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Capital Decanted
S2 | Episode 8: Special Episode - What Now? The Future of Asset Management with Kevin Quirk
01:02:22
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Kevin Quirk
Foreign.
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John Bowman
Welcome to Capital Decanted. In this show, we say goodbye to tired market takes and superficial sound bites because here, instead of skimming the surface, we dive into the heart of capital allocation, striking the perfect balance and exposing the subtleties that reveal the topic's true essence. Prepare to have your perspectives challenged as we open up the issues that resonate with the hearts and minds of those shaping capital allocations. We've enlisted the wisdom of visionary leaders in the industry and just like a meticulously crafted wine, we'll allow their insights to breathe, unfurling their hidden depths and transforming our understanding. This is season two, Episode eight of Capital the Future of Asset Management. I'm John Bowman and I'll be your sole host today. First of all, a huge thank you as always to our returning title sponsor, Alternatives by Franklin Templeton. We are so grateful, as we say every episode, that they're back to partner with us. They've got over 40 years of alt investing experience, over 260 billion of AUM, and their specialist investment managers now cross six different asset classes, real estate, private equity, private credit, hedge strategies, venture capital and digital assets. And of course, all of them operate with the client first mentality that has always defined Franklin Templeton to help prioritize investment outcomes. So thanks again, Alternatives by ft. Well listeners, we have a special episode today as long time devoted versions of all of you will know, we typically break down the history and complexity of a topic and then we'll invite a guest or two usually in to break down that topic further. Well, today, like we've done on a couple of other rare occasions, we're just going to have a one on one conversation. And this is for good reason that we are switching things up because with the tectonic plates in trade and geopolitics and economics and national security seeming to shift under our feet in what seems like real time, I thought it was opportune and maybe even imperative for us to step back to talk about some of the major themes defining the future of the industry. But through the lens of what's happening all around us in real time, and as many of you know, in our larger circle of the KAYA community, we've been conducting C suite roundtables around the world this year in 2025 to help inform and shape our long term organizational strategy, which I'm calling Vision 2035. And those conversations, just like the one I'm sure you're about to hear, have taken on a more sobering, urgent, dramatic turn in recent weeks and months as the phrase regime Change and structural inflection point and phrases like that keep coming up in our conversation. Is it, could it actually be different this time? That is a taboo phrase, but once in a while it is actually different this time. So today I want us to link that uncertain temporal chaos you might call it with future themes and trends that we should be watching. And there is no better guest to do this with me than Kevin Quirk. Kevin is global head of investor relations for Bain Capital and we're going to talk a little bit about this exciting new role at the iconic Boston firm. But candidly, Bain is not actually why I invited Kevin in for this special episode, because Kevin's story really starts with his mentor all the way back in the mid-70s, a gentleman by the name of John Casey. He is a legend in our ecosystem whose fingerprints, I promise you, are ubiquitous across the entire industry. Just to paint the picture of John's influence, a regular joke that I've come across over the years on John Casey goes something like this. So this American is part of a huge crowd in St Peter's Square in Rome and he could barely make out the two figures that suddenly walk out and make an appearance on the balcony of the famous basilica St. Peter's Church. And so the American turns as he's squinting up into the sunlit and sun blocked balcony to this Italian youth next to him and he says, is that the Pope up there? And the youth responds, I don't know if that's the Pope, Mr. But that is John Casey with him. So that is in a nutshell obviously with satire thrown in who John Casey is and his iconic state and understanding and profile within the industry. John Casey founded Rogers Casey in the mid-70s that became one of the most prominent pension consultants in the world before its acquisition by Barra 20 years later in 1996. And it was at Barra post acquisition working with a young Kevin Quirk that he had hired, in which this seedling of an idea to parlay that experience advising asset owners into advising asset managers began to germinate and sprout and blossom. So in 2002, Kevin and his mentor and superior at Barra launched Casey Quirk, an investment management and strategy consultancy that added Zenith, advised more than three quarters of the top 25 asset managers in the world. KC retired in 2015, formally handing off the reins of Casey Quirk to Kevin. Sadly, John passed away in 2020 and then 2016. In between, Deloitte acquired Casey Quirk. But for two decades for most of us practitioners, Casey Quirk was the author of the most sought after thought leadership in the industry. They were the authoritative state of the profession and I would say for you younger entrants into the industry, particularly after regulatory changes, most notably Reg FD in 2000 and then Huge trading fee compression that forced the sell side to abandon lots of the broader thematic research that many of us were accustomed to in the 90s because they simply couldn't justify the cost of that research with associated trading revenues. So the sell side exited this thematic long term thought leadership business and Casey Quirk filled the gap. They became this rare and valuable jewel for long term thinking on the asset management business. I first met Kevin before the Deloitte acquisition, perhaps around 2014, as we were both part of this institutional investor membership forum for CEOs and at these annual get togethers, Kevin would often have this segment on the latest trends in the industry for the global leaders in the room, which honestly, besides the networking was always the highlight for me and I think Most of the CEOs in the room too. So as the world seems to be facing unprecedented challenges and uncertainty, Kevin was my very first call to help us think through where we are and where we're going. So I am delighted to welcome into studio Kevin Quirk. Stay tuned. And he'll be here with us. Well, welcome back to this episode of Capital Canted. Just delighted to have in studio my old friend and the global head of investor relations for Bain Capital, co founder of KC Quirk. As we'll talk about at length here, Kevin Quirk, welcome to Capital Decanted.
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Kevin Quirk
Thanks John. Great to be here.
