a much better position to have
[26:08] Speaker 3: a market leading tech stack. A variety of these strategic partnerships,
[26:13] Speaker 3: and we've had a couple of these that have exited
[26:15] Speaker 3: very successfully. So it was also a good use of
[26:17] Speaker 3: balance sheet capital.
[26:19] Speaker 2: So let's talk a little bit about one of the
[26:21] Speaker 2: companies that you guys are founding members of, which is Novada,
[26:26] Speaker 2: which is a tech platform providing private markets with ESG
[26:30] Speaker 2: data and benchmarking analytics. Tell us a little bit about
[26:34] Speaker 2: Novada and how that's working.
[26:36] Speaker 3: At This is a great example of seeing a problem
[26:39] Speaker 3: and not seeing an obvious solution. Our clients no different
[26:43] Speaker 3: than they focus on the public equity side. If they
[26:46] Speaker 3: want to understand what's sort of happening around ESG issues
[26:49] Speaker 3: with companies that they're investing in, and so they're beginning
[26:52] Speaker 3: to ask for various data points and various tracking. There
[26:56] Speaker 3: was no system to do this, and what you all
[27:00] Speaker 3: also realized very quickly was that investors did not have
[27:03] Speaker 3: a one size fits all approach to this. An investor
[27:07] Speaker 3: in Norway has a very different orientation around what ESG
[27:12] Speaker 3: means to them than an investor in Japan or an
[27:15] Speaker 3: investor in Saudi Arabia. And so trying to say to
[27:18] Speaker 3: all these investors, oh, here's the one way you have
[27:21] Speaker 3: to look at it, we thought was a total losing proposition.
[27:25] Speaker 3: We also thought that, frankly, the ESG metrics in the
[27:28] Speaker 3: way that scoring is working on the public equity side
[27:31] Speaker 3: was a little bit nonsensical. And so take us, for
[27:35] Speaker 3: an example, Hamilton Lane in the public equity world has
[27:38] Speaker 3: a pretty lousy ESG score. Well, we have an incredibly
[27:42] Speaker 3: good environmental footprint. We do all kinds of carbon offsetting,
[27:46] Speaker 3: so no issue there. We have very positive societal impact.
[27:50] Speaker 3: We're helping with an awful lot of retirement benefits, were
[27:53] Speaker 3: consistently listed as a best place to work in providing
[27:56] Speaker 3: employees with a healthy and constructive work environment. So why
[28:01] Speaker 3: is there a score problem? Well, we're a controlled company
[28:04] Speaker 3: in the public world.
[28:05] Speaker 2: Define what a controlled company.
[28:07] Speaker 3: Controlled company means that the insiders some shareholders, have super
[28:12] Speaker 3: voting shares, and so we are technically controlled by those
[28:17] Speaker 3: inside shareholders as opposed to our outside shareholder.
[28:21] Speaker 2: Shouldn't that be a different scoring for a private company.
[28:24] Speaker 2: Then it's one thing if you're a public company with
[28:27] Speaker 2: tens of millions of shareholders, Like I am not a
[28:30] Speaker 2: big fan of the Facebook management structure, and we saw
[28:34] Speaker 2: something similar chops like Fharahos and Uber and other places
[28:40] Speaker 2: that ran into we work as another example. You're less
[28:44] Speaker 2: than a thousand employees, the founding partners are mostly still there.
[28:49] Speaker 2: Why shouldn't the founders have Maybe I'm speaking my book here,
[28:53] Speaker 2: but why shouldn't the founders have super majority?
[28:56] Speaker 3: I think our investors liked it, yea. That was the
[28:58] Speaker 3: irony was that they liked the alignment. They liked that
[29:01] Speaker 3: we were again a lot of our capitals at risk.
[29:03] Speaker 3: Alongside of there, our clients, like at shareholders liked it.
[29:06] Speaker 3: But again in sort of the way the public equity
[29:08] Speaker 3: ESG scoring works, it's a little bit blind to nuance.
[29:12] Speaker 3: It's controlled company bad therefore bad score. So as we
[29:16] Speaker 3: were looking at ESG for the private world, we didn't
[29:18] Speaker 3: want to replicate what we saw the mistakes being made
[29:21] Speaker 3: we thought on the public side, and there wasn't really
[29:23] Speaker 3: anything out there at the time, and so we created
[29:27] Speaker 3: from huole cloth. We came together, We met some of
[29:29] Speaker 3: the now management team of Nevada, shared a philosophy around
[29:34] Speaker 3: the problem that we were trying to solve. Gathered up
[29:37] Speaker 3: a group of various shareholders now including the Ford Foundation, SMP, Microsoft,
[29:43] Speaker 3: a lot of other interesting institutional investors, and we literally
[29:48] Speaker 3: created Nevada from hl Cloth and now today Nevada is
[29:52] Speaker 3: the world's largest collector of ESG data for private companies,
[29:58] Speaker 3: client bases all over the globe. Huge database, interesting technology,
[30:03] Speaker 3: interesting solution, and allowing investors and clients of Nevada to
[30:08] Speaker 3: consume data how they want to consume it, rather than
[30:12] Speaker 3: giving some arbitrary scorecard that says this is how you
[30:16] Speaker 3: should look at it, or instead empowering people by saying,
[30:19] Speaker 3: here's the data. You do with the data that you
[30:22] Speaker 3: think is best for you and your organization.
