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- [00:05]
A
Welcome to Educational Alpha. I'm Bill Kelly, CEO of CHI association and your host. Bringing you on the ground conversations with business leaders, educators and industry colleagues from around the globe. Educational Alpha is sponsored by iCapital, the financial technology company with a mission to power the world's alternative investment marketplace. Part innovator, part educator and part navigator of the alternatives industry, iCapital offers intuitive, scalable digital solutions that have transformed how private market and hedge fund investments are bought and sold. With iCapital, financial advisors, wealth managers and asset managers around the world now have access to everything they need to deliver the return and diversification potential of alternatives to high net worth investors. To learn more, visit icapital.com in this.
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B
Episode, host Bill Kelly sits down with Jan Robart, founder of Dawson, to explore the evolving dynamics of private equity markets. Jan shares his unique career journey from a furniture store startup to leading initiatives at the Canada Pension Plan Investment Board and ultimately founding Dawson. They discussed the rise and development of the private equity secondary market, the evolution of structured liquidity solutions and the anticipated growth in private markets and more. Listen in.
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A
Jan Robart, welcome to Educational Alpha.
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B
Thank you, Bill. Glad to be here.
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A
Yeah, my pleasure. I'm looking forward to this discussion. There's been a lot going on in the private markets. We're not going to solve for all of it, but some very interesting trends. And I, as I said to you before the MIC came on, I think this industry in this market has tremendous resilience to solve for pain points. And I think we're going to talk about some of those pain points and some of the solutions in a moment. But in sticking to the script of Educational Alpha, maybe starting with a bit of your background, because I think some of those experiences were very informative to what is today. Dawson.
- [02:16]
B
Thank you so much, Bill. And yeah, absolutely. Look, I had a very unusual start to my private equity career. I started with a Mexican furniture store based in Toronto. Always had entrepreneurial blood flowing through my veins. That was back in the late 90s. I learned a lot from that experience. But after about three years of doing that, decided to get back into the finance world. Went to JP Morgan for a quick second and then ended up at the Canada Pension Plan Investment Board. So I joined back in 2001. When I joined, there was 24 people. We had 7 billion under management. I left 15 years later. There was 1200 people and 285 billion under management. So you can imagine I joined the right place at the right time and they fed my entrepreneurial spirit by allowing me to build businesses along the way and so learned a lot about how to scale successfully, learned a lot about how to invest through cycles and learned a lot how to evolve in a very innovative organization that really was leaning into private markets in the early phases of private markets, understanding the ecosystem, understanding all of the different agendas and all the different biases and that set us up for success here at Dawson. 2015 comes around, I turn 40, I have what I hope is my third, not my midlife crisis, time will tell. And I got on a bicycle and I biked from the Yukon to Alaska. The midpoint of the journey was Dawson. And it was on that trip that I decided that it was time to go back to my entrepreneurial roots to form Dawson. And really the whole concept of Dawson is to provide new tools in the tool set for people to accelerate liquidity on their private equity portfolios, but keep the upside and the flexibility. So call it structured liquidity solutions. We are sitting between the debt and the equity and providing structured solutions for private equity investors to tax tactically reallocate their private equity portfolios. Whether you're an LP or a gp. And it's fair to say we're pinching ourselves. This is way beyond our wildest expectations. It's been an incredible ride. We're going to celebrate the decade of Dawson next year. And what a decade it's been.
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A
Outstanding. And congratulations. So I do want to spend most of our time on the secondary market in Dawson. But before we leave your formative years, two things. One, the governance structure and Ashby Monk, who's been a guest on this podcast before, he has a great line, which is the only way you get fired from a big endowment foundation pension plan is innovation. But I think there's exceptions to every rule. And the Maple 8 model has allowed for a governance structure that is very innovative. So that's one point around how the governance has helped succeed in places like the Maple 8. But then secondly, if you were not employee number 24 and instead you were employee 1,199, would your experience be very different and would Dawson even exist because of the lessons learned and maybe a very different set of lessons. Have you been part of a big infrastructure?