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John Bowman
Well, this episode is timely perhaps, Kevin, even when we thought of the idea more timely than we would ever have, I don't know about hoped for, perhaps dreaded because much of the foundation of what has defined asset management for, I would say the last four decades. Most of you are in my career, perhaps even first principles of what the global order seem to have been constructed on. The apparatus that has built up most of our careers is under, I would say full scrutiny, full review, and it's impossible to ignore the fundamental shifts in philosophy and worldview that we're seeing around us. And today we're going to try through lots of gymnastics and discipline to somehow connect some of this temporal chaos with the long term trends that you and Kasey Quirk have been synonymous with for three decades. So we'll certainly talk about the current, but we're going to try to again look through that lens of the current storm to what might be happening 10, 20 years from now, which is again what I've always found so unique and helpful from you, Kevin. So I look forward to this. The listeners had the benefit of a very quick, brief overview of the trajectory of your career and Casey Quirk and what you guys did. And I'd love to start, if you don't mind, with maybe your interview. I think it was 1995, but you have talked publicly about your first introduction to John Casey and who sadly, we lost in 2020. But tell us a little bit about that conversation and how it literally changed the course of your career.
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Kevin Quirk
For sure, he was an amazing person. It was 1995 and John at the time was the CEO Ran Rogers Casey, which was the, I believe, the third investment consulting firm that he had really been involved in founding and reinforced the fact that this guy was an incredible visionary when it came to the investments industry, and certainly a person who should take a lot of credit for what the modern investment consulting industry looks like. But that first interview with John in 1995, I was in my second year of business school and I had had interviews with the then Rogers Casey franchise to potentially join them in a nascent management consulting business that they were working on to not advise the institutional investors of assets, but rather the investment managers themselves. And John was effectively my final interview in the process. And it was a fascinating conversation and it turned into a very lucrative relationship for both of us over the long term. But he told me what he was thinking about and what he. And it became clear that he knew everybody in the industry. This was a guy who knew everyone around the world. He was very well regarded, and he had found himself in a position where the asset managers were coming to him for advice because there was really no one at the time that was in the business in a formal way of advising asset management firms, certainly in a meaningful way. So John talked to me about this nascent effort and of course, I was about to be coming out of grad school, deeply in debt and looking at all these large companies that I could potentially join. And John offered this very out of the box idea to me to help him start working on this effort with a number of people that he was working with at the time, although I was probably the only one that had real management consulting experience. So anyway, that was the first conversation with John, and in the end I decided to, it felt like at the time, take a little bit of a flyer relative to the other things I was thinking about at the time. But that's how it all started.
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John Bowman
Yeah, well, you talk about measured risks. That worked out well. Taking a flyer that was the right flyer to pursue.
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Kevin Quirk
I will tell you. There were some days, John, when it didn't necessarily seem like it was the right flyer to take, but we got through it.
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John Bowman
Well, it's never a straight line, it's never as romantic as it sounds. 30 years in retrospect nonetheless, but clearly a good move. We're going to talk a little bit about. I don't know if you'd frame it as your second, your third, your fourth career at Bain in just a moment, which is very exciting. But as you think about those 25ish years with John and then you moving in eventually to the leadership role upon his retirement 10 or so years ago, what do you miss most about that building stage and that consulting stage, that unique insight that John had very early that you obviously adopted and shared and parlayed into this great practice for so long?
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Kevin Quirk
I would say first, I'm extremely proud of what we built over that, call it 25 plus year period. And probably the thing I'm most proud about is the people that got involved in the business and were so committed to the growth of the business and by the way, continue to this day being committed to that business as part of Deloitte. So on a day to day basis, the thing that I miss the most is the people. I really feel like this group of partners and senior people that we put together over time really became the standard bearer for what we did in the industry. I certainly miss the people. I think the journey, as you said along the way, there are parts of it that I look back and I reminisce about and I think, God, those were really great, interesting days. I'm not sure I could do it again, to be honest with you. And I think part of it was youthful naivety going into what we were going into. But it was incredibly exciting. I worked with some great people. John was a wonderful partner to that next generation of people. You know, in the early days it was people like Chris Aceto and David Bauer and Jeb Doggett who were the early founders of Casey Quirk. And John was very much an advisor and a relationship person. But he let us run the business, he let us grow the business. And I think that's what a lot of us. We of course had to evolve into advisors ourselves, but we really enjoyed the business building the concept of wanting to build something big, something important, something that could really have impact in the industry. We really, I think, prided ourselves on our thought leadership and our forward looking views. We prided ourselves on our focus on the investors and our clients, clients and really trying to define what they needed and they wanted and what was right for them for the future. And that was always, I think, central to the advice that we brought to our clients. And I think that was that purposeful approach to strategy within the industry was something that really served us very well. I don't know that I say I miss that. I think that I look back on it with a tremendous amount of fondness and I see it as part of the journey along the way. I think as I look, I fast forward to where the firm is today. It's as part of Deloitte. I look at it as it's in that next generation's hands, but it's also in a place where it has to evolve further in order to continue to be relevant and important to the clients. And in an industry that has changed so dramatically since we began. I mean, if you really look back in the mid-1990s, this was an industry that was growing strong double digits. It had an amazing tailwind behind it. The alternatives part of the industry barely even existed. And a lot of these businesses were basically cottage businesses. They didn't have formal leadership. They had grown far beyond what anyone probably imagined they would have grown to at that point. And they were about to grow to levels unthought of. We really were very lucky in one way that our timing was very, very good. We caught that beginning of the hockey stick for the industry and obviously it's evolved tremendously since then. You think of the phases that the industry has gone through from that point through the dot com bubble bursting and then the run up of markets again. And of course the global financial crisis, I think really changed the industry permanently. That was where we had a great reckoning. There's just so much that's happened in the industry along the way. So when you think about where we are today, I probably spend less time thinking backward and thinking more about what do you have to do to remain relevant going forward.