[30:24] Speaker 2: Huh. Really really fascinating. So let's talk a little bit
[30:27] Speaker 2: about some of the most significant changes that are going
[30:30] Speaker 2: on in the private markets. What's the difference between today
[30:35] Speaker 2: and the nineteen nineties.
[30:37] Speaker 3: I think it depends on which vertical we want to
[30:39] Speaker 3: focus on. I would say probably the biggest difference is
[30:42] Speaker 3: really around the client base. In the nineties, as we
[30:45] Speaker 3: had mentioned, it was really just a game for institutional investors,
[30:49] Speaker 3: and today that's no longer true. Today, the retail investor
[30:53] Speaker 3: has finally been afforded the opportunity to take advantage of
[30:57] Speaker 3: what the institutional investor has been taking advantage of for
[30:59] Speaker 3: men many many years. So that's the biggest change I
[31:03] Speaker 3: think on the investing side. The expansion of some of
[31:07] Speaker 3: the verticals is also a big change. Private credit has
[31:10] Speaker 3: really taken over from banks, particularly regional banks as well
[31:15] Speaker 3: as large banks, in being the primary provider of lending
[31:19] Speaker 3: capital to businesses. That's been a huge sea change. If
[31:23] Speaker 3: we had gone back into the eighties or nineties, or
[31:25] Speaker 3: even in the two thousands, and you were a local
[31:28] Speaker 3: business owner that had a small factory and a town
[31:32] Speaker 3: in the Midwest US, and you wanted to expand and
[31:36] Speaker 3: add another factory, you would have probably gotten in your
[31:39] Speaker 3: car and driven down to your local bank where you
[31:41] Speaker 3: knew the bank manager and they knew you because you
[31:44] Speaker 3: were the big employer in that town, and you said,
[31:47] Speaker 3: I'm going to build another factory, and they said great,
[31:50] Speaker 3: and they were going to give you a loan to
[31:52] Speaker 3: do that. That's really not existing much anymore. Private credit
[31:56] Speaker 3: has really taken that over in a much more programmatic way.
[32:01] Speaker 3: So I think there's a couple of big examples of
[32:04] Speaker 3: some of the changes that you're seeing across the asset class.
[32:06] Speaker 2: You know, it's interesting because I have a recollection of
[32:10] Speaker 2: the late nineties early two thousands, and as all the
[32:13] Speaker 2: large money center brokers and banks just became larger and
[32:18] Speaker 2: moved upscale upstream, there was a void created behind them,
[32:22] Speaker 2: and private equity filled that void. On the mercantile banking
[32:28] Speaker 2: and private equity side, it sounds like you're saying the
[32:31] Speaker 2: exact same thing happened on the private credit side. Banks
[32:34] Speaker 2: got bigger and they left their smaller, mid sized clients behind.
[32:37] Speaker 3: They got bigger, and they got regulated in a way
[32:40] Speaker 3: that made it harder for them to participate here. And
[32:44] Speaker 3: I think the private credit firms have frankly just done
[32:47] Speaker 3: a better job of making that an asset class and
[32:51] Speaker 3: making that both accessible to borrower and lender. And so
[32:55] Speaker 3: I think all of that has actually been a positive development.
[32:58] Speaker 2: So I've a credit both expanded. How about infrastructure expansion there? Really?
[33:05] Speaker 3: I mean, if you look around the globe, we can
[33:07] Speaker 3: go anywhere very quickly and see that there's huge need
[33:10] Speaker 3: for infrastructure overhaul our systems, roads, telcom, power sources, all
[33:18] Speaker 3: of that is aging in a way that governments are
[33:21] Speaker 3: just frankly not able to keep up with it, and
[33:23] Speaker 3: they're not able to finance it, And so you're seeing
[33:26] Speaker 3: more partnerships with private infrastructure to go and deal with again,
[33:32] Speaker 3: whether it's transportation needs or energy needs, all of that
[33:36] Speaker 3: becoming much more in the purview of the private markets.
[33:40] Speaker 2: So we've seen a torrent of capital entering a variety
[33:44] Speaker 2: of different private investment strategies. When I see that much
[33:48] Speaker 2: money piling into a space, the first question that comes
[33:53] Speaker 2: to mind is, Hey, are there enough good deals to
[33:56] Speaker 2: go around for all this capital find a home or
[34:00] Speaker 2: or are we just seeing a sea of cash just
[34:03] Speaker 2: washing over too few deals.