- [05:00]
B
It's always hard to rewrite history. I feel very fortunate that I was able to join when I did. And look, every individual thrives in different life cycles of organizations. Did I learn a lot from joining in the early days at cppi? Absolutely. They scaled successfully how to keep a culture, how to maintain innovation and entrepreneurialism in a fast growing organization. All of Those lessons I was able to take into my journey at Dawson. And for that I'm forever grateful. But yeah, there would have been an absolutely different experience having joined an organization as 1200 than a 24 at that point in time in my career. The reason I joined CPPIB is I was looking for an entrepreneurial experience with institutional support, and I got just that. And so at 40 years old, with all the tools that they provided, and it was a mutually beneficial relationship, I believe I was able to go on this journey with Dawson.
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A
Excellent. So turning the page toward Dawson, and before we get into more specifics, maybe Jan, you could talk about the scaffolding behind this. How big is the private markets? How big is the secondaries? And then we can move from there.
- [06:07]
B
Yeah. And just to put a little bit of context around Dawson itself. So we're about to celebrate the Decade of Dawson. Today we stand at about $20 billion of assets under management. We have 200 people, we have offices in London and Toronto. And it's been an incredible experience to watch the organization grow. And I' learned so much. And I always stay humble to the theory that I don't know what I'm doing because I've never done this before. And just saying grounded and grateful in this journey is really important. As you build an organization to know what you know and to know what you know don't know, surround yourself with really good people and also surround yourself with really good mentors. Let's look at the secondary market and the private markets. And the way that I'd like to start this is just by giving a little history lesson on the secondary market, because I think it's important to contextualize that. And I always like to talk about the secondary market. Having gone three pretty distinct chapters, the first chapter really happened. From 2001 to 2011, the secondary market grew from 5 billion to 25 billion. And during that period of time, in the first decade, I call it the decade of institutionalization, it is when pioneers in this market were established. It's when track records matured. It's when institutions started to take notice of this particular sub asset class. And it really was the foundation to what has really been a high growth industry since then. From 2011 to 2021, I call that the decade of innovation. The secondary market grew from 25 billion to over 125 billion. The second five times increase in a decade. And really what drove that growth was just a series of innovation within this market. We started back from 01.11. It was really just an LP secondary market. In the decade of innovation we added levered LP secondaries, GP LEDs, single asset continuation fund, Multi Asset Continuation fund, private credit secondaries came into play, infrastructure secondaries came into place, Real estate secondaries, preferred equity, nav lending, you putting even GP stakes. It was an incredible decade. So much innovation. How many other markets see that much innovation in a decade? But by 2021, what happened is that all of that innovation led to the market being under capitalized. There was more opportunity than there was capital to absorb the pent up liquidity and all these innovations. So we look at 21 to 31 and we say this is a decade of capitalization for the secondary market. Where essentially between institutions and private wealth channels really capitalizing this industry. Anytime you got a industry that's got more supply of deal flow than capital to absorb it, there tends to be opportunity for capitalization. And so we see this market going to a trillion dollars by 2031. Now that is a big bold statement. I have been met with a lot of skepticism when I predicted that the secondary market can get to a trillion dollars by 2031. But for us, when you look at the history of the secondary market and how much it's grown and when you think about what role the secondary market plays in private market, for us, we have a high degree of conviction that we can get there.
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A
Absolute numbers and relative numbers mean a lot. A trillion dollars sounds like a big number. But if Today, if it's 125ish and the denominator is 15 trillion, it is a very small percentage. So if it is 1 trillion at 2030, what's the denominator look like?
- [09:36]
B
That's the thing is that if you think about private markets itself, and we didn't contextualize that, but in 2016 private markets was $5 trillion. By 2022 it was $15 trillion. You've got Bain talking about this private market growing to 60 to 65 trillion dollars by 2031. 2032. So think about that. If there is 60 trillion in private capital markets, you're talking about less than 2% of this market trading for us to hit a trillion dollars in the secondary market. So the real question for me for the secondary market is the opportunity is obviously there for the market to grow to that level. The things that need to give the tailwinds necessary to get to a trillion dollars is the capitalization of the industry and it's also resources within this industry. This is a market today. And we can talk about the dynamics of the secondary market today. Which is in our belief, vastly undercapitalized and vastly under resourced. And that is what's limiting growth today in the secondary market.
