Goldman Sachs' Kristin Olson: Alternative asset managers are exploring the wealth space

Mike, what principally are investors or your clients looking for when they want to look at non public markets, various types of of alternative options. So our clients as ultra high net worth clients have always had a very large allocation to alternatives and the approach has been to be quite diversified. So alternatives, a big category that's going to span private equity, private credit, real real assets and also hedge funds. The largest allocation has been going to our buyout strategy, so traditional private, private equity. But really the objective for our clients is how can they achieve differentiated sources of return from public equity and public fixed income returns? How can they add uncorrelated sources of return? And most importantly, how can they drive alpha or out performance versus the returns they're getting in public liquid markets. Interesting that they that you say they that they're looking for out performance as opposed to just a smoother ride. I mean some of the criticisms of some alternative strategies is that well, they don't mark the market every day. And if you don't have to absorb that sort of noisy volatility on the way to whatever return you get, you're saying that they think that there's sources of of better or different types of returns 100%. Look, I think there is a benefit of perhaps not seeing the volatility or not having to live through the volatility. And I think one of the other hidden benefits of alternatives, it forces investors to stay the course, right? These are illiquid strategies. You're signing up for a 10 year commitment and it takes the sentiment out of it, right? You have to you're going to have to deploy capital. It's not at your discretion and it allows you to really stay invested. And I think that's one of the hidden benefits of alternate investments. Has private equity recently kind of lived up to the billing in the sense of, you know, you're seeing these reports? First of all, there's maybe less activity in terms of new buyouts than you might expect given some of the other market conditions. And then just this idea that LP's want to withdraw their money and the sponsors have to, you know, take on leverage to do that. In other words, it just feels as if there's a lot of moving parts that maybe are not necessarily as clean as, hey, you know, we buy companies, we lever them, we fix them, we sell them. Yeah. Look, I think that manager selection and looking at what is the actual strategy under the hood is incredibly important. I think now more than ever finding managers that are driving real value creation at their portfolio companies and looking through as what was it, what was from cheap financing, how much of it was multiple expansion, like what was actually organic growth that which was driven at those portfolio companies. That's incredibly important to be looking at today. You also bring up an interesting topic, which is liquidity. And so one of the interesting areas within private equity right now is secondary private equity, right? So you've had institutional LP's that have now gotten to targets in terms of how much they want alternatives that are finding themselves given the lack of distributions coming back, finding themselves needing to potentially sell. And as a liquidity provider, that's an interesting strategy to be a secondary private equity investor today. Should anybody's antenna be raised by the idea that now you have these managers who want to open up to high net worth individual money as opposed to, you know, why am I so lucky to be getting this opportunity kind of a logic. Well, I do think it's one of the most interesting moments. So in the last 25 years, I've been at the intersection of wealth and alternatives for individual investors because you've never really had access in the way that you do today for the ultra high net worth investors. It's top tier managers that are thinking about how they're going to grow their business over the next 20 to 30 years and realizing that they need to tap into individual investors to grow their business, right? And so it's projected that if there's 4 trillion today of individual money in the private markets, that's going to triple in the next decade. And so alternative asset measures are figuring out how do I access that capital. But the other part of that is going downstream and thinking about how do you get to the mass affluent, how do you get to retail? And So what you're seeing is the advent of new structures that allow for that. So in credit, the non traded BDC, in real estate, non traded Reit's. And then you're seeing private equity and other real asset strategies going into these open-ended Evergreen structures, some of which allow you to go to smaller investors that don't have to make meet the $5,000,000 minimum net worth for traditional alternatives. But these structures also have a modicum of liquidity because that's the other real challenge to investing alternatives is you have to give up liquidity to be able to get that that alpha, the private markets. And you know, that's that's harder for smaller clients in a world where, you know, trailing equity returns in public markets have been pretty strong and now you can get pretty safe yield above 5 and 6%. Does it raise the hurdle rate for investors wanting to go to less liquid strategies? Well, I think like always looking under the hood, what's interesting. So with higher rates you look at credit, OK, so you can get pretty attractive yields today, but in the private markets you can add to that and be getting low double digit returns as a senior direct lender. So I think investors find that pretty compelling and obviously that's a product that has or that's an investment product that has gone into some of these structures for broader individual investors. And I think the way our clients think about returns in privates is what is the spread that they can get above the public market return and to give up that liquidity generally looking for 300 basis points a year better than the public market alternative.

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