00:00So I take a look at the notes you sent over. This is in bold that you continue to see record demand basically for alts and alts is a broad church. So I'd love to get some more detail on that. When you say alts, are we talking about real estate? Are we talking about private credit? Are we talking about private companies?
00:17We're really talking about private markets, so private credit, private real estate, private equity largely. And I think you're absolutely correct when you say the demand is kind of at record highs. When you kind of peel it back and say, OK, what's different now than maybe three years ago or five years ago, there's a few things happening.
00:37If you look at the advisor side of the equation who represent their clients, their investors, and you take a look at the fact that 80 percent of companies in America that have revenue over one hundred million dollars are private.
00:53So if you're in charge of a portfolio to maximize return for your client, how can you participate in the growth of America if you're not investing in private markets?
01:03And that's what the financial advisor community is really seeing now. And that's what's driving on the advisor side the demand for more and more alts and making alternative investments in private markets really a staple in a well-rounded modern portfolio.
01:19But what is less talked about, I think, is the other side of the equation. It's the alternative investment managers themselves.
01:26Yeah. They're looking at a 50 trillion dollar pool in wealth management with allocations to alternative investments at 3 percent, 4 percent, as Jose just mentioned.
01:37Yeah. When institutional allocations for alternatives can be 40 or 50 percent.
01:42If alts just go from current levels to 10 to 15 percent, that'll be 10 trillion dollars of new capital coming into alternative investment.
01:51Are the advisors prepared for that in terms of being able to educate people, having the products ready for them?
01:57Yeah, we hope so. And in the case platform, we actually leaned in with advisor education on alternative strategies and alternative products from day one.
02:07We have a term called lead with learning. We always felt that the best advisor needs to be armed to be able to have all the facts about the product
02:15and also to be able to talk to their client about the risks of having some illiquidity in their portfolio.
02:21Right. Well, that gets into an area that I'm really interested in, and that is how you actually access private investments, what vehicles specifically you use.
02:30I live in the ETF world, for example, and the puzzle of how you fit private assets into an ETF, which, of course, is as liquid as water.
02:38That's one of the thought experiments in the industry right now.
02:41But, I mean, when you say that advisors want this on behalf of their clients, how do they go about thinking about that,
02:47trying to put basically an illiquid asset into a portfolio?
02:52Most of the investments are presented in funds, fund structures, diversified portfolios of private markets.
02:58But there's been a lot of innovation in the actual, and this is a bit technical, in the fund wrapper
03:04in terms of making it a little bit easier or more scalable.
03:07Going back, you know, five years and more, most private markets were only offered in institutional wrappers,
03:13which mean very high minimums, $5 million, $10 million per investor.
03:18They were locked up for 10 years.
03:20That's really kind of a square peg in a round hole for the financial advisor community.
03:25They may have $10 million of demand across their entire client book,
03:28but how do you break it up into smaller amounts so every client can have private markets in a portfolio?
03:35So, with the rise of registered products, which is what we're seeing right now,
03:39these are open-ended or evergreen, so there's no drawdown structures to them.
03:44They're offered in lower minimums, and they're also offered to investors that are not just the wealthiest,
03:50but also kind of that mid-level accredited level.
03:53So, it's a broader audience and more exposure.
03:56I am curious about some of the partnerships that we've seen between, I guess,
03:59what would traditionally be the public market side of the business now with the private market.
04:03And I think the argument, at least, that the traditional big finance companies would make is, you know,
04:07you're entering a world now where there's a lot more paperwork, a lot more regulation,
04:11a lot more back-office stuff that some of the alt firms necessarily aren't prepared for.
04:16Is that valid?
04:17I think so.
04:18Yeah.
04:18Yeah.
04:18They're getting up to speed quickly, but yeah.
04:20Okay.
04:20Yeah.
04:21So, you expect to see more partnerships, even M&A in that area maybe?
04:24You're seeing a convergence of public and private markets, for sure.
04:28You're seeing it in M&A.
04:29We saw BlackRock and HPS merge.
04:32So, that's kind of an example of a traditional asset manager and an alts manager coming together
04:36to have a broader platform of offerings.
04:39You're also seeing it in product creation, which I think Romania may be referencing.
04:43That's where, like, an Apollo and State Street come together and create one investable product,
04:50like an ETF, that has both public and private markets in the same product.
04:55So, think of that like a one-stop shop.
04:57You saw Blackstone do that, I believe, with Wellington.
05:00I think we said KKR do that with Cap Group.
05:03So, I think there's some experimentation going on, but the key here is that we've always stood for,
05:09for the past 15 years, responsible democratization of alternatives.
05:14We want it to be done the right way.
05:16We think it's in the best interest of investors to have exposure of private markets,
05:20but it can't be done in a way where, say, we're trying to gamify structure for distribution purposes.
05:27Gotcha.
05:28And we keep a pretty close eye on that.
05:30Well, you bring up, for example, State Street's product, their private credit ETF.
05:35That was in partnership with Apollo.
05:38Apollo has since been dropped from the name.
05:39The SEC had some opinions about that.
05:41But in any case, it hasn't seen exactly barn burner demand.
05:46There was a lot of hype about that product coming out,
05:48and it hasn't seen much in the way of inflows.
05:50And one of the reasons for why that I've received is that, okay,
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