[34:05] Speaker 3: I think, like in anything, people do things better and
[34:09] Speaker 3: some people do things worse. I think the interesting part
[34:12] Speaker 3: with the private markets is that capital flows have really
[34:16] Speaker 3: not been a good barometer of much of anything. So
[34:19] Speaker 3: in years where you've seen lots of capital raised, you
[34:22] Speaker 3: haven't seen any correlation to performance, good or bad. And
[34:26] Speaker 3: in fact, if you look at performance over long periods
[34:28] Speaker 3: of time, one thing that has been true is that
[34:31] Speaker 3: the dispersion of performance has remained very wide. Pundits would
[34:35] Speaker 3: have said and did say twenty years ago. Well, as
[34:37] Speaker 3: the industry matures, the dispersion will shrink and the difference
[34:42] Speaker 3: between top and bottom will become very small because the
[34:45] Speaker 3: markets will quote become more efficient. And in fact, that
[34:48] Speaker 3: hasn't happened at all, and it hasn't happened for a
[34:50] Speaker 3: pretty basic reason. If you think about what is a
[34:53] Speaker 3: private equity investment, you're literally partnering with management to run
[34:57] Speaker 3: a company. And so one of the examples I always
[34:59] Speaker 3: say when I'm talking to audiences about this topic is
[35:03] Speaker 3: if I put ten people out out of the audience,
[35:06] Speaker 3: and I gave each of the ten a chance to
[35:08] Speaker 3: be the CEO of this particular business for a year,
[35:13] Speaker 3: we would have ten wildly different outcomes because each of
[35:17] Speaker 3: the ten would make very different decisions on marketing and
[35:20] Speaker 3: manufacturing and hiring and culture. And so whether there's more
[35:24] Speaker 3: or less capital thrown at that company, it's not going
[35:28] Speaker 3: to alter the outcome. What's going to alter the outcome
[35:30] Speaker 3: primarily is what decisions were being made, and were they
[35:33] Speaker 3: good decisions or bad decisions. It's sort of the very
[35:37] Speaker 3: definition of active management, where people are hands on with
[35:41] Speaker 3: that company making choices, fundamental choices. So some people make
[35:46] Speaker 3: better choices than others, and so the dispersion remains very,
[35:49] Speaker 3: very high despite the fact that more and more capital
[35:53] Speaker 3: continues to move into the business, and one of those
[35:56] Speaker 3: choices is around deal flow. Not every manager has an
[36:00] Speaker 3: equal access to the same deal flow. In fact, proprietary
[36:03] Speaker 3: deal flow is very much still alive and well in
[36:06] Speaker 3: the private markets because there's no screen that they can
[36:10] Speaker 3: log into to simply look up, hey, what's available to
[36:13] Speaker 3: buy today. In the private markets, it's really about getting
[36:16] Speaker 3: out there, unearthing opportunities, networking, meeting with management teams, meeting
[36:21] Speaker 3: with sellers. All of that is a skill set. All
[36:24] Speaker 3: of that is frankly unequal, and all of that then
[36:27] Speaker 3: leads to way better outcomes or way worse outcomes.
[36:31] Speaker 2: Yeah, I'm surprised to hear that pundits would have imagined
[36:35] Speaker 2: that that dispersion would narrow when we look in other areas.
[36:39] Speaker 2: It doesn't matter ETF's mutual funds facs. Pick your public
[36:43] Speaker 2: investment strategy almost a winner take all scenario when a
[36:47] Speaker 2: group of also runs. The winners have a flywheel where
[36:52] Speaker 2: all these advantages accumulate and compound and work to the
[36:56] Speaker 2: benefit of those who were early and right like why
[37:01] Speaker 2: would anyone really imagine that that dispersion would narrow. You
[37:05] Speaker 2: certainly haven't seen it in mutual funds or anything in
[37:07] Speaker 2: the private markets. It looks like, hey, if you have
[37:11] Speaker 2: an advantage and you've been successful for a while, you
[37:14] Speaker 2: should be able to continue to build on that advantage.
[37:16] Speaker 3: I think the mistake that people made is that they
[37:18] Speaker 3: just simply made the kind of bold and incorrect assumption
[37:22] Speaker 3: that time or growth or scale would sort of cause
[37:28] Speaker 3: a reversion of return or a reversion to the mean,
[37:31] Speaker 3: or a collapsing of dispersion. And it just goes back
[37:34] Speaker 3: to what we just said, No, this is about a
[37:37] Speaker 3: skill set and what choices you make with the business,
[37:41] Speaker 3: and what choices you make with your own business. And
[37:44] Speaker 3: again you've got winners and losers. What's not happening in
[37:47] Speaker 3: our industry is there's not a winner take all. There
[37:50] Speaker 3: are thousands of private fund managers around the globe, operating
[37:54] Speaker 3: in different geographies and across different styles and strategies, and
[37:57] Speaker 3: that number has generally continued to grow year after year
[38:00] Speaker 3: after year. So lots and lots of fund managers. And
[38:03] Speaker 3: if we then put them on a plot chart across performance,
[38:07] Speaker 3: you'd sort of see a big gapping between the top coretile,
[38:10] Speaker 3: which is still a huge number of managers, could be
[38:13] Speaker 3: over well over a thousand managers who are in the
[38:16] Speaker 3: top quartile relative to the bottom couretile, and then you
[38:20] Speaker 3: sort of see everything that's kind of in the middle.
