Hamilton Lane: Why retail investors should be diving into private markets
The new co-CEO of private markets investment firm Hamilton Lane has one goal: getting retail investors to get excited about private markets.
Erik Hirsch, who began in the role last month, has taken the top job at a pivotal time for his company, and indeed, the entire asset class.
Private markets have enjoyed a rapid surge in popularity over the last couple of years, especially among retail investors, and Hamilton Lane has been eager to capitalise on it.
The new co-CEO almost entirely credited the asset class boom to their accessibility to retail investors, as previously they had been “the realm of institutional, ultra high net worth or family offices”.
“Five years ago, I could have 100 meetings set up for me, and the word retail would not show up in all 100 meetings,” said Hirsch. “Today, it’s going to show up in 98 of the 100.”
This change was due largely to the drop in investment minimums, he said, along with the creation of new structures and regulation changes.
“If you were taking the typical private equity fund, the minimum for those were often $5m because they weren’t looking for individual investors,” he explained.
Secondly, funds were traditionally modelled to use drawdowns, meaning they will be required to constantly move money in and out over a 10 to 15 year time frame, which is not exactly a friendly model for retail investors.
Now, minimums are much lower, with Hamilton Lane’s being around $50,000, while ‘evergreen funds’ begin with a single deposit.
“Merrill Lynch, Morgan Stanley, they’re writing about this more to their customer base, wealth advisors are talking about this more to their customer base, because there’s something to actually talk about,” he said.
“But could we make this even easier to access? Now, we come to the token world.”
Erik Hirsch
“But could we make this even easier to access? Now, we come to the token world,” said Hirsch.
Through tokenisation, both the underlying private equity assets and their fund could be ‘tokenised’, allowing them to be traded on a blockchain without the need for a centralised system.
Hamilton Lane was one of the first investment firms to list their funds on blockchain platforms.
“The benefit of that token is that it can be sliced and divided into very small increments,” Hirsch explained.
“So maybe the $50,000 minimum could become $5000 because we could have a huge array of digital tokens that are very easily tracked and stored on blockchain.”
In fact, investors themselves can theoretically divide up their tokens and trade them on a secondary market, he explained.
Another hurdle that blockchain surpasses is that a single digital wallet can become a “digital passport”, allowing investors to do know-your-customer and anti-money laundering checks just once, rather than every time they want to invest in a private markets fund, he added.
However, Hirsch acknowledged that “the market is very immature” and while there have been funds flowing in, they represent a small part of Hamilton Lane’s sales.
“What doesn’t exist today is there’s not a vibrant kind of buyer and seller market, there’s just not enough volume today,” he said.
Nevertheless, Hirsch was bullish on the technology, complaining that it had been “unfairly linked to crypto” and “they only share the same spine in the blockchain technology”.