Perspectives

As I sipped my cup of tea on an early Monday morning in August, watching CNBC’s Squawk Box, a Blackstone commercial crossed the screen marketing their private equity vehicles. It struck a chord, as those active on social media will also have noticed the uptick in video clips from real estate investment management (“REIM”) giants, for example, Blackrock and Apollo’s C-Suite executives, making the rounds on LinkedIn. The “why” is simple. It is about establishing a direct line to the individual investor and further advancing the “democratization of private markets” (a phrase that gets thrown around now with increasing familiarity). Our last publication focused on distribution channels – accessing the insurance sector and the chase for permanent capital. This time, it is about the chase for retail capital – opening up access to private market alternatives to individual investors – a distribution channel that has long been offered a narrower set of products, such as REITs and mutual funds.

Why now? Amidst a challenging capital raising environment over recent years, investment managers (“Managers”) have taken stock of where they are and taken some time to think about the future with a focus on strategic growth. In our view, managers can generally expand through one of three ways – distribution, geography, and product offerings. Seems simple enough – the execution part is a lot trickier. This makes it much easier to understand why the sector has seen a growing interest in the retail channel. It is an intriguing trend as, for decades, smaller real estate managers, mainly backed by retail-oriented capital, have aspired to enter the institutional channels on the back of a belief accessing larger pockets of capital would make life easier. A new trend marks today’s world: institutional managers looking to crack into the retail/individual investor channel. The road goes both ways. What has helped is a shifting mindset or perhaps re-evaluation, of investing in public versus private markets,

particularly with respect to liquidity / appropriate risk premiums. Historically, private market options have been regarded as largely illiquid, have a higher risk, and are dominated by institutional investors. Public markets are considered liquid, “safer,” and a hallmark of the American financial system. This re-evaluation is getting help from the private markets, as managers are also becoming increasingly creative in developing vehicles capable of capturing many public markets’ benefits, particularly those tied to liquidity. The term “democratization of the private markets” is really a euphemism for capturing the idea of providing greater access to private market alternatives and investment opportunities to the individual investor.