[38:22] Speaker 3: So lots of choice for investors. But it's also why
[38:25] Speaker 3: frankly affirm like ours has the ability to exist. Navigating
[38:29] Speaker 3: all of that is hard. It takes a lot of resources,
[38:33] Speaker 3: a lot of expertise, a lot of data, a lot
[38:34] Speaker 3: of technology to try to figure out from those thousands
[38:38] Speaker 3: of choices, which ones do you want to put in
[38:40] Speaker 3: your portfolio.
[38:41] Speaker 2: So Sturgeon's law applies to private capital and private equity
[38:45] Speaker 2: and private credit as well as everything else. I was
[38:49] Speaker 2: kind of taken by a quote of yours earlier this spring.
[38:54] Speaker 2: You said this could be a choppy summer. What does
[38:58] Speaker 2: that mean and why do you expect choppy?
[39:01] Speaker 3: Well, I think what's happening in the US politically has
[39:04] Speaker 3: been very choppy. Tariffs, changes in the labor workforce, new regulations,
[39:11] Speaker 3: changes in tax code. It's a lot of altering the landscape.
[39:17] Speaker 3: And so I think one of the reasons why we
[39:19] Speaker 3: have seen a fair amount of public market volatility. While
[39:22] Speaker 3: it's generally been still moving up, we've seen a fair
[39:24] Speaker 3: amount of volatility. And in our world, it's harder to
[39:28] Speaker 3: price assets today because you're trying to look ahead to see, okay,
[39:34] Speaker 3: does this company have exposure to something that might be
[39:37] Speaker 3: tariff impacted? How much exposure and what will be the
[39:40] Speaker 3: tariff impact and how long will the tariff impact be
[39:43] Speaker 3: in place? So what you've seen in our industry is
[39:47] Speaker 3: that deal volume, deal doing remains relatively healthy, deal exiting
[39:53] Speaker 3: remains pretty slow.
[39:55] Speaker 2: Is that driven by the lack of an IPO market
[39:58] Speaker 2: or reduction in M and A or I.
[40:00] Speaker 3: Think it's more back to the choppiness to use my
[40:02] Speaker 3: own word of is today really the day I want
[40:05] Speaker 3: to sell this company to maximize value? And by the
[40:09] Speaker 3: way that potential buyer is also thinking to themselves, is
[40:12] Speaker 3: today the data I actually want to buy this business?
[40:15] Speaker 3: Could the price get lower tomorrow? Or might it get
[40:18] Speaker 3: higher tomorrow? So I would say we haven't seen buyer
[40:21] Speaker 3: and seller agree to what norm is, and they're both
[40:26] Speaker 3: kind of staring off at each other, looking to see higher, lower, better, worse,
[40:31] Speaker 3: And the result of that is causing sort of a
[40:34] Speaker 3: lack of this volume across the industry.
[40:37] Speaker 2: Huh, really really interesting. So the equity markets seem to
[40:42] Speaker 2: have figured out, for lack of a better phrase, hey,
[40:45] Speaker 2: most of this lack of clarity around tariffs is going
[40:49] Speaker 2: to go away, that there's a little bit of the
[40:52] Speaker 2: taco trade and that this is a negotiating tactic and
[40:55] Speaker 2: eventually will have ten fifteen percent marginally higher than we
[41:02] Speaker 2: had before, but nothing that's going to push the economy
[41:06] Speaker 2: into a recession. Do you think that's a fair assessment
[41:09] Speaker 2: or perhaps the public markets are being a little too optimistic.
[41:14] Speaker 3: I think it's a reasonable assessment. And the end, the
[41:17] Speaker 3: public markets have the advantage of momentum. If everyone can
[41:22] Speaker 3: kind of collectively agree and kind of drink that kool aid,
[41:26] Speaker 3: then you get the benefit of the sort of the
[41:28] Speaker 3: tide is rising. It's different in the private markets. If
[41:31] Speaker 3: you and I are out there to go do a deal,
[41:34] Speaker 3: we're about to walk away owning a company. Well, we're
[41:38] Speaker 3: going to live and die by that company's actual results,
[41:41] Speaker 3: and so hoping that tariff impacts will be either non
[41:45] Speaker 3: existent or hoping that they will change or that they
[41:47] Speaker 3: will be short lived, that's not a strategy because if
[41:51] Speaker 3: we're wrong, that company's earnings and revenue is going to
[41:55] Speaker 3: be fundamentally altered, and then we're gonna have a hard
[41:58] Speaker 3: time selling that company. So I think you have a
[42:01] Speaker 3: difference of in the public equity world, I see much
[42:04] Speaker 3: more macro overlay because you're sort of trying to figure out, yes,
[42:09] Speaker 3: is this a good company, and how do I assess
[42:11] Speaker 3: the company? And at the same time you're trying to
[42:13] Speaker 3: figure out, well, generally what direction are the markets going in?
