Business Breakdowns
· Josh Clarkson, Matt Reustle
And advisors who mis-sell these things or fall down on the job of educating the investor, they should be penalized for that. I'm fully supportive of that. [00:00:00] S0: Anytime you see evolution in financialization of markets or unique structures, you are always going to have people who push the limits, and you can hope that the system is able to weed that out and not make it a bigger problem for the market.
· Josh Clarkson
[00:00:00] S1: While these things sound complicated and whatnot, at their heart they're really not. Direct lending: you are raising some equity, you're borrowing some money on top of that equity, you have a cost of capital. You are lending money out to people the same way a bank would, and you are collecting a net interest margin. And now when you consider that the other primary alternative yield vehicle for many of these mass affluent folks is a structured note that a large money center bank has sold to their advisor with all kinds of options involved in Greek letters, to me, the direct lending business model is a lot easier for me to understand than a Matt Levine column on structured notes. That's just my $0.02, is that once you get past the initial wall of this is private, this is alternative, this is something I don't know, it's actually way more intuitive than if you have an advisor recommending you single stocks and they're recommending single-name semiconductor stocks. I can tell you right now, you're gonna have a much easier time understanding the concept of we buy a company, we make it better, and then we sell it than you are advanced DRAM packaging or whatever that company may do. But I do totally get it that there's a big need for education out there, and that should be something that's continued to be invested in.
· Matt Reustle
[00:00:00] S0: You're spot on. Seeing it up close, its actual operation is no more complex and arguably very similar and more detailed. The challenge comes from the liquidity, but that is something that we've addressed. It's been fascinating. You've actually spelled out some questions that I had, and I think painted a pretty clear picture in terms of how this could evolve. If we were to summarize the true winners, whether you want to put them in order or who stands out the most, what would you highlight? Just as an expectation, it can be based on what we've seen thus far or as you look into the future, who wins across the ecosystem?
· Josh Clarkson, Matt Reustle
[00:00:00] S1: The alternative asset managers that manage to play this right—certainly the large ones have a natural advantage. There's also a lot of, people would call them mid-sized, but in many cases we're talking 50 billion AUM firms that manage to bring the right complementary products to market. They will be very large beneficiaries of this. And I think that investors who get access to better investment products will also be the really large beneficiaries of this. Not going to mince words about the alternative asset management sector and private markets. They have probably reached close to saturation in the institutional channel. So most of the moves there are like share gain. I'm no expert on CPG, but toothpaste. There aren't a lot of people left in America that are net new to toothpaste. It's more of a share battle between Crest and Colgate, private label, higher end bougie stuff I bought for $250 a 12 pack off Instagram, but I do think actually works and makes my gums better. That's a different conversation. The institutional channel, there's still some institutions that have room to grow, but it's generally pretty well covered. This definitely is the greenfield opportunity for these managers to add new clients, add new assets, and expand the pie for all of them. [00:00:00] S0: Well, Josh, this was equally as enjoyable as our first go around. Thank you again for sharing the knowledge.
· Matt Reustle, Josh Clarkson
[00:00:00] S0: Well, Josh, this was equally as enjoyable as our first go around. Thank you again for sharing the knowledge. [00:00:00] S1: It was absolutely my pleasure to be here. It's an area I'm super passionate about and that I think has a lot of benefit for everyday investors to have a better retirement, have a better financial portfolio. And I just love talking about this stuff and I love talking with you. It's my favorite podcast. We can leave it there.