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A
Broadly speaking, would it be fair to say, and maybe I'm back to the 01 to 2011 timeframe, is it a maturation process that it seemed like back then, and your views on this would be interesting, that the secondary market was maybe a lender of last resort or of a liquidity window of last resort bid ask spreads were tight and you went there maybe holding your nose if you really needed liquidity. And fast forward to today, it's become a meaningful part of the ecosystem where you don't go there for distress, you go there to manage your cash flow. So some of your views on. Is this a maturation point?
- [11:19]
B
Absolutely. Look, it was a period of education. At the end of the day, it's so interesting if you think about the record year for secondaries market in the last decade, it's been 2021 and that's when 132 billion got traded. 2021 was a high liquidity year for the private markets. So this is not a rainy day strategy. This is not, oh, there has been some volatility in the public markets. I'm overallocated. And that's when the secondary market comes to be. This is in good times and bad. The secondary market is there to provide liquidity for private markets. That can be in good times and it can be in bad times. And so the interesting thing about a secondary market is that I always think of it as if you're a public market investor and you bought into a public market portfolio and you did nothing with it for 10 years. People would say, well that's fiduciary, irresponsible. You haven't reallocated, you haven't rebalanced your portfolio. It has reacted in different ways to different markets in private markets over the past 25 years, really LPs for the most part have been committing to private equity assets in this holding. And there has been very little tactical reallocation rebalancing of portfolios. So over the last 25 years, the secondary market has been maturing to a point where it can be not a lender of last resort. It is the way that you actually generate and tactically reallocate your private equity portfolio 10 years from now. If you do that, people will say what do you mean you haven't tactically reallocated? So part of the growth of the secondary market has been an education phase to provide tools in the tool set for private equity investors to be a lot more sophisticated in how they manage their private equity portfolio. And that will create a huge boom for the secondary market over the next 10 to 20 years as that gets more accepted as the only way of managing your private Equity portfolio.
- [13:09]
A
Yeah, 2021 going into 2022 is a very unique time period. And whether or not we see a pop in rates, who knows. But history does repeat itself. But to your point, and maybe that was a catalyst, but to the point that rebalancing is part of what an allocator must do and what part of that do we not understand? But when it comes to the private markets, it's not easy because you have a commitment strategy. And if I'm following SAA, I might have a 20% bucket. And that's based on certain assumptions about when capital is going to be called, when it's going to be returned. And in the very best of times, it's a bit of an imprecise science. And then if you overlay that, and maybe this is a realization coming out of 2022, who ordained that seven to 10 years is the right harvesting period for a private equity holding? And there are reasons why you may want to hold it longer, sell it sooner. And then the LPs have calls on their pension plan, they want to get into the next vintage year. So there are so many moving parts. So if it wasn't for 2022, maybe that accelerated the maturation process. But I would almost argue or maybe ask the question, was this inevitable? And 2022 is just a catalyst.
- [14:18]
B
We're focusing on 21 and 22, but this had happened back in 09 and 10, it happened in 21 and 22. Every time there's volatility in the market, what you have is education of the market. And the more educated the market is, the more those tools get utilized. Here's what's really interesting. One of the biggest things that I'm a big believer in private markets. And I believe that private markets has outperformed public markets. There's a number of different reasons. One, but one I highlight is just the governance, right? You have a concentrated shareholder base that's focused on three to five years, the medium to long term, to build a better business. When you're a public company, you're focusing on quarterly earnings. How do you build a better business focusing on quarterly earnings? So the interesting thing about what has generated outperformance of private equity is that concentrated shareholder base, the alignment between the managers and the underlying shareholders and the long term Patient capital to enable companies to do what they need to do to build a better business. Now what's interesting is that the GPs need that three to five year patient capital. LPs have built their portfolios in different ways in different markets. It's reacted differently to the market and they need tools to be able to actually tactically reallocate their private equity portfolio. And what the secondary market does is that it actually sits between these two and it provides the bridge for those two to operate without disrupting the ecosystem. Gps have their patient capital to be able to do what they need to do with it. LPs have a means to tactically reallocate and the secondary market sits in. As this realization becomes more and more commonplace and understood, that's when the secondary market was really going to take it to the next level.