[42:17] Speaker 3: But on the private side, a lot less macro overlay
[42:21] Speaker 3: and much more fundamental focus on that single asset.
[42:25] Speaker 2: You don't get the same tailwind from the sector and
[42:28] Speaker 2: the market overall in private markets that perhaps you get
[42:31] Speaker 2: in part.
[42:31] Speaker 3: You get some of that when it comes time to sell.
[42:33] Speaker 3: Are you in a good space? Is your industry growing?
[42:37] Speaker 3: So you get some of that halo effect, but you're
[42:40] Speaker 3: still pinned to a single asset, and on a relative basis,
[42:45] Speaker 3: most private markets portfolios are pretty concentrated. So if you're
[42:48] Speaker 3: a fund manager running a private market's portfolio, you might
[42:52] Speaker 3: end up with a portfolio of fifteen companies. Well, you
[42:56] Speaker 3: can't be wrong on a bunch of those. That's you're
[42:58] Speaker 3: going to have a terrible result. The winners won't be
[43:00] Speaker 3: big enough to outweigh the losers.
[43:03] Speaker 2: Really interesting. So two related questions. The first is what
[43:08] Speaker 2: do you think is next for the private markets? And
[43:11] Speaker 2: the related question is what are your strategic priorities for
[43:14] Speaker 2: Hamilton Lane.
[43:15] Speaker 3: I think they're both related. Actually the answer is going
[43:18] Speaker 3: to be sort of one and the same. I think
[43:20] Speaker 3: what's next is there is going to be this adoption
[43:23] Speaker 3: and influx of retail capital. We're seeing it, but it's
[43:27] Speaker 3: still very early innings. If you look at the institutional world,
[43:31] Speaker 3: most institutional investors have an allocation to the private markets
[43:35] Speaker 3: that's north of ten percent. If you look at the
[43:38] Speaker 3: average retail investor, their exposure to the asset class is
[43:42] Speaker 3: about zero percent. And if you look at just wealth
[43:45] Speaker 3: statistics around the globe, there are trillions and trillions and
[43:49] Speaker 3: trillions of dollars in the hands of individual savers globally.
[43:54] Speaker 3: So if you believe that they over time, we'll have
[43:58] Speaker 3: portfolios that look much more more similar to an institutional portfolio.
[44:03] Speaker 3: There's a huge amount of capital that's going to get migrated,
[44:07] Speaker 3: but that capital is coming from a different type of investor,
[44:12] Speaker 3: one who is accustomed to everything being on their phone
[44:15] Speaker 3: and everything being available now, think about how we all
[44:19] Speaker 3: interact with the public equity world as individual investors. I'm
[44:22] Speaker 3: sitting here in front of a Bloomberg terminal. I have
[44:25] Speaker 3: unlimited access to information, and I can execute on anything
[44:29] Speaker 3: I want to do right here without moving more than
[44:33] Speaker 3: a couple of fingers. The private markets today technologically are
[44:38] Speaker 3: not built that way, and so there's a lot of
[44:40] Speaker 3: change I think that's going to be coming around private
[44:43] Speaker 3: market infrastructure, and I mean the infrastructure for our industry
[44:47] Speaker 3: and how we interact with the customer. And that flow
[44:50] Speaker 3: through is going to not only start with the retail investor,
[44:53] Speaker 3: but it will then flow back to the institutional investor.
[44:56] Speaker 3: So strategically, for Hamilton Lane, we're very focused on making
[44:59] Speaker 3: sure sure that we're getting that market segment right, that
[45:03] Speaker 3: we're purpose building, to make sure that we're properly caring
[45:07] Speaker 3: and feeding of that customer base, which is again different
[45:10] Speaker 3: than the customer base that we've historically dealt with, and
[45:13] Speaker 3: making sure that all of that is oriented to sort
[45:15] Speaker 3: of achieving success there is right now a huge strategic priority.
[45:20] Speaker 2: So many of the topics we're discussing are very much
[45:24] Speaker 2: front page headline sorts of news. Let me ask a
[45:28] Speaker 2: little bit of an under the radar question. What are
[45:31] Speaker 2: investors not talking about? What topics? Assets, geography, I don't know, policy,
[45:38] Speaker 2: data points is getting overlooked, but perhaps should not be.
[45:43] Speaker 3: I think one of them is back to this retail question,
[45:46] Speaker 3: which is, how is the emergence of this new investor
[45:50] Speaker 3: class going to impact the industry, Because I believe it's
[45:53] Speaker 3: going to impact it dramatically in the technology and the
[45:57] Speaker 3: flow of capital, in the style of investor. And so
[46:01] Speaker 3: what are the ripple effects. I suspect they'll be positive
[46:03] Speaker 3: and negative of that, And so what does that sort
[46:07] Speaker 3: of shake out and impact then do to the industry.
