From Retail in the Private Markets to AI Everywhere

Some of the biggest names in asset management gathered in New York on October 7 and 8 at the Financial Times’ Future of Asset Management conference to discuss what the industry will look like next year, in five years and further into the future. As private markets investments move into the retail space, whether it’s through 401(k) plans or other investment vehicles, the industry is in a moment of cultural change, and future winners may be those who can offer access to both public and private investments. 

The Opportunities—and Risks—of Private Investments for Retail

As you can imagine, the executive order allowing private investments into defined contribution plans has set the asset management industry abuzz this year. The topic came up in pretty much every session I attended and in the journalist meetings I arranged for clients. Many fund companies are welcoming this development, especially given the notion that there are a lot of great investments out there right now that are not available in the public markets (think Open AI). 

George Gatch, CEO of JP Morgan Asset Management, said that private markets like private equity and private debt will look a lot like public markets in 10 years—they’ll be much more transparent and liquid. But in the meantime, concerns exist: liquidity is still a challenge, and how will retail investors react if a private investment is gated during a downturn, for instance? As we know, private markets investments are very complicated. Will retail investors be ready? For someone like me who cut her teeth in the 401(k) space, it’s difficult to imagine that mom-and-pop investors will suddenly jump from a limited understanding of equities and fixed income to expertise in PE and direct lending, but who am I to judge?

Marc Nachmann, Global Head of Asset and Wealth Management at Goldman Sachs, was quoted in a big FT story emanating from the conference about the rush of private money into retail hands and the potential consequences of it. Importantly, he stressed that it’s critical to the end user (i.e., retail investors) that the industry spend the time and money to educate and communicate with them about the risks involved. 

Bubble Territory?

Speaking of private markets, one question on the minds of the world’s asset managers is whether we’re experiencing a private debt bubble. There has been a rush for asset managers to add this capability over the last year if they didn’t already offer it—Blue Owl’s acquisition of Atalaya Capital and Clearlake Capital’s of MV Credit are recent examples of such deals. But some of the private debt deals in the U.S. have lacked the right amount of due diligence, making some insiders wave a red flag. As our client George Walker, CEO of Neuberger Berman, aptly said, it’s all about the quality of the underlying underwriting. 

With auto parts retailer First Brands declaring bankruptcy late last month, a web of underlying debt financing vehicles has been exposed, including semi-liquid instruments like interval and tender offer funds as part of the company’s debt capital structure. If the economy continues humming along, such bankruptcies may not be problematic or frequent, but if we end up in recession, the tables could turn, asset managers warn. 

Of course the regulatory environment was discussed with regard to all of the industry’s changes, with a clear message that unpredictability in government regulations is difficult to navigate. How does our economy access the appropriate guardrails? How does the rulebook become modernized to work with the current SEC? There is a desire to make the markets more efficient, but that can prove difficult when sources of information, like quarterly reports, are gone. With the tokenization push, many executives stressed that regulations in that market need to follow. One thought leader said simply, “If it’s a security, we have rules for that.”

Inescapable AI

AI was also a big topic this year as asset managers move from the prospect of adopting it, or just starting to do so, to actually bringing it to bear in their practices. Several managers discussed having built their own internal AI systems like Wellington’s “WellieBot” and an internally built Gen AI system at Manulife versus a BNY partnership with OpenAI.  The “build versus buy” quandary is still very much top of mind, but everyone I spoke with or heard from recognized that AI is beginning to bring efficiencies to the industry. 

It’s fascinating to see how Wall Street thinks about its role in managing global wealth. As someone who has been involved in this industry for the better part of three decades, it’s exciting to see real innovations and also striking to notice patterns emerge. I remember all too well the months leading up to the Global Financial Crisis of 2008-2009 and some of the speculative investments and regulatory lapses that helped fuel it. I sure hope we’re not headed in that direction again, but if I’ve learned anything over the years, it’s that the market can’t go up forever. 

—Sarah Lazarus, Senior Vice President