- [16:02]
A
I think this is a good segue into the pain point that Dawson looked to solve for. So if I'm an LP and I need to raise capital, I'm looking across the spectrum of my private holdings and there might be some that I feel maybe they're trading at par and a good time to get out or continuation fund. And I don't know if I like the time of the terms, but I think in many cases I love this portfolio but I need cash and I'm overallocated to the private markets. So I don't want to sell it, but I need liquidity and what do I do about it? Enter Dawson.
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B
Oh, bill set. Appreciate that. Look, that's exactly what we're trying to solve for. We're trying to bring a new tool in the tool set for private equity investors to think about their portfolios in different ways. And we're not here to replace debt, we're not here to replace sales. We're here to give another tool. So we're growing the secondary market with these new tools in the tool set. And as you say, if you want to generate liquidity, which by the way, it can be in 21, when your private equity portfolio did too well because marks were going up faster than the public markets out there, you might find yourself over allocated to private equity for the right reasons. So overall location isn't always about the downside. It's also sometimes in the upside. In that scenario, to your point, if you want to generate liquidity on your private equity portfolio, There was really two tools up until recently. One, you could lever it, you could get 35 to 45% LTVs on that private equity portfolio and you could get cash back in that way. Or you could go and sell to the secondary market. Generally speaking, that happens at 85 to 95 cents on the dollar, depending on where we are in terms of the market cycle. If you lever, you encumber your assets, if you sell, you forego future proceeds, you time the market, you crystallize the discount. And so we wanted to sit in between those two and provide another tool. And what we say is, look, we'll give you 60 to 70% of the value of the portfolio. We'll then take 100% of the cash flows until we get to a minimum multiple and minimum IRR. And then we'll split cash flows 80% to you, 20% to us, or 70, 30 or 90, 10. And so that solution is really meant to enable LPs to be able to deal with, as you say, temporary overallocation, but keep the upside in the portfolio. There's a lot of LPs that we work with that are saying in particular in this market, look, we are temporarily overallocated, but we actually like where the market is today. So what we will do is generate liquidity on the fund portfolio and then we're going to reinvest that into co investments as an example. And so I think that's what they're looking to do. And by using this product, by the way, don't lose your relationship with your gp and then that enables you to continue and have that source of co investment. So those are the ways that we think about outside the box of every one of our solution is so bespoke, so customized. We start with listening to what the LPs want, what the counterparty want, and then we create a customized solution to enable them to find the win win in everything that we're doing. We believe that when we outperform, that's good for the underlying investor because at the place of selling, they kept the upside on the recovery.
- [19:06]
A
Ten years ago, Jan, was this a solution that you thought about and then you searched for the problem, or did a couple of smart LPs come to you and say, just over a cup of coffee, Jan, I love my job and I love the prospects, but if I could only solve for X and you jumped on the bicycle and figured out how to solve for.
- [19:24]
B
When you're biking for two and a half weeks, you have a lot of time to think. So people say, what were you doing? I wasn't listening to music, I was just thinking and I don't know, I think the concept was really, as I explained it, can we sit between the debt and the equity and provide a New tool in the tool set, we're not here to replace debt, we're not here to replace equity. We're here to inject liquidity into an otherwise illiquid asset class and do so with innovative structures that enables people to have the win win at the end of the day. And that's really essentially our focus. I think what's been interesting is that over the last 10 years, the fundamental thesis around accelerating liquidity but keeping the upside and the flexibility has maintained. How we create that structure is how we have innovated over the last decade. And really what we've been doing is just increasing our funnel. Like we've seen over $750 billion go through our shop. We've done about 22 billion of that. It's just been an incredible market adoption of what we're doing because look, it's not going to be for everyone, but for some folks, this is a really interesting tool that helps them be a lot more sophisticated in how they're managing their private equity portfolio. And we're doing this with LPs. In 2019, we started doing the GPS as well. And so we're sitting in between the debt and the equity and the GP stakes market as an example. So we think of ourselves as the Google of private equity. We are innovative, we're creating new financial products, new financial technology, and what we're doing is just generating new products with different risk returns for our investors that may have a place in their portfolio construction.
