Talks Underway to Buy Harvard Private Equity Assets

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00:00And you wrote about this in one of your columns today, and you say when it comes down to it,

00:05all these moves within the alternative asset industry and just asset management industry

00:11overall means that it will be retail investors that will end up being on the receiving end of

00:16a lot of these private assets. It looks that way to me. I mean, I think there is this whole thing

00:23with the university endowments, I think it's showing the collision of two long secular trends.

00:29One is that this move from stocks and bonds in the endowment institutional world into primarily

00:36illiquid private assets. This has been a multi-decade transformation led primarily by

00:41Harvard and Yale, by the way. And at the same time, you have the move from actively managed mutual funds

00:47into index funds. And you have fund companies that used to make a lot of money on actively managed

00:53funds that now can't make any money because investors are taking their money over to index

00:58funds that are near zero cost. And you look at these two things and you say, well, what do they

01:02have to do with each other? And the truth is that the way it's looking is that these big endowments

01:08that now are looking for liquidity and looking to unload their private assets seem to be teaming up

01:13with fund companies that are also looking for new ways to drive revenue. And one way to do that is to

01:17roll out private asset funds. It's a way for the institutional investors to dump their private assets

01:22in a way for fund companies to basically send them over to financial advisors and institutional investors

01:28at a price they used to charge for actively managed funds in the old days.

01:32And there's another player in this as well, because Morningstar, which rates mutual funds,

01:37has been losing some business because mutual funds are losing ground to ETS, which aren't rated.

01:42So Morningstar has a vested interest in this as well.

01:45Yeah, I mean, Morningstar is, you know, for during the golden age of actively managed mutual funds,

01:51Morningstar was indispensable for investors who were looking for some third party to say,

01:57you know, hey, this fund is better than another. This is how you should grade these managers, etc.

02:02And of course, in the world of index funds, none of that matters anymore. So what does Morningstar do?

02:07Well, here's an opportunity for them to get back into the fund rating business. If these private

02:12asset funds are going to proliferate, they're going to be arguably even more opaque than the actively

02:16managed funds from two, three decades ago. So you may need more objective third party verification

02:22than you did even then. Very quickly, Nir, isn't the problem here that ordinary investors,

02:27retail investors are like late to the party when it comes to these private assets? All the good

02:31stuff has been picked over. Yeah, I mean, I've been banging this drum for a long time. My problem is

02:37that, you know, we've had these gates on individual investors when it comes to private assets,

02:40which kept them out of the private asset game when the getting was good, when all these

02:44institutional investors were making a lot of money. And now that, you know, the industry is

02:48mature and there's less money to be made, etc. Now we hand, you know, everything over to the

02:53individual investor and say, here, go play in this space that nobody else wants to be in.

02:57Well, I mean, not nobody, but fewer people are enthusiastic about it today than they were in the 80s and 90s.

03:03And, you know, my take on that is we shouldn't let them in the first place. You know, we shouldn't leave

03:06them vulnerable now to an industry that's largely looking to exit.