Navigating the Private Markets Boom

Summary

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Podcast Summary: In the City – Navigating the Private Markets Boom

Host: Francine Lacqua (Bloomberg)
Guest: Silas Brown (Senior Reporter)
Date: April 3, 2025

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Main Theme

This episode dives deep into the rapid ascent of private credit and private markets, discussing how geopolitical uncertainty (notably, new tariffs from President Trump) boosts their appeal and why asset managers like BlackRock are racing to open private assets to a broader group of investors. The episode explores the factors driving growth, the risks and regulatory challenges, and the potential for democratized access to private markets.

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Key Discussion Points & Insights

1. Current Private Markets Boom

• Private credit is the hottest topic in the City of London, outpacing interest in other asset classes.
  • "Private credit, I mean it's the only thing that people are excited about talking about, and it's an asset class that's grown exponentially really in the last couple of years." (Francine Lacqua, 02:45)
• Silas Brown explains the private credit boom happened to coincide with his own reporting focus:
  • "It was a great coincidence that I decided to cover private credit just at the moment of the boom... it thrives in moments of manageable uncertainty." (Silas Brown, 02:54)

2. Drivers of Growth

• Private credit acts as a key financing tool for private equity, gaining even more traction as large asset managers invest in building private credit franchises.
  • "Private credit is, in essence, a service provider for private equity… as the private equity market expanded, this new form of raising money to back buyouts has risen." (Silas Brown, 03:26)
• Uncertainty from new US tariffs has hurt public, leveraged loan markets but driven more companies and investors toward private credit.

3. BlackRock and the Democratization of Private Markets

• Larry Fink’s latest shareholder letter is spotlighted for its focus on private markets and strategies to bring them to retail investors.
  • "I was surprised or encouraged... to see that Larry Fink was so focused on private markets this week.” (Francine Lacqua, 03:56)
• Dramatic shift: BlackRock’s alternative assets (private) will generate significantly more revenue than their giant public ETFs, largely because of much higher fees.
  • "600 billion in alternative assets... is expected to bring in 3 billion, and that doesn't include performance fees..." (Silas Brown, 04:22)
• Key quote from Larry Fink:
  • "They're in private markets locked behind high walls with gates that only open for the wealthiest or largest market participants." (quoted by Francine Lacqua, 06:39)
• BlackRock’s moves are part of a broader industry trend, as Blackstone, Apollo, and others look for ways to attract retail and insurance investment.

4. Regulatory and Valuation Concerns

• Greater retail access means increased regulatory scrutiny, especially as valuations are less transparent in private markets.
• There are ongoing concerns about the accuracy and methodology of private asset valuations, particularly with interest rates remaining high.
  • "Do we really know that the valuations of... private credit are correct?" (Francine Lacqua, 09:23)
• The Financial Conduct Authority (FCA) scrutinized valuations across UK firms and flagged concerns about policing conflicts of interest.
  • "The concern with private markets, full stop, is that they can be a little bit murky." (Francine Lacqua, 11:38)
• Conflicts of interest are rising as large private equity players also own private credit operations.

5. The Future: Retail Involvement and Regulation

• With BlackRock and peers opening private markets to retail, regulatory frameworks will need to adapt for investor protection.
  • "One of the questions going forward is, will the regulation have to change as a result of opening the market to the people on the streets?" (Silas Brown, 12:45)
• This trend toward retail access is accelerating, especially in the US.

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Notable Quotes & Memorable Moments

• On BlackRock’s Motivation:
  • "One is clearly growing and the other one is dwindling. And so I think it's acknowledgment from Larry Fink that a lot of the action is going private." (Silas Brown, 04:22)
• On High Walls of Private Markets:
  • "They're in private markets locked behind high walls with gates that only open for the wealthiest or largest market participants." (Larry Fink, as quoted by Francine Lacqua, 06:39)
• On Regulatory Catch-up:
  • "With the dawn of this opportunity set… that would naturally beg the question of when’s the regulation going to adjust to that too." (Silas Brown, 12:45)
• On Valuation Challenges:
  • "How do you value an asset that isn't traded? I don't have the answer. It's a tricky one, but also just transparency." (Silas Brown, 10:38)

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Important Segment Timestamps

• Topic Introduction (Private Markets and Tariffs): 01:43–02:54
• What’s Driving the Private Credit Boom: 02:54–04:22
• BlackRock’s Push and Fees Comparison: 04:22–05:51
• The Promise of Democratization: 05:51–07:03
• Impact of Tariffs & Market Repositioning: 07:34–08:38
• Returns and Valuation Concerns: 08:38–10:38
• Regulatory Risks and Conflicts of Interest: 10:38–12:36
• Outlook for Retail Investor Access & Regulatory Future: 12:36–14:13

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Conclusion & Takeaway

Private markets, especially private credit, are experiencing an unprecedented boom fueled by uncertainty and institutional investment. Major asset managers, notably BlackRock, are set to democratize access for retail investors, but this brings complex questions about transparency, valuation, and regulation. The landscape is shifting quickly, and the next stage may see everyday investors gain entry—if new rules can keep up.