- [20:55]
A
I think we're early days.
- [20:57]
B
Oh, we're absolutely, we're just starting. I am more excited about, look, I pinch myself every day. This is way beyond my wildest expectations. 14 year old Yan would be so proud of what we've been able to accomplish so far. But there's a part of me that's just like we're just getting started. And so the whole trick in this is staying grounded, staying grateful and all of our success today. Like one of the things that I always remind the team is we're so lucky to be in the seats that we're in. Like we always talk about the culture at Dawson is when you give, you get, when you do good, good things happen. And I think that for me it's not just about what you do, it's about how you do it. And we hadn't touched on culture, but culture is one of my biggest things that I love to talk about because I really believe you can be a good person and win. That's what I learned at cppib. I learned that you can actually be a good person. And when actually it's self reinforcing, because if you treat people, whether it's your investors, your counterparties, your advisors, your stakeholders with respect, then at the end of the day, if you focus on the win win, then they want to do business with you. So the repeat business that comes in when you treat people so it's not just the right thing to do, it's good for business. Be a good person. You can win and be a good person. And so that's our focus. 1% of our revenues goes back to charity. Something that's near and dear to my heart, our hearts, but over and above that, and the way that we maintain that at Dawson is that we really, in performance reviews, look at both the what and the how. So in the what you're scored out of three, in the how you're scored out of two. And essentially to move forward you have to be a 4 and above. So you can be great at what you do, that's the three. And culturally consistent, that's a one. Or you can be a culture carrier too, and good at what you do, that's a four. In both those cases, you're moving forward. But if you're great at what you do, or culturally inconsistent, or if you're a culture carrier, not good at what you're doing, then you're not. And that. It's that simple. And that's how we keep our culture of just focusing on doing right with our investors, with our counterparties.
- [22:56]
A
A very important line of demarcation. Jan and I appreciate the support of giving back to charities. I know you yourself have been very involved in causes around mental health and mental illness, which is a tremendous problem in society. And as the father of five and seeing friendships and cohorts, it's just unlike anything I've seen in the course of my life. So you're doing very good in setting a great example there too. So thanks for that.
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B
That's important to us, important to me.
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A
I agree. One area I do want to cover in the remaining minutes is private market valuations and marks. And you've been somewhat vocal on this as well. And maybe to set the table, I don't know when this is going to air, but we're sitting here on November 1st. So we just left the month of October and I went back and there were two destructive things about the public markets which seems to get valuations right all the time. And I went back and looked at that doomsday scenario in October of 1987. And on that particular Day the S and p drew down 20%. Two days later it was up 9. Sounds crazy to me. And then the other data point is going back to the GFC. On October 15th of 08, the S&P drew down 9%. But two days earlier it was up 12%. And we can have later it was up another 11%. So this emotionally driven Marx where we're striking navs based on a close knowing that, you know what individual investors, you got this wrong but have no choice. This is the published price. And then maybe last point, and I'll let you run with this. I don't know how it works in Canada, but in the real estate market here in the US if I'm buying a house, it might be the very first time I'm buying a house and I'm going to a seller who might be selling for the first time in 20 years. So neither one of us are very sophisticated buyers and sellers. We agree on a price and then an appraiser comes in and they have all these analyses and everything else and their conclusion is these two unsophisticated buyers and sellers struck the right price and the bank is loaning against that price as well. So it's an interesting maybe setup where in the private markets the process is done very differently. And you mentioned this point before, Jan, It's a good jumping off point that if I own a private company, I own something. If I own a stock, I'm hoping it goes up tomorrow. But my ability to influence governance, unless I'm the Norway Sovereign Wealth Fund, is pretty much zero. So maybe some of your views, because I said you've spoken and written on this quite eloquently and getting some of those out here in the closing minutes would be great.