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John Bowman
Well, I think that last point is just a perfect summary of what made Kasey Quirk great cause selfishly, by the way, you may not miss it. I miss you guys. And speaking on behalf of the industry, there is a gap that you've left. I told the story in the intro that I think you and I met maybe 11 years ago because I had just returned from London and we both found ourselves as part of this institutional Investor CEO roundtable, you might recall. And you were this standing segment, if you will, at each of these annual get togethers, gatherings of leaders of the largest asset management firms in the world coming together to talk in a safe zone. And you gave the state of the Union. And that's, I think the beauty of what Kcquirk was is that when a lot of that research from the sell side and other thought leadership bodies had largely drifted or gone away or become obsolete, you were, to use your word, the standard bearer of what we relied on. So just again, from all of us in the industry, you served us very well and you should feel very proud about your time there. I want to give you just a moment to talk about your role at Bain, which I think is fascinating. It's a brand new role. It's a brand new practice in some sense for Bain, as you and I have talked about. So you went from serving some of the largest asset managers in the world, being somewhat of a clearinghouse for all these voices and intelligence, to working for just one. So tell us a little bit of how that came about and what you're doing now.
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Kevin Quirk
Well, it's interesting. I remained part of kcquirk eight years into my time at Deloitte and frankly, I was very happy doing what I was doing. The Deloitte folks really took very good care of us and our business and continue to. My plan was to continue doing the work that I was doing there. And this opportunity really came a little bit out of the blue. It was a fantastic opportunity for so many different reasons. I mean, for me to leave what I was doing, especially at this point in my career, would take a truly extraordinary opportunity at an extraordinary firm. I've obviously known Bain for a very long time. We were involved in some of the business building efforts that went on in different parts of the business over our time at Casey Quirk. And I just had tremendous amount of respect for the firm. The way they conduct themselves, the principals, the focus and the objectives of the organization have remained so strong and true for so long. So I start from that point, which is just an enormous amount of respect for the organization. And then the fact that, as you said, there was not a full time head of IR investor relations for the firm, which for Bain means responsibility for capital raising and taking care of our clients all over the world, across all of our investment platforms. The decision was made two or three years ago to create a formal, dedicated role for the organization. I was, candidly, I was just in the right place at the right time. There seemed to be a good fit from Bain's perspective. I was certainly very, very excited about it because it was an opportunity for me to put all the thinking and work that I had done for decades into practice. As you know, John, the vast majority of the work that I did during my time at Casey Quirk was focused on growth strategies. Really, how do you think about growing a firm? And that can really span every element of the firm. Everything from the investment capabilities and all the way through sales and client management. I spent a lot of time across all these capabilities. But naturally, a very big part of it was around capital raising and the taking care of clients part in that organization. And at Bain, this is an effort that has been here, obviously, for a long time, but its growth in the last couple of years has been dramatic. There's been a lot of investment in the investor relations area as the firm has grown and especially as the firm has broadened the capabilities that we have from an investments perspective. And there are a number of capabilities within the firm that have, I think, a lot of Runway left in terms of how they will grow their businesses. So from my perspective, both from an investment standpoint and from an investor relations standpoint, there was a lot of opportunity to grow and build something. And that's something that I really loved and enjoyed my entire career. And then the other part of it, of course, is the people. As I said, in order to leave the great people at Casey Quirk behind, I would definitely have to be joining an organization with great people. And this is an organization full of great people. I've been here a little less than a year, and I can tell you that it's as advertised. It's an incredibly strong group of people that I work with here. Incredibly collaborative, incredibly proud, very smart. It's been an absolute pleasure to be part of the group so far.
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John Bowman
Well, I'm happy for you. It sounds like an exciting challenge. I can see the bounce in your step, even though you're sitting, figuratively speaking. So good to see you rejuvenated and enthused. As a further setup to today and how we think about moving forward, let's just talk a little bit about how we got here, Kevin, because you made a soft reference, you made an allusion to when you first started. You were, in my words, effectively consulting with 60, 40 portfolios or 60, 40 flavors of asset management strategies. Can we talk a little bit about, given you were sitting in the pole position to see this kind of blossom, the history of private capital, what was the original insight or problems it was trying to solve, jobs to be done, if you will, that led to this explosion in private capital?
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Kevin Quirk
There are probably better people to answer that question than me, but I'LL do my best in terms of formation and the foundation because I've talked to a number of true founders of the industry along the way when I've been doing my work. If you think about the industry broadly, this has often been a supply driven industry. So a lot of the innovation and a lot of the things that people do from an investment standpoint, it comes from the supply side. It's really pushed out to the market. And I think when you go back to the real modern beginnings of the private capital business, some of it was driven at least by the idea that the investment banks or the investment bankers were looking for better alignment for themselves to build good companies. They were, many of them were transactors, right? They were brokering transactions between companies. But I think the innovation that happened in private equity especially was the concept of alignment and the idea that you would invest in a company and then find a way to make money if you created value for that company, not simply for transacting on that company. I think that's the original kind of incarnation of the business. And of course there were businesses that needed fixing. There were businesses that they looked at it and said, gee, we can do something with this business and if we own the business, that might be a better way for us to align ourselves with fixing that business. So I think that was probably as big a driver as any in the creation of the business. But over time, I think if you go past the incarnation of the privates business, I think then the evolution of the business started to change. And if, especially if you get to the global financial crisis and you start to think about capital formation and what corporations and companies need to finance themselves, especially because of regulation, there was an opportunity to finance companies in a different way, namely to finance them in a private version as opposed to in a public version. And I think really since then, what's happened is the massive growth of the private markets ecosystem. So the capital markets that exist today and the ecosystem in the private markets that exist today is just so much more developed than what we saw even 15 or 20 years ago. I think now what you see is an alternative financing mechanism that's become a much bigger part of our overall capital markets, which is also why we see it being a much bigger part of investors portfolios. That's I think, the beginning to where we are today. In a thumbnail, a quick version of how we got to where we are today.