[46:10] Speaker 3: One of the things I think we're going to clearly
[46:12] Speaker 3: see is that if you want to be a player
[46:15] Speaker 3: in the industry, a fund manager, a service provider, the
[46:18] Speaker 3: need for your own infrastructure, your own technology to be
[46:22] Speaker 3: substantial is very real. And that's adding a whole other
[46:27] Speaker 3: layer of expense to the management of these businesses. Some
[46:31] Speaker 3: will figure that out, and we'll have the size and
[46:33] Speaker 3: the scale and the growth to sort of do that,
[46:36] Speaker 3: and I suspect a number of firms will simply not so. Today,
[46:40] Speaker 3: while the industry has been growing from both a number
[46:42] Speaker 3: of managers and asset perspective. I think if we were
[46:46] Speaker 3: to fast forward and come back and have this conversation
[46:48] Speaker 3: in ten years, I think the asset base will have
[46:51] Speaker 3: continued to grow. I think the number of participants will
[46:54] Speaker 3: actually have gone down.
[46:56] Speaker 2: Really, I do. Even as you're adding more and more
[47:00] Speaker 2: mom and pop mainstream investors to the client base.
[47:03] Speaker 3: Of private I think the number of firms that are
[47:06] Speaker 3: going to be capable of successfully servicing that investor base
[47:11] Speaker 3: is relatively small.
[47:12] Speaker 2: I will tell you from personal experience working with individual investors,
[47:17] Speaker 2: some of whom want exposure to various alternatives. The back ends,
[47:24] Speaker 2: the legal, compliance, reporting, custodian all those different things that
[47:29] Speaker 2: have really become frictionless on the public markets. It's really challenging.
[47:34] Speaker 2: It's really difficult on the private market. It's everything is
[47:38] Speaker 2: its own unique I don't even want to say CSIP
[47:41] Speaker 2: its own unique animal that is pet in a different way.
[47:45] Speaker 2: It has no standardization at all.
[47:47] Speaker 3: Has to change. The investor will not tolerate it. That's
[47:50] Speaker 3: the reality is that you can't expect that individual investor
[47:55] Speaker 3: who has been so trained and has adopted that friction
[48:00] Speaker 3: in less environment for the for their entire portfolio, and
[48:05] Speaker 3: now to say to them, well, for this five percent
[48:07] Speaker 3: of your portfolio, it's going to be a gigantic pain
[48:11] Speaker 3: in the rear. They're gonna say, I'm not dealing with that.
[48:15] Speaker 3: So it can't stay this way. So one of the
[48:19] Speaker 3: things that we believe will be one of the change
[48:21] Speaker 3: agents is the world of tokenization. That does make things
[48:26] Speaker 3: much cheaper, faster, and without friction. And so Hamilton Lane
[48:30] Speaker 3: has been a very early and aggressive adopter of that technology.
[48:34] Speaker 3: We've tokenized more funds, we believe than anybody else in the.
[48:37] Speaker 2: World to find that. What does tokenization mean for an
[48:39] Speaker 2: individual investor.
[48:40] Speaker 3: It's moving from a physical world to a digital world.
[48:45] Speaker 3: Tokens are simply tracking of investments using blockchain technology, and
[48:50] Speaker 3: so instead of dealing with subscription docs and all of
[48:54] Speaker 3: the pain points of all of the legal and regulatory structure,
[48:59] Speaker 3: imagine doing that in a point and click world where
[49:02] Speaker 3: you can access a fund digitally using a digital wallet
[49:07] Speaker 3: and storing it in a digital wallet and tracking it
[49:09] Speaker 3: in a digital wallet. And that is the world of tokenization.
[49:12] Speaker 3: So today there are a number of token exchanges around
[49:16] Speaker 3: the globe. Hamilton Lane is an investor and owner and
[49:19] Speaker 3: a number of them. And if you go on today
[49:22] Speaker 3: to firms like Republic or Securitize here in the US,
[49:26] Speaker 3: you would see product offerings there. Investors can still access
[49:31] Speaker 3: documents and information, but when it's time to actually purchase
[49:35] Speaker 3: or invest, they can just simply click the buy button.
[49:40] Speaker 3: And as that world matures over time, you will have
[49:43] Speaker 3: exchanges that have buyers and sellers, and so some of
[49:47] Speaker 3: that ill liquidity issue that we've always been mired with
[49:50] Speaker 3: given the long duration, should start to lessen because you'll
[49:53] Speaker 3: be able to trade more freely.
[49:56] Speaker 2: My assumption is that if you're trading private law assets,
[50:01] Speaker 2: regardless of what they are, Hey, if you want to sell,
[50:04] Speaker 2: you're going to be getting a discounted price versus holding
[50:08] Speaker 2: it for the duration.
