A version of this article appeared in CNBC’s Inside Alts newsletter, a guide to the fast-growing world of alternative investments, from private equity and private credit to hedge funds and venture capital. Sign up to receive future editions, straight to your inbox.
The number of public companies has been shrinking, sending investors looking for diversification in the private markets. But as the lines become blurred between public and private markets, do the potential benefits outweigh the risks?
CNBC’s 15th annual Delivering Alpha investor summit last month brought together some of the biggest names in investing to answer some of the top questions surrounding the alternatives industry.
Here are the highlights from our conversations with General Atlantic Chairman and CEO Bill Ford, Coatue Management founder and portfolio manager Philippe Laffont, Ares Management co-founder and CEO Michael Arougheti, and JPMorgan Asset & Wealth Management CEO Mary Erdoes. The comments are edited for clarity and length.
On opportunities in the private vs. public markets
Ford: I really believe right now that the people driving the change in AI are the large, public tech companies, and I think incumbents have that advantage. So, if you don’t understand what Oracle is doing, what Google is doing, what Microsoft is doing, you really can’t invest in the private market. You really can’t make good decisions. So even if we’re not making investment decisions on the public side, we have to be pretty fully aware of what they’re doing and that’s how we synthesize it into our decision-making.
Laffont: We do everything from seed to privates to publics. On one hand, you could say, OK, maybe we’re at an advantage, because we know both about publics and privates. But on the other hand, the mindset to invest in publics and privates is different.
On the public side, it’s not only [that] you have to believe in the future, but you have to think, is it already priced in or not? Like when Oracle goes from [$50 per share] to $350, at $350 it’s like, maybe the idea is already priced [in] and on the private side, because usually things take longer, you have to be more right, you have to be more patient. You have to be active in your companies, you have to support the founders or the CEOs a lot.
So I would say that if you can do both, great, but they’re definitely different skill sets. Sometimes I wish I was only in one or the other. Sometimes I’m happy to be involved in both.
Ford: The nice thing about private is … I think this tech cycle plays out over a longer period of time. And I think there is a duration that you get from being a private investor — more of a 5-to-7-year horizon — that allows you to play the cycle a little bit longer.
Sometimes the public markets are more demanding for shorter-term performance.
On the IPO process vs. democratizing access to alts
Laffont: I personally think that the IPO market is totally broken – like beyond repair, as measured by the fact that 20 or 30 years ago, there were so many more IPOs than today. Today, there’s very few IPOs. We were talking earlier this year, there’s been almost none. And I think it’s not a great trend, because at the end of the day, it’s just easier for [the] retail investor to be involved in IPOs and then onwards than everything before the IPO. So I find it’s a little bit unfair.
I do think that it’s going to get fixed purely through competition more than through regulatory action, because when private assets get tokenized, the byproduct of being tokenized is you, in essence, become public, because now you could trade at a premium to the price of the token, you could trade at a discount to whatever the token price was issued. And so all these people that are tokenizing private assets, in essence, it’s making them public. And so I think that one day, maybe all assets are going to be public and tradable.
Ford: I’m a little more optimistic about the IPO market. I think we’ve had an exit recession in private markets for the last three-plus years, and some of that was regulatory, some of it was just some of the trends that Philippe was talking about. But I think we started to see some green shoots around the IPO market this year, and it was just unfortunate that the wind was taken out of our sails a little bit when we had the government shutdown.
There were a lot of high-quality companies on file, ready to go, that would have gone public in Q4 [and] I think build some momentum going into ’26. That got stunted.
I think it will come back in ’26. I think … while the balance may have shifted toward privates, I think there’s a desire among public investors to have high-quality companies come public.
How retail investors should think about due diligence and risk mitigation with alternatives
Arougheti: Whenever you talk about retail access to any investment product … you have to focus on fiduciary duty, and you have to make sure that they understand what they’re buying. Now I also believe that sometimes we don’t give the everyday investor enough credit for just how smart they are. … As a capital markets practitioner, I just think any time we can increase access to the individual investor to investment products that will help them through their wealth creation and retirement is a good thing.
There’s no reason why the retail investor should not have access to institutional-quality product, as long as it’s structured the right way and they’re well advised. So a lot of what we partner on is not just the product, but the education of the advisors, the education of the end client, an understanding of the risk. But when you see what alternatives can do mixed in with a traditional 60/40 portfolio, it’s a wonderful thing, and you’re going to see a continued increase in retail buying of alts, because it delivers a better investment outcome in most portfolio constructions.
Erdoes: And that’s exactly why the current administration is changing the rules on these things, so that you can think about having them in 401(k) accounts, that you can think about them in the Invest America accounts that will come for the children’s future, so that they can participate in 99% of the companies out there in the United States of America that are not public. And so why should it be that just institutions get to invest in the things that are not public? And when you’re not public you’re not paying a public markets premium. And so there’s great value to be found.
How do we give that access while properly risk-managing it? There just should be no such thing as a public markets-only portfolio for almost anyone in the world, if you can risk-manage it; it should be a public-to-private continuum. That’s how you should think about it and how you invest that money is just right-sizing it, risk-managing it and making sure that everybody has access to these companies.
Arougheti: I think the unlock is when you go through cycles. … What the semiliquid structures actually do is allow you to own these assets through a cycle, to capture all of the value creation. And ironically, when the market is going through volatility or a downturn, there is no liquidity at the price that you want it. And I think that institutional investors figured that out a long time ago.
The retail investor has been trained for generations: don’t lever yourself and be liquid because when things get bad, you need to be able to sell. And inevitably, they go sell the things that they can, not the things that they should. And I think what we’re now seeing, and I think it’s why we’re seeing the market smoothing the ownership of these assets – you’re almost structuring out the bad behavior, because people are doing a better job understanding the liquidity and how much they can give up and get paid.
Erdoes: And the sophistication of evergreen funds, interval funds, things that can last through time, we were just talking about some assets that we share and own. And you think to yourself, ‘Why should I have to sell that every five to seven years to somebody else to put it in their portfolio — if there’s an end date to my private portfolio, and the thing isn’t going public, so it’s not going in the public markets, but I want to own it forever and it’ll have an appreciation, and I don’t want to necessarily have to deal with a mark-to-market at a particular time that the fund has a maturity date?’
So all of that leads to more of this stuff being put in portfolios. When done with the right bite size, [it] makes a terrific opportunity for the rest of America and everybody else around the world. But you know that those are the opportunities you can afford.