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John Bowman
Yeah, I like how you put that with the first incarnation because I've often articulated as the 70s and 80s corporate rate or high Yield was indicted, industrialized. Much of those characters, those icons that we've read about, maybe even watched Hollywood films about, started their own firms. That diaspora started basically the most of the modern private equity and private credit firms that is starting to hand off to the next generation. More alignment, more professionalism is happening to create this next incarnation. So as you think about the last 10 years post GFC, when this really exploded, this new financing opportunity, regulation was starting to maybe inhibit traditional forms of finance. The not going public, staying public longer. I'm not going to lead the witness here, but what were those supercharging themes that maybe took it from an industrialized alignment for the founders to something that was a key part of the pie for all portfolios?
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Kevin Quirk
There's a number of factors I think that as you mentioned and we just talked about regulation, I think ended up, especially in the gfc, see becoming a pretty important factor for fueling the private financing mechanisms or the private finance ecosystem that has evolved from there. So that's a big driver. I think that you also saw demand from the investor side. So investors, the most sophisticated investors, hadn't been involved in private capital for a number of years, really some of them for decades at that point. So I think that familiarity and experience in the private markets, especially from a returns perspective, was another major driver. So demand started to really build for private markets. So you've got that capital market system evolving and then you've got demand to invest in it evolving at the same time. So those are two things that are certainly turbocharging it. I said before that the system is very supply driven. I think coinciding with that, you saw the emergence of some pretty powerful, and I mean that in an economic term, powerful firms who became much bigger and more powerful and the ability of those firms to start to do different things. When I say that, I mean the big private capital alternatives organizations became economic powerhouses in their own right. And they really began to think about how do they evolve their business? What more can they do to serve their investors in a better way? How can they build more stable, durable businesses over the long term? And so you saw a big evolution happened there as well. So I think there's some confluence of those factors and probably some others that we aren't thinking about right now. But those were some of the bigger drivers, I think that really supercharged the industry.
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John Bowman
So I think that brings us to today with some nice background. And Kevin, honestly, if we had had this conversation maybe even three months ago, I think this answer, perhaps the way I posed the question would have been fundamentally different because beyond the cyclical realities of what we're all aware of, you're sitting now in a Bain chair, as you described, the system's a bit clogged up, fundraising is slower, there's a lot of dry powder. Distributions have been slow to non existent depending on the segment. So there were cyclical headwinds already. And now you're throwing in these massive structural questions of geopolitical chaos, questions of regime change, of is US Exceptionalism and the reserve currency at risk trade wars, and how is that going to play out? That drives, I think, pursuit of certainty, or at least the perception of more certainty, the perception of more liquidity, the perception of more flexibility. Right, so how do you think all of this, and I realize this is a very tough question with a long preface, how do you think the next five to ten years play out given that you've got now both cyclical and structural worries, anxieties that are new to this somewhat still, I would say teenager adolescent business that is still coming into its own.
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Kevin Quirk
As you said, had we had this conversation even three months ago or six months ago, we might have had a little bit of a different answer. Although I don't think fundamentally the answer is necessarily that different. I think that the environment that we're living in right now, which is, I would say it does feel chaotic at times and it certainly feels there's some uncertainty in the sense that you don't know what's going to happen from day to day. I still think that the industry itself is actually relatively well positioned. I think that when you think about the private alts industry, it's one where you actually have a fair bit of flexibility in what you do. So when you look at the portfolios that we're managing, when you look at the companies that we're managing in the privates business, you're in the business for the long term, right? It goes back a little bit to that innovation and that alignment we talked about that that started the industry. So from that perspective, I think that sophisticated investors and the GPS firms that are managing these companies actually are quite flexible. And so I think when I look at our own firm, when I look at some of our peers, I think they're evaluating the environment that we're living right now and doing it on a company by company basis, thinking about what some of the implications are going to be with regards to any number of things, whether it be tariffs, whether it be regional shifts, whether it be financing and interest rate changes, and really evaluating what does this mean. To any one of the companies that we own, and then how do we proceed forward? I still think that this business is probably best positioned as anyone to help navigate this situation without sitting here today and saying what the heck is going to happen next year or the year after. I'm not sure anybody really knows exactly where things will settle, but in these periods of chaos, almost always any period of chaos that I've been through in my career, there have been challenges and problems and there have inevitably been fantastic opportunities. And I think that that's the way we look at it. I think it's the way a lot of of investors in our business look at it. So I think you should expect that there will be firms that will navigate this very well, some exceptionally well, maybe some that will have more challenges in navigating the environment. But I do think that it is a business that's built to weather the storm. And I feel like we're going to do that and it's just going to be yet again another very, very interesting and challenging time that has to be navigated. That's kind of the way I look at it today. And maybe that's partly being able to look back over 30 years and say, seeing different periods of chaos and seeing how the industry emerged from it. If you really think about it, probably in the depths of the gfc, that's about as much chaos as I can recall. And many of our clients at the time thinking this kind of feels like the end of the world. If you really fast forward from 2009 at least to three months ago, and you look at the evolution of the industry, the improvements in the industry are amazing. I mean, really, the investors are much better served today than they were 15 years ago. And I think the GFC in many ways actually created the foundation for a much better business. So I think that as we look at this chaotic environment that we're in right now, whether you agree or disagree with policy shifts and so forth, I think that the chances are that this industry will emerge even better than what it was before this started. We don't know what that will look like exactly. I'd put my bet on the industry actually evolving and emerging in probably a better state than it was when it started.