[50:10] Speaker 3: That certainly has been the case historically. I think what
[50:13] Speaker 3: remains to be seen is that still true in a vibrant,
[50:17] Speaker 3: healthy token world where you have lots of buyers and
[50:20] Speaker 3: sellers on these exchanges. I think what you're going to
[50:23] Speaker 3: see is that discount is going to greatly reduce because
[50:27] Speaker 3: access to information and the ability to move assets is
[50:30] Speaker 3: going to become much easier and quicker.
[50:32] Speaker 2: So what does this mean for the illiquidity premium. The
[50:35] Speaker 2: fact that investors who agree to tie up their money
[50:38] Speaker 2: for five years, seven years, nine years get a theoretically
[50:42] Speaker 2: higher payout than they might in a liquid public market.
[50:46] Speaker 3: Well, this is going to be what the managers are
[50:47] Speaker 3: going to have to deal with. They're going to have
[50:49] Speaker 3: to continue to deliver some level of outperformance. Now, if
[50:52] Speaker 3: the ill liquidity issue completely evaporates because tokens become so
[50:55] Speaker 3: freely exchangeable, then I think what you're going to simply say,
[50:59] Speaker 3: as well, it's an equid strategy, so it might be
[51:02] Speaker 3: the exact same return as a public equity, as long
[51:04] Speaker 3: as it's mirroring that, you still get the benefit of
[51:08] Speaker 3: a diversification. You're still accessing assets that are non public
[51:12] Speaker 3: and so the only way to access them is in
[51:14] Speaker 3: the private world. But I think that will sort of
[51:16] Speaker 3: cause a change in how people think about benchmarking and
[51:19] Speaker 3: how they think about portfolio construction. We're a long ways
[51:22] Speaker 3: away from that. So today the ill liquidity premium exists
[51:26] Speaker 3: and the il liquidity issue is still very much front
[51:28] Speaker 3: and center. But I think you can sort of see
[51:31] Speaker 3: the building blocks are being put in place that could
[51:35] Speaker 3: really begin to alter how that all works.
[51:37] Speaker 2: Huh really very fascinating. All right, I don't have you
[51:40] Speaker 2: all day long, so let me jump to my favorite questions,
[51:44] Speaker 2: starting with who are your early mentors who helped shape
[51:49] Speaker 2: your career.
[51:50] Speaker 3: I'm a huge believer in mentors. I've had the benefit
[51:52] Speaker 3: of several. My first boss when I came out of
[51:56] Speaker 3: college is still a friend and mentor today. We were
[51:59] Speaker 3: recently on a VACA together and he still treats me
[52:03] Speaker 3: like I work for him, which is great, and I
[52:05] Speaker 3: think it's healthy and it's good to have someone in
[52:07] Speaker 3: your life who reminds you where you came from and
[52:10] Speaker 3: is quick to give you advice and perspective, and has
[52:13] Speaker 3: nothing but your best interest at heart.
[52:15] Speaker 2: Let's talk about streaming. What are you watching or listening
[52:19] Speaker 2: to today?
[52:21] Speaker 3: I consume a lot of news, and so I also
[52:25] Speaker 3: have a bit of a political junkie. So I've been
[52:28] Speaker 3: enjoying a new launch of a new kind of network.
[52:32] Speaker 3: I guess you'd call it called two Way, which is
[52:35] Speaker 3: an interesting series of political conversations and access to different
[52:39] Speaker 3: kind of political pundits and elected officials. So I've been
[52:42] Speaker 3: consuming a fair amount of news via two Way.
[52:44] Speaker 2: Huh. Interesting. Let's talk about books. What are some of
[52:47] Speaker 2: your favorites. What are you reading right now?
[52:49] Speaker 3: I am a voracious reader, so something is always open.
[52:52] Speaker 3: Not all of it's good or worthy of sharing. I
[52:54] Speaker 3: recently finished something that I think is worthy, which is
[52:58] Speaker 3: a book called When the c Came a Lot by
[53:00] Speaker 3: Garrett Graf. I think he writes in a really interesting
[53:03] Speaker 3: way where he's piecing together first hand accounts and diaries,
[53:07] Speaker 3: and so this book was really focused exclusively on the
[53:11] Speaker 3: landing on the beaches at D Day.
[53:13] Speaker 2: Huh. Interesting you said something. Not all of them are
[53:16] Speaker 2: good or worthwhile. My view is, if you're reading a
[53:20] Speaker 2: book and you're not enjoying it, well give it to
[53:23] Speaker 2: someone else and start the next book.
[53:25] Speaker 3: I should do that. I really struggle with that.
[53:27] Speaker 2: I am not homework.
[53:28] Speaker 3: It's not an assignment, I know, and yet I find
[53:31] Speaker 3: myself grinding through things that I'm sitting there thinking this
[53:35] Speaker 3: is really not worth my time, and yet I have
[53:37] Speaker 3: this compulsion of I started it, I have to finish it.