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Transcript

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Bloomberg Audio Studios.

[Francine Lacqua]

Podcasts Radio News welcome to in the City each week we unpack a story that's crucial to the world's financial capitals. I'm Francine Lacroix and this week, while everyone is talking about Donald Trump's so called Liberation Day and the tariff announcements he might make, we want to look at what some of the consequences of those policies are. In particular, one market that's getting a boost. Private credit feels like the topic of the moment. So what's driving the momentum?

[Silas Brown]

Welcome to the City of London.

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The City of the City.

[Francine Lacqua]

The City of London. The next station is Bank. Please mind the gap between the train and the platform.

[Silas Brown]

The financial heart of the country.

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The City. The City.

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Welcome to in the City. Stand clear of the doors please.

[Francine Lacqua]

I'm delighted to be joined here in the London studio with our senior reporter, Silas Brown. Silas, thank you so much for joining us.

[Silas Brown]

Thank you very much for having me.

[Francine Lacqua]

Private credit, I mean it's the only thing that people are excited about talking about and it's an asset class that's grown exponentially really? In the last couple of years, yeah.

[Silas Brown]

It was a great coincidence that I decided to cover private credit just at the moment of the boom. So I'm enjoying the boom as well. But, yeah, no, look, private credit credit is growing, and in a way, it thrives in moments of manageable uncertainty. And I think the rollout of the tariffs has provoked a degree of uncertainty which has made its arch rival, the leveraged loan market, struggle. And so private credit is a kind of clear beneficiary of that.

[Francine Lacqua]

Silas, why has private credit actually increased so much?

[Silas Brown]

Private credit is, in essence, a service provider for private equity. And so I think, in very blunt terms, as the private equity equity market has been expanding, this new form of raising money to back the buyouts has risen. And now it has grown to a sufficiently high amount that even more players, even bigger asset managers are piling money and resources into developing their own franchises. And so the increase of the market has become exponential.

[Francine Lacqua]

SETH There are two annual letters to shareholders that I read religiously. One is Jamie Dimon and the other one is Larry Fink. I was surprised or encouraged, whatever word you want to use, to see that Larry Fink was so focused on private markets this week.

[Silas Brown]

Yes, well, I hope other executives aren't upset by the fact that you don't reach them religiously. I read all shareholder letters.

[Francine Lacqua]

I just look forward to those the most.

[Silas Brown]

But, yeah, no, I think it was a big statement. And they've been on this kind of acquisition spree unparalleled in the history of private markets with these two milestone acquisitions of GIP and HPS and also Prequin, the data provider. And I think they have acknowledged that there's two comparable markets, one which is the established publicly traded markets and the private markets. One is clearly growing and the other one is dwindling. And so I think it's acknowledgment from Larry Fink that a lot of the action is going private. And I think that's for a series of reasons. One is pretty obvious, which is that if you're looking for high fees, you can find them in private markets, not in public markets. Our brilliant colleague Cilla Brush did the maths, and he said that one of BlackRock's biggest funds, the iShares, the brilliantly named iShares, Core S&P 500 ETF, which manages about 600 billion of assets, only has a fee of 0.03%, which brings in 180 million in annual revenue. Conversely, the 600 billion in alternative assets that BlackRock now has is expected to bring in 3 billion and that doesn't include performance fees by the way. The difference is stark and I think it's a big moment for private markets because BlackRock is an expert in bringing different financial products to retail investors. And I think that's clearly something that is going ahead in private markets.

[Francine Lacqua]

Larry Fink basically promised to open up private markets to millions of everyday investors, not just the wealthy few. A how will he do that and does that change the proposition for private markets?

[Silas Brown]

I think that is the key point when it comes to blackrock's introduction into private markets is their ability to move and sell financial products to retail investors. The key thing for me with private markets is to do with scale. They've picked the low hanging fruit of pension funds and sovereign wealth and now they're moving on to insurance and also retail. And that's the key drivers for growth in the industry. So I think it's significant that BlackRock is energetically figuring out ways of selling private markets products to retail investors.

[Francine Lacqua]

So this is one of my favorite quotes from Larry Fink. It's quite dramatic. They're in private markets locked behind high walls with gates that only open for the wealthiest or largest market participants. And so he's trying to sell this idea of you're democratizing.

[Silas Brown]

Yeah, it sounds like one of Bloomberg news articles. Brilliantly worded. Yeah, no, I think that's, I'm going.

[Francine Lacqua]

To say Shakespeare but okay.

[Silas Brown]

I think that's the key thing. His point is that there's only a small group of investors that are benefiting from this attractive proposition that private markets has to. By the way, he's not alone in wanting to do this. If you look at the earnings calls of Blackstone or Apollo, you will also find a motivation to construct different ways of bringing high net worth retail people into private markets.

[Francine Lacqua]

Silas, this President Trump push on tariffs, that must mean bad news for public markets, better news for private markets, I think.