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John Bowman
Well, perspective is wisdom, Kevin. I don't think there's anything to apologize there. I think you're right. You're hinting at something we talk a lot about on capital to candidate, and we're not making predictions necessarily, but once in a century epidemic, the gfc, one of the worst recessions and market turnovers again. It felt in the moment like the world was ending. And I don't want to dismiss it feels that way again in different variations and flavors. Often those vintages where people are disciplined and courageous to still invest even when everyone else is running out of the building on fire, as we often say, tend to work out pretty darn well. So I think you're right to be thinking that way. I certainly hope you're right. As both a leader of Kaya and an investor myself, I hope you're right. So let's double click a bit more into some of these themes that I'd love your thoughts on. I know listeners would benefit from your thoughts on. Again, 20 or so years ago you saw this active to passive trend play out on the public side, on the fundamental public side, the world I grew up in, the industry we both grew up in, and I'm wondering what your thoughts are. A lot of people have read the tea leaves on the BlackRock's very expensive and active 2024 with Prequin and much of what they're trying to do in embedding Aladdin and some of these other private capital acquisitions to basically be an offeror, a provider of passive low beta private capital strategies. Is it appropriate to go that way? Is maybe the first question. And second, do you think that is in fact where many of these, you called them powerhouse private capital firms are trying to take these offerings?
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Kevin Quirk
I do think that the public markets, the public equity markets, can be looked at as some form of precedent for the private markets and the private equity market. However, I do think that there are probably some important differences that say to me, at least for the foreseeable future, that it may not play out exactly the same way. I think if you start the simplest issue, and that is the spread of performance or the spread of returns, when you look at a peer group in the private market business, that spread is still dramatic. There's a big difference between the median performer and the first quartile or first quintile outperformer over some market cycles. In the public equities market, what happened is that magnitude shrunk and shrunk and shrunk over time to the point where the investor looked at it and said, boy, it's pretty difficult to delineate these great active managers from a benchmark. So what many investors chose to do is basically buy the beta for as cheaply as they could, and then to the extent that they wanted active returns, they spent that time in other places like portfolio allocation or asset allocation or Investing in parts of the market where active investing seemed to generate a greater investment return. I think in the private market space, that median performer for the most sophisticated investor today is probably not going to generate exactly the returns they're hoping for. So that trade off that you make in terms of paying the fees that you pay for that active return, assuming you're pretty good at picking good investors, is still worth the trade. It's still worth that trade off. And then of course, there's all the challenges of actually replicating the beta in the private markets. I think the way it may play out in private markets may look a little bit different and it may already be evolving into this place. I think you're going to see certain investment firms who will manage their capacity in a place like private equity very carefully and they will optimize their capital formation around investment returns and they'll have some targeted investment returns that they're focused on and they will raise the capital that they need to do that. And that means they will raise enough of the capital they need to do that, but importantly, not too much capital that they begin to force themselves into places where they don't want to invest. I think you might also see firms get into things like more aggressively into things like more liquid vehicle structures that again may be forcing them to invest a little bit more than maybe more aggressively or more quickly than they want to have a little less flexibility with regards to the timing of the investments and then raise big sums of capital around that. It's possible that those firms effectively become the private markets beta of the future, the really large capital raisers who put all these things in place. And they may exist in that new beta space, if you will. And then I think there are going to be the firms that focus more on truly on returns. I think the real question over the long term, of course, is going to be does that magnitude of returns ultimately shrink? Does it come down to a point where that trade off is no longer worth it from a. Call it an active, although they're all active in some shape or form in the way I'm describing it here. And that's something we're really going to have to watch for ourselves. By the way, at Bain Capital, we are very focused on investment returns. We are very focused on optimal capital formation for any fund that we are raising. So we spend a lot of time before we raise capital thinking about the amount of capital we want to raise. We need to raise to earn the returns that we want to and need to get for our investors. That's Important to us. We're a privately held company. 15% of our funds are invested by ourselves, which is a very high ratio of eating your own cooking. So returns really matter a lot to us. And that's a focus for us. I don't think that's going to be for everyone. I think different firms will have different objectives and different goals. That's our goal, that's our objective. That's what we're focused on.
- [37:04]
John Bowman
So you've hit on a couple sub themes of this line of thought that I just want to develop a bit further. Kevin so you talked about M and A. You talked about getting bigger the power law, as we've sometimes called it in this industry. I've already mentioned BlackRock, but very traditional asset management firms again, that you probably advised years ago that were the behemoths in the long only asset management world of the 90s and 2000s. T. Rowe Price and Wellington, and as I said, BlackRock and Franklin Templeton, they have been extremely active, voraciously active in acquiring alternative private capital firms. In particular, it was a buyer's market up until about COVID because this was unique and it was counter positioning. Suddenly everybody wants a piece of this. And that convergence of private and public seems to be gaining steam. I mean, even as of this recording, I think it was last week, Wellington, Blackstone and Vanguard are suddenly getting married. We're not exactly sure what that looks like, but they've announced an unprecedented partnership. Do you expect this to continue and what shape do you think it will pursue and what form will it take from here?
- [38:11]
Kevin Quirk
I think that the industry will continue to see M and A activity as it has. I think that the growth in the industry from a product investment standpoint is clearly tilted toward the privates business simply because of that ecosystem I had talked about before, where the private markets are just outpacing the public markets in terms of capital formation as a form of corporate financing. So that by itself will continue to drive that part of the business and drive demand in that investment area. I think for the traditional firms, they are in a position where they have to find ways of growing their business. And they will of course, continue to look into the alternatives in the privates part of the business as ways to grow their business. And of course they have some terrific advantages. They are often very big in the broader wealth or consumer space. They have big brands in the places that they operate. So they have this capacity, if you will, They've got this distribution capacity that they can feed into. So they have to find that optimal product set to bring into that distribution capacity. So I think M and A will absolutely continue to be a big part of the way these firms think about growing themselves.
