Key drivers of growth in private markets

Assets in private markets are at an all time high. What is influencing this growth and what does it mean for public markets?

Phillipa Healy: Hi, I'm Phillipa Healy. And today I'm joined by Michael Lukin, Managing Partner at Roc Partners. Mike, alternative investments are increasingly becoming a part of an investor's allocation in their portfolio particularly when we look at private markets. What are some of the factors influencing this and do you see this is something that will continue for investors?

Michael Lukin: Yeah, now look I think there's going to be more and more interest in private markets generally. I think we've seen historically institutional investors have large allocations to alternatives and in particular private markets and we're increasingly see that play out into the high net worth and family office channel. I think first and foremost, it's in the returns. I think if you look at the risk adjusted returns that private markets have delivered at Roc we’ve generated 800 basis points of alpha over the last 10 years per annum against listed markets. And so I think on a risk adjusted basis private markets can really add a lot of value to your portfolio. I think really what's interesting now is this increasing interest in private markets is actually making it increasingly difficult for public markets investors and I'll give you some examples. Sydney airports recently been privatised that asset is never going to come back onto the list of market and some of those infrastructure assets a great examples of where you need to go into private markets to get access to those assets.

Phillipa Healy: Right

Michael Lukin: We're seeing other industries going through that migration as well. I put it out there that in five to ten years is going to be increasingly difficult to get access to healthcare assets through public markets, some of the larger diagnostic imaging businesses are all being taken private never to return to public markets. And so as an investor in public markets, you're sitting there with less and less diversification in your portfolio and really nice industry experiences that you can't get access to like health care, like infrastructure that a GDP plus growth that are relatively, stable and consistent in their return profile. They're being taken into a private markets, never to return. I think the other aspect that's really happening and we've seen this a lot in venture capital where businesses are now staying private for much, much longer. Businesses, like Amazon and Google that have gone through amazing rates of growth and listed markets and have driven equity market returns over the last decade, they listed it around hundred million dollars market cap. These days those businesses would not list till they were a hundred billion dollars in size so that you know outsized return from these higher growth disruptive businesses, those returns have been captured by the private market investors unlike the last twenty years where they've really been captured by the public markets because of a lack of capital in private market.

So, the more capital we see in private markets the more likely these opportunities just aren't going to come to the public markets because of the inability to operate quickly, to have fast decision making, to be private in terms of your revenues your strategy and plans. They're all the secret source of private markets private markets can deliver better returns over the long term compared to their public market equivalents.

Phillipa Healy: Okay, so definitely space to keep