Bloomberg Audio Studios, podcasts, radio news. Let's turn to the private markets, though, because as appetite for private assets grows. Today we learned that I Capital has surpassed two hundred billion dollars in global platform assets and for more on this exclusive news. I'm pleased to say we're joined now by Chairman and CEO Lawrence Kolkano, along with our own Shanali bask And we should also note, of course that Lawrence will be speaking tomorrow at the Greenwich Economic Forum.
Lawrence, it's great to have you with us. So two hundred billion dollars.
In AUM you think about private markets, that's a pretty broad church. Where are you seeing the most flows right now when you dial down into the private markets.
Sure, so, thank you, Katie, it's great to be here. I really appreciate it. So I think you look at the flow question from two different perspectives. The first is what are the strategies that people are using and then sack in what are the structures they're using to get into the acid class. So on the strategies, we're really
seeing a shift more to private credit. If you go back two years, back to twenty two, and you remember the economic environment was uncertain we were about to start a fed rate hike trend and there was really a risk off mode in the market. So in that context, private credit, which is shorter duration than private equity, people started to shift there. Most of the private credit products are floating rate, and so people had a natural hedge,
you know, in their investment. And as time went on and interest rates went to you know, five to six percent, people were earning almost ten percent or a little bit more on their private credit portfolio, which was which was very, very exciting. We've seen flows into private credit year to date of about forty one percent as compared to private equity of thirty four percent, which is a flip from
last year. And then the other quick point I'd make on the structures, we're seeing a big shift to evergreen investment structures as opposed to the traditional private placements which people had historically always use. And that's really a function of more credited investors coming into the asset class and those products. We've seen to the tune of about sixty percent of the flows year to date versus forty percent for the private assets.
Lawrence and Okatie and I have both been covering the advent of a private credit etf Apollo and State Street really breaking the gate wide open in terms of seeking approval. For one still needs regulatory approval. But let's look around the corner for a minute here, and should they get this done, how fast you see more of these entry in the market, and how will that change the way that retail investors access these funds that have been typically hard to access.
So I would say that you know, you're going to see more of that, and you've seen it on the M and A side with a lot of traditional asset managers requiring alternative asset managers, You're going to see more and more partnerships come to the for as you're suggesting,
as people think more holistically about these portfolios. You know, we always think that, you know, though we are obviously driving the volume in a lot of alternative assets, they live somewhere, They live in a portfolio, and they have to make sense in the context of the portfolio and what the underlying investor is trying to accomplish in that portfolio.
So I think you're going to see.
More of these types of arrangements, and I think ultimately they will really help the investor because right now, one of the challenges that advisors have is making sense of how do you allocate how do you bring these alternative assets into a portfolio.
Well, one major issue too is the liquidity profile. When people look at the ETFs, they say, well, wait a minute, you're taking an elective asset putting it into a very liquid structure. But you've seen these interval funds throughout the last year, some very successful, but some of course getting
into some issues when it comes to redemption requests. Are investors thinking about that structure, whether it'll be semi liquid, do they want daily liquidity or do they not want liquidity for these structures at all?
So look, I think it's really early days right now for all of this, and so a lot of people are experimenting on how to make this all work. I think the one thing you have to keep in mind, and that is an alternative asset, generally speaking, is an ill liquid investment.
So when you think about some of the funds that might have.
Had gates put up, which is by the way, a feature, not a bug of how those products are designed, they are ultimately investing in long lived, I liquid assets, and what people are trying to do is figure out how to put hospitable wrappers for this market around those products so that people can have that access. But you can't get away from the fact that these are still, you know, the underlying investments are very illiquid, and so people have
to understand that. I will tell you one of the things I find quite frustrat creating is the description of these assets is semi liquid, because I think human nature being what it is, when people hear semi liquid, they hear what they want to hear, and they hear liquid. The reality is that these products are generally speaking illiquid with some liquidity features, and I think that's a really important component of the education that has to go on in this space.
We certainly spend a lot of time on it, as.
Do many of the leading asset managers, and really helping people understand the underlying character of these products and how they work and how they're supposed to work for investors.
Lawrence, it's a great point, and of course making sure that it's communicated to perspective retail investors in particular. I know a lot of etf issuers who are thinking carefully about that topic, but I am curious when it comes to retail investors moving into private assets.
I have to ask why bother when.
You have public markets that are up twenty one percent you're to date on the S and P five hundred, for example, what role do you see assets playing in the typical portfolio of just the average investor.
Sure, if you look at the sort of large families, family offices, you look at institutions, many of those are allocated well in access of fifty percent. If you look at the suggested allocations at most of the large private banks, they're suggesting allocations of fifteen to twenty five percent into alternative investments for their underlying wealth clients. And so the view is clearly that there's an opportunity for you know, incremental return. People buy these things for the same reasons
that large families and institutions do. They want and they're seeking incremental return opportunities. They're seeking diversification of the portfolio. And you think about the private markets today, there are hundreds of thousands of private companies and there are four or five thousand public companies.
So if you think about the.
Market, not investing in is shutting down a very significant.
Part of the marketplace to the underlying investors.
So I think privates play a really important role in a complete portfolio. Most certainly they will not be for everybody because of the liquidity conversations that we had a few seconds ago, as well as some other reasons, but I think for the right investor base, they can be very additive to the portfolio.
Yeah, it's an interesting point, especially when you think the fact about the fact that we aren't seeing a lot of IPOs lately. We have seen some delistings, so it feels just like the public markets are shrink and going into privates. And speaking of privates, you make the points in your notes that private credit has had a good run, it's had a lot of the mind share as well, but you see private equity growing in the months ahead.
Walk us through that call.
Sure, So it's sort of the inverse of what I talked about earlier, where you know, you have as interest rates were coming down, you know, private credit became very very attractive. Sorry, as interest rates were going up, private credit it became very very attractive given the hedge and frankly, the spread between the expected total return on credit that
was then yielding ten percent and equity was narrowing. As we now perhaps start a reduction cycle in interest rates, you're going to see the spreads in private credit and private equity start to widen again. And I also think as we get into sort of that climate, equities tend to perform quite well, so we would expect more allocation into private equity in the months ahead. But I would say very much that the private credit strategies are going
to be a core part of alternative holdings. And I think as you look forward, when you think about how people will allocate, at some point, I think people are going to stop even referring to these assets as alternative. I think people are going to have an equity portfolio, and that portfolio is going to have common stocks, ETFs, private companies, private.
Equity funds, maybe some venture funds.
Private credit portfolio is going to have unis, treasuries, corporate bonds, and private credit maybe structured credit, real estate credit, et cetera. And you're going to see a blending of the private markets and the public markets, and people are going to are going to think about, you know, how to combine these things to get to the portfolio outcomes they're looking for.
All right, Lawrence, great conversation, Really appreciate your time. Of course, that is Lawrence Kolkano. He is the Chairman and CEO of I Capital and thanks of course to Shanali bask