- [39:27]
John Bowman
I'd agree with that. And it seems like it's only accelerating week to week with the news slow. So again, maybe asking you to put on your old hat. You're sitting in the office of a CEO of a client. They're struggling with this tension you just alluded to of return generation, purity of generating investment outcomes and asset gathering growth. My guess is this is a tension and a dilemma that you had discussions on countless times with your ex clients. So my guess also, Kevin, is that some, to be fair, especially a few names we might have already mentioned, would say that's not nearly the mutually exclusive tension you're making it out to be. We think we can do both. How do you think about the segmentation of this business taking shape? Does it evolve into kind of these boutique, single lane, really brilliant, single strategy firms that stick to their knitting and then these big powerhouses, behemoths, as you've talked about. Is there a third segment? Do you see more delineation across those two? How do you think this will play out?
- [40:28]
Kevin Quirk
I think that we've seen a lot of the way the industry will play out before. I think a lot of the evidence that we can turn to sits right in front of us. Meaning that I do think that these behemoths will continue to be the behemoths. They will continue to focus on that. And I think what's important to the behemoths is that they have big distribution footprints or big client footprints. They're going to probably have to and want to play in every single market segment they can possibly play in to scale their business. So whether that's the institutional business, the wealth business, the defined contribution business, the North America versus Europe versus Asia, whatever it may be, they're going to want to be accessing every client base that they can access. And for them, I think having strong distribution capabilities, having a strong brand ultimately in any market segment they're trying to penetrate will be very, very important for those organizations. And I think you see those kind of organizations coming both from the traditional side of the business as well as the privates and alternative side of the business today. That's probably the big difference that the privates and alternative side has evolved dramatically in, especially the last, call it, five to seven years where they're really putting themselves in the position to have that kind of client footprint. So yes, I see that as one model and the challenges for them will be being able to bring high quality product to their investors. I think then you'll see the other group. If we're going to simplify it into two simple groups, I kind of think you can. That other group is probably going to be investors, the ones that are really focused on investment performance. And their focus may be narrow or it might be broader, it could be either. But the real orientation of those organizations is a focus on operating in areas where they believe they can deliver outsized returns relative to a benchmark, relative to something that a beta someone can buy, as we talked about before, in whatever form that that comes in. And I think that can be in any part of the capital markets really. But I think those are probably in a lot of ways the simple two models that exist in asset management. We can get into the different variants of each one of them, but in a lot of ways those are really the value propositions that are offered in the asset management business. So it kind of to me makes sense that those are probably going to continue to be the two types of models. And I think the challenge for many firms, and I'll tell you this as an advisor, for the better part of the 15 years following the GFC, that many firms were caught in the middle of those two models. They didn't really know what it is they wanted to be. And I do think that you kind of have to pick one or the other. Again, there are variants of it, but generally speaking, if you aren't clear about what your core value proposition really is to investors, I think it does get in the way of your strategy and it gets away in the way of how you execute on your growth model and hopefully in the way that I explain Bain Capital as one example, you can see the difference in that kind of thinking relative to the way another business model might think.
- [43:56]
John Bowman
Yeah, I think that's a key insight there. Is that the murky middle or toeing the line, one foot in each lane, however you want to describe it, I think is more perilous than it's ever been. And I think it will become a lonely, dangerous place too. So thanks for the consulting hat on that one. You made reference to the new client base, the shiny new toy that is probably talked about in this business more than anything else, which is the Wealth Channel. And we also talked about in an earlier context this idea of product innovation towards more liquid or semi liquid forms of accessing beta or alpha in private capital. We've done a couple episodes on this show on democratization. It's funny to your point on where you're coming from in building this capability, you're either building the manufacturing because you come from a traditional asset management side, you've got this distribution capability, suddenly you need the expertise of private capital, which is a completely different skill set. And then on the other side, if you're a big private capital firm trying to now reach two legged investors, you've got to build a massive distribution system that the others have. So regardless of which way you're coming, you've got a huge, very steep curve that you're building. So I'm curious, as you assess the shape of this, the pace of this, it seems like this race, this arms race is heavy. Both from a product, a talent, a resources standpoint, a branding standpoint, how are you assessing where we are in this process and what should we be watching as it develops?
