Private assets are getting a lot of favourable press lately – and with reasons that might lead observers to ask why. BlackRock CEO Larry Fink has been quoted on CNBC saying a blend of public and private markets is a “great investment” for retirement. This follows BlackRock’s recent acquisition of private markets information provider Preqin. The Financial Times has talked of an “existential dash” by major asset management firms – such as BlackRock – into private assets, amid the declining popularity of actively managed assets, and growing enthusiasm for portfolio diversification.
The extensive media coverage hasn’t necessarily translated into a rush for the products heralded to open up private assets to a wider audience, though. Witness the launch of the much-anticipated SPDR SSGA Apollo IG Public & Private Credit ETF – or rather, whatever that entity will be called after it finishes addressing concerns raised by the Securities and Exchange Commission (SEC) about liquidity and other issues. This Apollo Global Management/State Street JV is ostensibly designed to bring private assets to retail investors by bundling public and private credit within an ETF wrapper. It initially had SEC approval to hold up to 35% of its investments as illiquid assets, and its structural complexity has already been commented on. Whether or not because of the headlines around SEC concerns, the fund received lukewarm responses, according to Bloomberg, with just two days of net inflows delivering only some US$5 million in the first three weeks since its February 27 launch.
Perhaps the retail ETF investors have the right idea. Private markets have been traditionally reserved for institutions and other seasoned investors entirely because they are opaque, hard to track, and generally best left to specialists. What can be done to mitigate those issues for retail investors? And if they were mitigated, would the outperformance still be there? For many professional investors, the opacity of private assets is not a bug, but rather a feature. It’s what allows private funds to target assets whose outperformance and potential isn’t picked up by public markets.
Would the SEC, or retail investors themselves, accept that argument when used to persuade small ‘mom-and-pop’ investors, though? I’m not convinced.
At the very least, those kinds of concerns suggest that a lot more structuring and regulatory work needs to be done before private assets really are a safe and rewarding bet for the retail investors who have been piling into ETFs. How about private assets for retail investors that actually provide transparent and timely details on performance? That might just be a bridge too far for some funds…
