Back in November, Institutional Investor reported on a joint venture between State Street and Bridgewater, an effort to diversify their product lineups and client bases and tap into retail investors’ growing appetite for alternative strategies — without having to build capabilities from scratch or make a difficult acquisition.This followed other such tie-ups. In May, KKR and Capital Group announced plans to introduce hybrid public-private market investments this year, and last September, State Street and Apollo launched an exchange-traded fund that has both public and private deals, the first of its kind.Collaboration between PE and traditional asset management firms to provide more offerings to more investors without years of groundwork is well on the way to becoming a trend. However, differences in expertise, fee structures, and expectations can cause logistical headaches and must be carefully considered if the joint ventures are to prosper, sources note.One challenging concern with offering private investment to retail is liquidity mismatching. PE by its very nature is illiquid, whereas retail investors want exposure to private markets but often expect to be able to redeem their money at any time.Garland Allison, co-chair of Cooley’s private equity practice group, says that institutional investors are used to how private markets function and to having their money tied up for a significant period. “We’ve seen over the past several years, [when] there have not been a number of exits like in the past, LPs clamoring for return of capital, but yet they’re still used to being in it,” he explains. “Whereas when you start to bring in these smaller investors, it does create concerns about liquidity. The bigger issue is how you deal with the differing needs of this type of investor.”Retail investors may dislike the lack of liquidity in private markets, especially during a downturn, but the difficulty of exiting and the distribution drought caused by cost-of-capital and valuation changes will compound the misery. There are various mechanisms that can bring liquidity, including ETFs, which investors can sell at any time to another buyer on an exchange, without the manager having to touch the underlying portfolio. The ETFs can also be structured to include public fixed income securities, which can be sold more easily than private credit. GP-led secondaries, which can provide some liquidity by selling a promising company from one institutional fund (and distributing the cash to investors) and putting it into a new fund with a new set of investors.Figuring out how to transform illiquid products into liquid assets is “the holy grail of alts asset management,” says Bob Elliott, CEO and CIO of Unlimited Funds, which he co-founded to offer retail investors access to hedge fund returns through ETFs.Some of the products on the market that do this are not particularly innovative or interesting, Elliott adds, but those like Apollo’s private c
Mar. Feb 11th, 2025