- [25:23]
B
Yeah, and so you've touched on a subject topic that I feel pretty passionate about. So let's start with valuation of private equity. We put out a white paper in February this year coming to the defense of private market valuations. And what we did is that we looked at, okay, if you have a private equity asset and it exits, it has an exit. It actually exited a 28% pop to where it was held at two quarters prior, and that's from 2010 to 2023. So let's contextualize this. Over the last, give or take, 15 years on average, the pop at exit for a private Equity company is 28% from where it was held two quarters. PR and that actually is incredibly consistent since 2010, between 25 to 30% every year. So in good times and bad There is a pop on average at exit for private equity that would suggest that private equity isn't overvalued like many market funded talk about. It's actually undervalued in good times and bad. So let's start with that theory that private equity has been actually incredibly consistent, incredibly rational in its private market valuations. We looked at, like you were students of history, the global financial crisis, and we looked at this crisis relative to the global financial crisis and it's uncanny how similar those two crises have played out so far. And yes, every crisis is different, there's different reasons why it happened, but private equity has acted actually very similarly in those two. So the first phase of a cycle in both the global financial crisis and in this particular crisis is that public markets tend to go down a lot quicker than private equity. And in that phase, and usually that phase is about a 12 to 18 months period, some might consider that as, oh well, wait a second, private valuations are irrational, they're opaque, they don't make sense. But if you think about that pop that we were talking about earlier on in that first downdraft, all that's happening is that private equity valuation buffer is declining. So it makes sense to us in the second phase, which has actually happened over the last 18 months in this particular cycle and happened in the global financial crisis, is that public markets go up a lot quicker than private equity. So in this case it was up 40% while private equity is up 14% in the last 18 months. Why is that? Public markets went down further. So it's intuitive that they have more to come back. But also what's happening is that private equity is building back its valuation buffer as that happens. So in a moment of time, some people could look at that snapshot and say, oh, look at that. Private equity has underperformed public markets. There is valuation and timing lags that are a reality as to why this occurs. But over the long term, if you look at 5, 10, 15, 20 years, we cannot find a data point where private equity has not outperformed public markets. Russell 2000, Russell 3000s and P500. Over the long term, it's clear to us that private equity outperforms public market. There's idiosyncrasies in years one to three, but over the long term they have outperformed by 2 to 400 basis points. So then you look at the last chapter of these cycles, and so it was in the global financial crisis during 2010 and 11, private equity actually outperformed public markets by a factor of two. And so we asked ourselves, can history repeat itself this time around? Are we entering this same phase as we did back in the global financial crisis? And so we double clicked and we said, well, two ingredients for that to happen would be, look, there's a lot of factors, but maybe valuation and earnings. If you look at the last 18 months, private equity, EBITDA growth has been 9%, public markets 5%. So private equity has actually grown faster from an EBITDA perspective than public markets. Let's look at the multiples, the multiples. Today, public markets are at 16 and a half times where private equity is at 14.2. So public markets went from 14.4 to 16.6. Private equity went from 13 and a half to 14.2. So what drove all of that 40% increase over the last 18 months has been multiples, not earnings. And now today, private equity is held at a two and a half turns discount to public markets. So when does private equity crystallize its gain? More often than not, it's when liquidity comes back to market. So if you're thinking that, and that's what we're experiencing right now, is that there is a return of liquidity, the flywheel is coming back in private equity. There's a whole discussion topic as to why we think that is. But as that liquidity comes back, those pops come back. Those 28% pops at exit. And that's in our mind what has driven a lot of that outperformance. So today we believe that private equity relative to public markets is actually at a pretty significant discount. And as that liquidity comes through and people crystallize those gains, that outperformance will come back. It's a lot of numbers, it's a lot of theories. We do have a white paper out there if people want to take a step back and take a slow read through it. But we think it's fascinating. And I think that from our perspective, certainly as we look at the next 18 to 24 months, we believe private equity is entering a super cycle where liquidity will return to more normalized levels and where performance will actually outperform public markets. Now, I'm going to put the caveat around here. I am a champion of private equity. I am a believer in private. I also understand that private equity is not flawless, it has its flaws. Like any market, it will go through cycles. Like any market, you will find outliers in terms of valuations. Like any market, there will be bad actors. But generally speaking, and on average, private equity has held extraordinarily well. And this is why I really believe that when you look at the future of private equity, it still has all the necessary ingredients to be able to be an outperformer.
