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Private Markets Are Going Mass Market. Is That a Good Thing?

by Clarence Jones

Hamilton Lane, an asset manager based in Conshohocken, Pennsylvania, is on a mission to democratize investing. Typically, private investments, such as private equity, have been accessible only to institutions and the uber-wealthy. However, Hamilton Lane aims to change that by opening up the world of private investments to ordinary investors. The company believes that the investing landscape will look very different for retail investors in the future.

Other Wall Street players, including BlackRock, J.P. Morgan, and PGIM, are also pushing for private markets to be available to retail investors. In the past, high minimum investments, long lockup periods, complicated structures, and requirements for high salaries and substantial net worth have hindered retail investors from accessing these markets. However, these hurdles are gradually being removed.

Hamilton Lane and other firms are addressing liquidity problems, minimum investments, and reporting issues by creating evergreen funds. These funds do not have a fixed end date, allowing investors to enter or exit more easily. Most evergreen funds also have low investment minimums, making them more accessible to accredited investors.

While there are concerns about the complexity and high fees associated with private investments, Hamilton Lane believes that the retail allocation to private markets will increase significantly in the coming years. Currently, only about 2% of retail investors’ assets are held in alternatives, compared to 20% to 30% for institutional investors. Hamilton Lane expects this allocation to increase to 5% to 10% over the next five to seven years.

Investing in private equity and other private investments can be risky, and returns are difficult to track due to the lack of benchmarks. Additionally, fees can be significant. However, the rise of private markets and the decline in the number of public companies available for investment highlight the need for more options for retail investors.

Overall, the goal is to give retail investors the opportunity to invest alongside institutions and the super-wealthy, providing them with access to potentially higher returns. While there are risks involved, the move towards democratizing investing in private markets is an important development in the financial industry.

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