Josh Clarkson says a shift from 2% to 5% alternatives allocations by individual investors could add about $4tn in AUM for large alternative managers.
Josh Clarkson rebuts private markets stress by arguing First Brands and Tricolor relied mainly on liquid markets, not private equity or private credit.
Josh Clarkson calls Trump's executive order directing ERISA to study private markets in 401(k) plans the biggest recent regulatory catalyst for retail alternatives.
Individual investors are the next big prize for alternative managers
Alternative asset managers are close to saturated with institutions, so individual investors are the next large growth market. Regulation is lowering the barriers and semi-liquid products are maturing, though liquidity must match the assets. Scaled brands are best placed to win, and investors should judge higher fees by net returns.
Takeaways
Retail access could add $4tn in AUM. Morgan Stanley analysts estimate about $4tn of added AUM if individuals lift alternatives from roughly 2 to 5 percent toward the 15 to 20 percent institutions hold. Alternative manager AUM today is around $20tn.
Regulation is opening the retail door. President Trump's executive order directs ERISA to examine private markets in 401(k) and defined contribution plans, reversing a Biden order. A March 2025 no-action letter also eased accredited investor verification and fund publicity under Rule 506(c).
Recent credit failures do not indict private markets. Clarkson says First Brands and Tricolor were not private equity owned and raised financing mainly in liquid markets. He argues direct lending is a safer route into sub-investment grade credit than liquid markets.
Semi-liquid funds work when liquidity matches assets. Most BREIT redemptions in 2022 came from leveraged Asian private bank clients, and the structure delivered, including a deal with UC Regents. Third Avenue's daily-liquidity distressed debt fund had to gate, a liquidity mismatch.
Scaled brands should win the retail channel. Clarkson expects Blue Owl, Ares, Apollo and Blackstone to benefit most. Brand matters more in retail than with institutions, Blackstone advertises on TV, and big wirehouses and RIA platforms will access the products better than small advisors.
Higher fees should be judged net of performance. Clarkson says fees will be higher because these businesses cost more to run, so investors should compare net-of-fee returns with cheaper liquid options. He backs FINRA arbitration and penalties for advisors who mis-sell.
Retail is greenfield while institutions are saturated. Clarkson says managers are near saturation with institutions, so growth there is a share fight like Crest and Colgate. Retail is the greenfield, and mid-sized firms near $50bn in AUM with complementary products could gain much.
Retail product landscape
Non-traded BDCs put 70 percent of assets in private loans to US companies. They can lever up to 2x, though 1.25x is a normal top end.
Registered advisers can buy interval funds on platforms from Schwab or Fidelity. Semi-liquid funds generally allow about 5 percent of NAV in quarterly liquidity.
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On this episode 2
Show 1
Credit is the strongest grower, private real estate has rebounded more than public REITs, and private equity vehicles are newer with more runway.
Accredited investors need $200,000 of annual income, or $1m of net worth excluding the home, or work as a financial professional.