- [45:21]
Kevin Quirk
If we just isolate the private markets part of this, which I think is the focus, I think the parts of our broader asset management business, we know how that's kind of played out. But in the private markets business in the wealth area, there are parts of the wealth continuum that are obviously fairly well penetrated at this point, all the way through parts of the market that are just the brave new world. There's really barely anything that's happened so far. So I think that if you take a simple continuum of the wealth market, you say, okay, let's take the ultra high net worth side of the continuum where you might have not only what I would call conventional ultra high net worth, but family offices and something that looks almost more like an institution. That part of the business today, I would say is very sophisticated. I still think there's a lot of growth in that business. For private markets, it's a very fragmented business business and it's a very, in some cases secretive business. That part is a very, generally speaking, very sophisticated business. Obviously they are qualified investors and they typically have been investing in these private markets for decades. So that part of the wealth market, which obviously represents a pretty big proportion of the overall wealth market, I think will continue to evolve in many ways, like the institutional market will evolve. And then I think if you move down the continuum and you get into more of the, I would call it conventional high net worth market, you've got decent penetration and you've got some investors that are investing heavily in private markets and then some who are not investing at all. So again, opportunity in that part of the market, which again is, we're talking typically qualified investors and so forth. So people who have at least the capacity to Invest in this area, that part of the market, it takes up a pretty good chunk of the wealth market. But then once you get to the other side of it, you get into that mass market and the retail market, call it the lower end of the wealth market. In aggregate, it's a massive amount of capital. Just in the United States alone, by the way, it's a massive amount of capital. And if you go outside of the United States, it's obviously even bigger. But I think that in that part of the market, you've had historically a couple of big impediments. One is regulation, which I believe will be solved and evolved around, and then the other is vehicles and especially liquidity. So I think that's maybe the most interesting thing that's happening right now in the market is you see certain firms out there with a real focus on, I think, what they would call it, democratizing private market investments to the consumer, to the mass market. And I think that's a really interesting place to watch. I think in that part of the market, what is happening is these large firms especially having a lot of interest around vehicle innovation. What can we do to create more liquidity? So you see things like BDCs and interval funds and things like that. And that's especially interesting in places like private equity. I think probably a little less interesting in places like private credit, which it lends itself a little bit more to. But as we talked about before, there's some pretty big challenges with vehicles like that. But I do think that that innovation will continue to be worked on. I think for some of those larger firms that are really seeking big footprints, big client footprints, that will be the place to watch. And if they can tap into that part of the market, obviously the penetration levels today are extremely small. I mean, the allocations are 1% or less. It's a very, very tiny part of that overall business. So the upside there, if the innovation can happen, I think is really interesting. And as we talked about throughout the podcast, this has historically been a supply side driven industry. So I think you should expect that innovation will continue to come from the manager side of the equation. And I think that we should expect to see some innovation. I think there will be challenges and probably mistakes and things that will push it backwards at times, but this will be the real place to watch in the wealth market.
- [49:29]
John Bowman
I think that last point, Kevin, is so important, as you might imagine for Kaya, reconciling and toggling, getting the balance right between fiduciary care and even perceived client demand. Sometimes as we all know what clients want isn't always the best thing to deliver, at least in the exact way they think they might want it. There have been a few kind of mulligans, hiccups along the way, which you kind of alluded to, we should expect in a period of rapid innovation in any industry. There's always a bit of hiccups in the early days. Would you diagnose those as the product innovation hasn't quite got it right, the communication hasn't gotten quite as strong as it's seasoned as it needs to be. The training of some of this talent that maybe is more versed in traditional asset management isn't quite ready to handle some of the inquiries and the concerns. Where do we still need to oil the machinery here to get it right?
- [50:24]
Kevin Quirk
I think in any evolving market in our industry, it typically comes down to two things. One is that product and vehicle innovation, and have we gotten it right so far? I'm almost certain the answer is no there even within. If you look at the various choices available from a vehicle perspective today, you're still talking about four or five vehicle types that are evolving. And it's not clear to me that one in particular has emerged as the dominant form yet. And I think that makes sense because we're just in a very early, in baseball terms, we're at first or second inning thing here, probably more first than second. So we really don't know until we advance this a little further along. And then the second factor is, of course, the investor themselves and their experience with it. And I think the experience typically goes through some kind of evolution as well. That typically starts with some kind of capital raising and a normalization of the product and being brought into the portfolio. And then at some point there's some dislocation, there's some kind of market dislocation that creates a problem. And once that problem happens, you watch how the investor reacts. Some of the investors will react in a troubling way. Some will probably react and say, oh, okay, maybe if we just evolve this a little bit in this direction, it will be better for me and I'll make it work better. And then on the provider side or the supply side, they'll look at it the same way and say, gee, okay, if we just do this and make some tweaks, this could make it better. I think it'll follow some kind of cycle like that as it has in the past, and then we'll see how it evolves. I do think that the biggest issue around this, and maybe some of this is due to the fact that the mass market has gotten very conditioned to liquidity, daily liquidity, or more so now, intraday liquidity. So I think that that conditioning of liquidity of the portfolio for the mass market has to be deconditioned or unconditioned or whatever the right word is in order for the investor to get comfortable with it. And that's that cycle that I talk about happening, that normal cycle is going to have to play itself through, I think, before we actually see mass adoption, if we ever see mass adoption. But assuming that we see some adoption, it's going to have to play itself out. So I think there's still a lot to watch here. I don't know what that end state is going to be exactly, but it's a lot of experimenting and seeing where it's going to go.
- [52:47]
John Bowman
Now we'd agree we're in first, second inning at the latest. I think what we're concerned about is there's already relievers up in the bullpen. We don't want to pull the starter so early. Let's get this right. It's a long game. Just to kill the metaphor a bit, One more trend before we get to a couple closing fun questions, Kevin, what about human capital? And I'm asking this both from the perspective of the long term trajectory questions on private capital and the chaotic current scenario and environment we're in now. Historically, as you know better than anyone, the talent recruitment, professional development track has been very vertical, very homogeneous. I think it's been a weakness for this industry for a long time that never really has had to be addressed. We all look in the same pools to find talent. We feed them the same feedstock and they grow up. And to be exactly the same type of person, do you think that that needs a complete reset given all these current and future issues?