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A
A great summary and before I let you go, I have one follow up question. I will put a link to this paper. I have it sitting right in front of me, Jan, and it's a great read and I appreciate the summary there. Maybe as an informed professional and outside perhaps the remit today of Dawson democratization is taking hold and we're starting to see pretty sophisticated holdings working their way into interval funds. And I wonder if this brings an added complexity to valuation where if I'm in a private fund, I'm doing all the things you said a moment ago and then more often than not there's a pop at the end. But if every quarter I'm opening that fund up and I'm striking a nav and people are coming in and out based on that nav, people actually trading on a nav that's marked on an illiquid asset. So for the people and the purveyors of those funds, does that add additional complexity to the valuation metric?
- [32:02]
B
It adds additional complexity. But remember, in that theory you've come in and you come out at those levels, right? To a certain extent. So this is a, I would say a nuanced and complicated discussion that I don't know we're going to be able to summarize. I do think that when you think about high net worth, private wealth, individuals, that whole market is opening up today. There's $150 trillion of assets that are managed for individuals. 2% of that is allocated to private equity institutions, generally speaking are 10 to 20% allocations. So just do the math. There's about 12 to 25 trillion dollars of that capital that will enter the private markets. And the reality in this is that if it's done in the right way, and there's a big if, and everybody needs to behave and everybody needs to focus on the underlying investor and do right by the underlying investor. But access to private markets for individuals I believe is a good thing. If you think about the outperformance of private equity and if you think about enabling individuals to capture that outperformance at 2 to 400 basis points, that has done historically, I think that would be beneficial. Now obviously there's a lot of nuances and complexities around that and education that's required to make this a successful entry of those types of investors. But I think if done correctly can provide more options to investors to have access to this asset class. And that should be a good thing.
- [33:27]
A
100% agree with that. And I think the challenge for our industry is how do we democratize transparency and education first. But if you and I have responsibility for our own retirement and we have to manage our own longevity risk and investment risk, I need to have more tools in the toolkit. And if capital formation is happening privately, I must have access. So it's going to take some time.
- [33:50]
B
Public market comes to you from 8,000 to less than 4,000 in the last 25 years. The investable universe in the public markets has shrunk. And you have to ask why is capital moving into private markets? It goes back to is it a better governance model in terms of building better businesses? And that's what's helping and part of why private equity has outperformed Jan. We'll.
- [34:07]
A
Leave it at that. At the very beginning, if I heard you right, you said that Dawson was the midpoint on the bike trip and maybe not the first name that you adopted, but it seems like there's another step to this journey and I look forward to learning more about that. And based on these last few minutes, I think you could almost build a thesis that your 1 trillion number might be conservative.
- [34:29]
B
I love that conclusion.
- [34:32]
A
We'll stay tuned and I'd love to have you back again. But I do appreciate the tour. I learned a lot. Our listeners did too. Thank you and congrats on a decade of success and more success forward for the end investor first and foremost and for Dawson secondly.
- [34:46]
B
Appreciate you. Thank you for those words.
- [34:49]
A
Thank you for listening to Educational Alpha. I'm your host, Bill Kelly. Learn more about the Kai association and subscribe to the show@caia.org that's C-A I A dot org. See you next time.