[Silas Brown]

So the canny among private equity firms have done is sort of reincarnate themselves like the Phoenix and they've moved from being known as buyout firms to being known as private markets firms. So the likes of Blackstone and Apollo, they're as proficient in investing in credit and infrastructure and I think that naturally makes the investment proposition all the more appealing. I think with public markets obviously they are at least superficially more affected by volatility. And so I think to bring a company to IPO or to even sell debt for a company in the publicly traded markets is much trickier in times of uncertainty. And I think with private credit and private equity firms, I think one of their key advantages is their ability to price through uncertainty, provided it's not an uncertainty that is totally unmanageable.

[Francine Lacqua]

Is there just simply better returns and more money in private markets?

[Silas Brown]

I think this is the real question of the decade. I think private equity, and to a certain lesser extent, private credit, flourished in a low interest rate environment where the ability to buy and sell companies was a bit easier. Now, with a prolonged period of high interest rates, and often a lot of these companies having already been bought by private equity, a lot of the attractive companies, the ability for them to deliver returns for investors, I think is the key question of the next five years. And yeah, we'll wait and see. I mean, certainly the practitioners think it is, and presumably larafink does as well. So I guess it's a wait and see.

[Francine Lacqua]

So, Silas, you mentioned hire for longer. Interest rates have gone up so quickly. Do we really know that the valuations of a lot of these private companies and private credit are correct?

[Silas Brown]

I think the challenge for private equity firms is with a prolonged period of higher interest rates when they've bought companies when the rates were lower, will the valuation judgments that they applied when they bought the companies bear out when they sell the companies? I think M and A has fallen globally and perhaps that informs us as to why that there is a challenge selling these businesses at the lofty heights that they valued them when they bought them. On the private credit side, again, it is a hot topic. How do you value these loans? And I think there are actually different judgments as to how you value these loans, both in Europe and the U.S.

[Francine Lacqua]

You know, we speak to a lot of private market chief executives, and I always feel the need to push them a little bit. Say, you know, the problem is that some of the valuations could be a concern. Like the difference between a public company and a private company is that they could have a lot more debt and you don't really know how to value it unless you sell it.

[Silas Brown]

Yeah, I mean, look, we've done a lot of reporting on valuation mismatches in private credit. I think the mismatch has become more stark, naturally, in private equity. I think regulators both in the US and Europe are keen to understand valuation methodologies more. The key things, I think, from a regulatory perspective that keep coming up are valuations. How do you value an asset that isn't traded? I don't have the answer. It's a tricky one, but also just transparency. It's a totally different realm to public companies and their disclosure requirements. But having said that, conversely and slightly ironically, one of the reasons why I think private markets are booming is because companies don't have to go through the kind of onerous rigmarole of quarterly earnings and disclosures. And so if you are bringing disclosures to private markets, you may find similar frustration both in finance and also corporate executives.

[Francine Lacqua]

Wasn't it something like a couple of Weeks ago the FCA was reviewing valuations across 36 firms serving UK clients and they basically said that they failed to police conflicts of interests. The concern with private markets, full stop, is that they can be a little bit murky.

[Silas Brown]

Yeah, I think they are a lot more discreet and secretive than their public market counterparts. You have interesting contradictions. For example, the largest private equity firms also own some of the largest private credit units. I think you can find conflicts of interest across the board in all financial markets. But I think a lot of the evolution of private markets is really untested and still, I think hard for regulators to understand. A lot of the strength in private markets is trying to correct problems that were inherent in financial markets which already through the banking industry, and I think to a certain extent they've done that on the credit side.

[Francine Lacqua]

If you open private credit, private companies, private investments to retailers, does the regulation have to change?

[Silas Brown]

I think that's an important question. In a way, there's been limited regulatory scrutiny over private markets because the market has been somewhat closed off from retail investors. And one of the questions going forward is will the regulation have to change as a result of opening the market to the people on the streets? I think it would be a natural conclusion to say it would, and I think it would be a fair conclusion to say it would because ultimately regulators are interested in protecting retail investors from financial risk. With the dawn of this opportunity set, which is clearly attractive to some retail investors, that would naturally beg the question of when's the regulation going to adjust to that too.

[Francine Lacqua]

And if BlackRock wants to open up this asset class to retail investors, will others do the same?

[Silas Brown]

Yes, I think with or without BlackRock, there's been a concerted effort to build and develop financial products that would be suitable to retail investors, particularly in the U.S. i mean, you see firms Apollo and Blackstone and Ares, the kind of titans of private markets also discussing ways to accommodate retail investors. I think you can say with a high degree of certainty that this will be the topic going forward or one of the key topics going forward for both private credit and private equity.

[Francine Lacqua]

Silas, thank you so much.

[Silas Brown]

Thank you.

[Francine Lacqua]

Thanks for listening to this week's in the City from Bloomberg. This episode was hosted by me, Francine Lacqua. It was produced by Summer Saadi and Moses Andam with sound design by Blake Maples. Brendan Francis Newnham is our Executive Producer. Special thanks to Silas Brown. Please subscribe, rate and review wherever you listen to podcasts.

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