- [53:43]
Kevin Quirk
It's a great question. I still think that this industry attracts some of the greatest talent available. When you think about some of the really lucrative industries that exist, this is certainly one of them. So obviously that is at its foundation a pretty strong attraction for looking at this industry. I think that though you are right in that this is no longer the auspices of the entrepreneurs that existed back in the 80s and the 90s when they were originally creating these businesses. And so I think it may be a little bit more about how that talent exists as successful transitioners of businesses as opposed to successful creators of businesses. I think that forever in asset management the concept of generational transition has been a challenge and it doesn't always work right it doesn't always work. I think the businesses that create really strong apprentice models where they're very, very good at creating apprenticeships for their people and they're able to evolve, develop, evaluate their talent, and then make good choices about how they transition talent and leadership over time. That's going to be everything for these businesses. And I think history will tell us that some organizations are able to do it, probably far more are not able to do it. It's a really, really difficult act to pull off. I think that's the primary thing I think about with regards to talent, at least in the scale businesses that we're talking about. I do think that the barriers in the business still for very, very talented people and returns can be relatively low. They're much higher than they used to be, but they're still on a relative basis, kind of low. The possibility that you're going to have and the probability, in fact, that you're going to have the entrepreneurs who are creating the next great companies in our business is actually quite high. It's happening as we speak. There are great companies being created right now, for sure. We don't know their names and we don't know the people. Ten years from now, we definitely will know who they are. That certainly exists. But I think in the space that we operate, it's much more about that transition and development of talent. I think that's the real focus. I don't have any concerns about attracting talent into the industry. I can tell you from the seat that I sit in here that the quality of the people that are interested in Bain Capital is extremely high. It's a very, very impressive group of people. At least from my seat, that talent opportunity still seems very, very strong.
- [56:27]
John Bowman
Well, you bring up a really good point on different eras call for different skill sets in the room around the table.
- [56:34]
Kevin Quirk
Right.
- [56:34]
John Bowman
And often the builders, the entrepreneurs and great investors don't always translate into great operators of larger systems. So we often use phrases like system thinkers, lateral thinkers, multidisciplinary problem solvers. And I think we might need a bit more of that than maybe we've needed in the first 30 to 40 years of this business. So I think that's really helpful.
- [56:57]
Kevin Quirk
By the way, John, I'd agree with that. I think one of the simple evolutions of the business, I think, has been that there's a recognition of the people who are good at investing, there's recognition of the people that are good at relationship building, and then there's a recognition of the people that actually know how to run businesses. And they've separated those roles or dedicated those roles in clearer ways. And I think the industry has actually gotten a lot better at that than where we existed 15 or 20 years ago.
- [57:24]
John Bowman
Let's close with a couple fun questions, kind of hot seat questions that again, at the center of the hub of a lot of spokes and conversations and interactions you have all the time. First of all, Maybe the proverbial 3am Question, if you're a CEO today at Bain or any of your contemporaries, what are you most worried about the phone call being? About the disruption, the risk, the hurdle? What are folks thinking about these days?
- [57:47]
Kevin Quirk
I think the risks in the business are the things that you worry about as a CEO or a managing partner today in many ways are not that different than what you thought about 20 years ago. I think they remain fundamentally the same thing. Now. The big difference is that is the environment that you're operating in today and those things we talked about before, those macro factors and some of the chaos that's been introduced into the system over the last couple of months that really can challenge our industry and challenge any one business. So certainly those things, when I think about the conversations that you have with CEOs and managing partners today, that's very clearly a big focus. And then what the impact of those macro factors might be in where they shift their capital, their resources, their investment on a go forward basis. So it could be having real strategic impact on a lot of asset management businesses today, maybe for the first time in a long time, where they really have to step back and go, gosh, do I need to reallocate my resources toward a certain region or do I need to reallocate toward a certain market segment, or do I have to reallocate toward a certain investment capability, whatever those things may be? I think in these periods of disruption, that's the core strategic questions that you get asked. And so I think those things are certainly keeping the leaders up at night. Me up at night, I'm certainly thinking about these things every day for sure. I think in terms of the more foundational things you think about in terms of that phone call in the middle of the night, it is more core to any period of time. It's the am I continuing to differentiate from an investment standpoint, Am I performing well? Do I have an advantage? Have I created a sustainable competitive advantage in what I'm doing from an investing standpoint, that's a big one that keeps people up at night? Another is where am I going to raise capital from in the future? Where will my capital come from and how will I do it and what will make most sense for me in terms of how I want to optimize that capital base for the business. Another is talent, as we just talked about, making sure that we created strong alignment of our people and making sure that people are here for the duration. Those are two or three of the fundamental ones that I think just naturally keep people on their toes and thinking every day. And I think that will, as long as the industry is an industry, those will be the kind of things that keep the leaders up at night.
- [60:07]
John Bowman
Just playing back your phrase strategic impact or strategic opportunity. Maybe the other side of that coin is trends, themes or opportunities we didn't get a chance to talk about. We talked about great convergence and M and A and wealth and talent and a whole lot of human capital, a whole lot of things. But what haven't we brought up that you'd like to leave the listeners with that you also think CEOs should be thinking about?
- [60:30]
Kevin Quirk
I don't know that it's something that I haven't brought up, but rather maybe summarizing a couple of the points that we dove deeply into and then just step back for a moment. I think this concept of what your business model is and what your value proposition is as a business is really a fundamental thing for a CEO, a managing partner and a leadership team or a board or an owner, whatever it may be, of an asset management firm. And really knowing what you want to be when you grow up and then thinking about how you allocate your capital and your resources accordingly has probably never been more important than it is right now. And I think, by the way, it's been important for a long time. It's been important at least since the gfc. That would be to me, probably the most fundamental thing that I would be thinking about. Know what it is you want to be and make sure you're reinforcing that with the way you invest and the way that you allocate capital and resources. And that, as we talked about, I think some of these organizations that sit in more of a middle ground, if you will, maybe don't know exactly what it is they want to be, I think can find themselves in trouble. So clarity of purpose, clarity of vision, clarity of value proposition, I think is probably the most important thing that can guide leaders when they're thinking about navigating this increasingly difficult business.
- [61:55]
John Bowman
Know who you want to be. I think that's a very succinct way of delivering a very ever increasingly challenging message. So, Kevin, it is always a delight. Thanks so much for sharing your wisdom, your experience, and your views on what the future looks like. It's been a pleasure to spend time with you, John.
- [62:10]
Kevin Quirk
Great to be with you. Thank you for having me be part of this.
- [62:12]
John Bowman
You bet.