[53:41] Speaker 2: I I somebody turned me on to the idea of
[53:45] Speaker 2: not finishing books. You started, like, I don't know, fifteen
[53:49] Speaker 2: years ago, and it's changed. The average American reads four
[53:53] Speaker 2: books a year. The average quote unquote reader reads ten
[53:57] Speaker 2: books a year. I find if you don't like a
[54:00] Speaker 2: book and you close it, you're reading you two books
[54:03] Speaker 2: a month. It's a whole different.
[54:05] Speaker 3: Well, we're probably reading two books a month and I'm
[54:07] Speaker 3: not closing them. At least I should accelerate, and I
[54:11] Speaker 3: have to learn. That's a good lesson for me to
[54:13] Speaker 3: take takeaway from this.
[54:14] Speaker 2: Our final two questions, what sort of advice would you
[54:17] Speaker 2: give to a recent college grad interested in a career
[54:21] Speaker 2: in either a private equity or private capital or investing
[54:25] Speaker 2: in general.
[54:26] Speaker 3: I think I would give the same advice regardless of
[54:28] Speaker 3: the industry, and that goes back to your question on
[54:30] Speaker 3: the mentor piece. I think we employ a whole lot
[54:34] Speaker 3: of young people and I love that. In fact, we
[54:38] Speaker 3: literally just last week welcomed our brand new analyst class.
[54:42] Speaker 3: They seem younger and younger to me, and I am
[54:44] Speaker 3: clearly getting older. So I had the privilege of welcoming
[54:46] Speaker 3: them to the firm and addressing them, and I was
[54:49] Speaker 3: asked this question and my answer was, get a mentor.
[54:54] Speaker 3: I think right now, particularly with younger folks, there's a
[54:58] Speaker 3: belief that everything that you need to know you can
[55:01] Speaker 3: look up. I can just go online. I can ask
[55:04] Speaker 3: chat GPT, I can Google for it, and I just
[55:08] Speaker 3: don't believe that's true. I still think that whether it's
[55:10] Speaker 3: an investment industry or a legal profession or a medical
[55:15] Speaker 3: that while you can get a lot of knowledge via
[55:19] Speaker 3: the Internet and via other electronic resources, there is something
[55:23] Speaker 3: about learning from the mistakes that others who have gone
[55:27] Speaker 3: before you have made that is invaluable. And I think
[55:31] Speaker 3: aligning yourself in a really healthy mentor mentee relationship, I
[55:37] Speaker 3: think is an enormously important part of a good career.
[55:40] Speaker 2: Really interesting answer and our last question, what do you
[55:43] Speaker 2: know about the world of investing, be it private or
[55:46] Speaker 2: public today that would have been helpful had you learned
[55:50] Speaker 2: it back in the nineteen nineties.
[55:52] Speaker 3: I think just how much change is coming. It's so
[55:55] Speaker 3: easy to go to work every day and kind of
[55:59] Speaker 3: make the assumption I'm just thinking about what I have
[56:01] Speaker 3: to do today and tomorrow will be very similar to today.
[56:06] Speaker 3: I think training yourself to step back and try to
[56:10] Speaker 3: see around corners and try to think outside the box
[56:13] Speaker 3: of saying, what if it doesn't work like this forever?
[56:16] Speaker 3: What if there's going to be a big change, What
[56:18] Speaker 3: if this new technology is going to take off, continuing
[56:21] Speaker 3: to sort of push yourself to do that. I'm better
[56:23] Speaker 3: at doing that now. I wish I had done more
[56:26] Speaker 3: of that when I was younger.
[56:28] Speaker 2: Huh, really really interesting, Eric, Thank you for being so
[56:31] Speaker 2: generous with your time. We have been speaking with Eric Hirsh.
[56:35] Speaker 2: He's co CEO of Hamilton Lane, which manages or advises
[56:39] Speaker 2: on nearly a trillion dollars in private assets. If you
[56:44] Speaker 2: enjoy this conversation, well, be sure and check out any
[56:47] Speaker 2: of the past five hundred we've done over the past
[56:50] Speaker 2: eleven years. You can find those at Bloomberg, iTunes, Spotify, YouTube,
[56:55] Speaker 2: wherever you find your favorite podcast. Be sure to check
[56:58] Speaker 2: out my new book How Not to Invest The Bad ideas,
[57:02] Speaker 2: numbers and behavior that destroys wealth and how to avoid
[57:06] Speaker 2: them How Not to Invest at your favorite bookseller. I
[57:10] Speaker 2: would be remiss if I do not thank the Cracked
[57:13] Speaker 2: team that helps put these conversations together each week. Meredith
[57:16] Speaker 2: Frank is my audio engineer. Anna Luke is my producer.
[57:21] Speaker 2: Sean Russo is my researcher. Sage Bauman is the head
[57:25] Speaker 2: of podcasts at Bloomberg. I'm Barry Ritoltz. You've been listening
[57:29] Speaker 2: to Masters in Business on Bloomberg Radio

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