Podcast Summary: How I Invest with David Weisburd – Episode E140: Hamilton Lane Co-CEO on the $950 Billion AUA Business

Release Date: February 21, 2025

Guests:

• Eric Hirsch, Co-CEO of Hamilton Lane

1. Introduction and Context

In Episode E140 of "How I Invest with David Weisburd," host David Weisburd engages in an insightful conversation with Eric Hirsch, the Co-CEO of Hamilton Lane. Hamilton Lane, a prominent player in the private markets, manages $950 billion in Assets Under Management (AUM) and Assets Under Advisement (AUA). The discussion delves into Hamilton Lane’s strategic focus on the retail market, the evolving investment landscape, and the company's innovative approaches to democratizing access to private assets.

2. Expanding Focus to the Retail Market

Why Retail Matters:

David Weissburd begins by questioning Hamilton Lane's interest in the retail market, considering their substantial presence in the institutional sphere. Eric Hirsch responds by highlighting two main motivations:

1. Addressing Inequality in Retirement Planning:

   • “Those who have pensions today have been significantly benefiting from private market allocation […] the average American saver hasn't had any exposure to that, I think is just an inequality.” (00:19)
   • Hirsch emphasizes the retirement crisis in the United States and advocates for providing individual savers access to private assets as a solution.

2. Business Opportunity:

   • “The amount of capital in the hands of individual savers globally is tens of trillions of dollars. So it's a massive market.” (01:13)
   • With average mass affluent individuals having virtually no exposure to private markets, Hamilton Lane sees a significant growth engine in tapping into this vast, underserved market.

3. Challenging the Traditional 60/40 Portfolio

The Fallacy of the 60/40 Split:

Weisburd references a prior conversation where Hirsch critiqued the conventional 60% equities and 40% fixed income portfolio. Hirsch elaborates on this:

• “The 6040 portfolio completely omits one of the best performing asset classes which has been the private markets.” (01:19)
• He points out that modern fixed income is markedly different from past decades, and private markets have emerged as a superior asset class for both performance and diversification.

Shift in Institutional Investing:

• “You couldn't find me an institutional investor today that's sophisticated, that has a 6040 portfolio.” (02:14)
• Institutional investors have moved away from the traditional 60/40 split, allocating more to private markets and alternative investments, setting a precedent for retail investors to follow.

4. Retail Investors Adopting Institutional Strategies

Access and Performance Drivers:

Hirsch identifies two primary factors driving retail investors to mimic institutional behaviors:

1. Enhanced Accessibility:

   • “Product structures weren't there. […] Now, products typically are evergreen with relatively modest minimums, starting around $50,000.” (02:21)
   • Innovations in product offerings have made private market investments accessible to mass affluent individuals, breaking previous barriers of high minimum investments.

2. Superior Long-Term Performance:

   • “Over a 10, 15, 20, 25, 30 year timeframe, the outperformance on the private side has been significant.” (02:21)
   • The consistent superior performance and diversification benefits of private assets have made them attractive to retail investors seeking long-term growth.

5. Diversification and Performance of Private vs. Public Assets

Concentration Risks in Public Markets:

Hirsch discusses the increasing concentration in public equity markets:

• “Today you have the magnificent seven accounting for anywhere from 20 to 30% of the entire market cap.” (05:47)
• The dominance of a few large-cap companies exposes investors to significant concentration risk, making diversification into private markets a prudent strategy.

Private Markets Offer Greater Diversification:

• “The private markets have grown so much that they are a huge capital provider.” (04:05)
• With fewer public companies and a higher concentration of market cap in mega-cap firms, private markets provide exposure to a broader range of industries and company sizes, enhancing portfolio diversification.

Sector Allocation Differences:

• “Private markets exposure to venture is less than the public markets. The private markets exposure to energy, for example, significantly less than the public markets.” (06:23)
• The distinct sector allocations between public and private markets mean that private investments can offer exposure to industries and company sizes not readily available in public portfolios.

6. Innovating Through Tokenization

The Move to Tokenization:

Hirsch outlines Hamilton Lane’s strategy to tokenize their funds, making private investments more accessible and efficient for retail investors:

• “Tokens are not crypto. [...] They share a blockchain backbone.” (15:54)
• Tokenization streamlines the investment process by reducing paperwork and enhancing liquidity features, such as monthly redemption options.

Benefits of Tokenization:

• “It is truly better, faster, cheaper for the customer.” (15:54)
• Investors can manage their private market portfolios through digital wallets, akin to managing public equities, providing a seamless and integrated investment experience.

7. The Future of Retail in Private Markets

Integration with Traditional Accounts:

Hirsch envisions a future where retail investors can access both public and private assets within a single platform:

• “It's going to be fixed income, public equity, private markets.” (19:11)
• This integration will allow for more diversified, risk-adjusted portfolios tailored to individual investor needs.

8. Overcoming Challenges and the Need for Education

Early Adoption and Growth:

Hamilton Lane is already making strides in the retail market, managing billions in retail assets. Hirsch emphasizes that widespread adoption is in its early stages, with education being the primary hurdle.

• “A lot of people haven't seen good private market data or they've been told things like, well, if you just leverage the S&P 500, you can replicate the private markets, things that are just not factually accurate.” (20:10)
• Addressing misconceptions and providing comprehensive education is crucial to accelerating the adoption of private market investments among retail investors.

9. Partnering with Wealth Advisors

Collaborative Channels:

Hamilton Lane approaches the retail market through multiple channels, primarily leveraging wealth advisors who act as gatekeepers to individual investors.

• “We have these Sort of direct to buyer and the buyer in this instance is more of a wealth advisor.” (10:40)
• Collaborations with wirehouses and strategic partnerships, including token exchanges like Securitize, extend their reach and simplify the investment process for retail clients.

Push and Pull Strategies:

• “It's both a push and a pull.” (12:17)
• Hamilton Lane employs proactive branding and education (push) while benefiting from institutional reputation attracting interest from individual investors (pull).

10. Retail vs. Institutional Investor Expectations

Technological Savviness:

Retail investors today are highly technologically oriented, expecting seamless digital interfaces akin to those in public equity investing.

• “The individual world is very much technologically oriented as we all are in all facets of our life.” (23:45)
• Hamilton Lane adapts by integrating advanced technology to meet these expectations, ensuring a user-friendly and efficient investment experience.

11. Leadership and Company Culture at Hamilton Lane

Co-CEO Structure:

Eric Hirsch explains the rationale behind Hamilton Lane’s co-CEO structure, which allows for global leadership and effective management across diverse regions.

• “Juan Delgado, is actually based in Hong Kong where I'm based here at company headquarters outside of Philadelphia, Pennsylvania.” (24:52)
• This divide-and-conquer approach fosters a collaborative and inclusive culture, accommodating the firm's global footprint.

Philadelphia Advantage:

• “Cost of living is substantially less. [...] We have a sustained culture that feels a little bit different than kind of the typical New York investment firm.” (27:28)
• Operating out of Philadelphia offers Hamilton Lane benefits such as access to local talent, lower operational costs, and a unique workplace culture that distinguishes them from competitors based in major financial hubs.

Emphasis on People and Culture:

• “Our employees, there's a lot of young people that work here. They like the fact that they're in a vibrant, growing industry and all of that feels exciting, it feels challenging, it feels innovative.” (29:50)
• Hirsch underscores the importance of maintaining a strong, inclusive culture that prioritizes employee well-being and fosters a collaborative environment.

12. Future Outlook and Ambitions

Path to Trillion-Dollar AUM and AUA:

Looking ahead, Hirsch expresses ambitious goals for Hamilton Lane:

• “At the rate we're growing, we're going to get there pretty quickly.” (29:32)
• The company plans to continue expanding its retail market presence, leveraging its established infrastructure and brand reputation to scale towards managing a trillion dollars in AUM and AUA.

Commitment to Innovation and Customer Experience:

Hamilton Lane remains dedicated to enhancing the investment experience through technological advancements and continuous education, ensuring that both retail and institutional clients can achieve their financial goals effectively.

Conclusion

Episode E140 of "How I Invest with David Weisburd" offers a comprehensive look into Hamilton Lane's strategic initiatives to democratize access to private markets for retail investors. Through innovative approaches like tokenization, strategic partnerships with wealth advisors, and a strong emphasis on education and technology, Hamilton Lane is poised to address significant market opportunities and contribute to solving systemic retirement challenges. Eric Hirsch’s insights provide a roadmap for retail investors seeking diversified, high-performing portfolios akin to those of institutional investors, highlighting the evolving landscape of investment management.

Notable Quotes:

• “Those who have pensions today have been significantly benefiting from private market allocation [...] I think we have a real retirement crisis here in this country that needs solving.” – Eric Hirsch (00:19)

• “The 6040 portfolio completely omits one of the best performing asset classes which has been the private markets.” – Eric Hirsch (01:19)

• “Tokens are not crypto. [...] It is truly better, faster, cheaper for the customer.” – Eric Hirsch (15:54)

• “If you are a 45 year old saver and this capital that you're talking about investing is really for your retirement, you're talking about a capital that's not even going to get accessed for probably at least 20 years or more.” – Eric Hirsch (13:43)

This summary captures the essence of the episode, highlighting key discussions and insights shared by Eric Hirsch. For a deeper understanding, listeners are encouraged to tune into the full podcast episode.