Private Markets Opportunity Amid Public Froth

In Brief:

The disconnect between fully-priced public markets and stalled distributions in private equity is creating unusual opportunity for nimble investors, according to two veteran allocators navigating $155 billion in combined assets. Amy Falls, Chief Investment Officer at Northwestern University's $15 billion endowment, and Hartley Rogers, Executive Co-Chairman at Hamilton Lane ($140 billion AUM), spoke with Barron's about market dislocations, the democratization of private markets, and growing concerns about economic softness beneath surface-level strength. As institutional investors remain frozen from overlarge commitments made during the 2020-2021 period, the couple sees prime deal flow in mid-market opportunities—while warning that narrowness in public indices masks underlying vulnerabilities in the broader economy.

Big Picture Drivers:

• Liquidity crunch opportunity: Institutional investors overcommitted in 2020-2021 and haven't received distributions back, creating a pool of secondary market opportunities that newer evergreen funds can access while traditional players remain sidelined.

• Private market democratization: Retail investors are gaining access to private markets through evergreen funds at an opportune moment, with potential benefits including improved price discovery and broader participation in company growth that historically stayed behind closed doors.

• Public-private valuation disconnect: Public markets appear fully priced while IPO volume and distributions remain weak, reflecting extreme narrowness where Mag 7 stocks carry the indices while everything else lags significantly.

• Europe as contrarian play: After watching its share of global GDP and market cap cut in half over 20 years, Europe presents opportunity through lower valuations, dynamic companies, and potential regulatory reform despite persistent structural challenges.

Key Themes:

• Middle market alpha generation: The widest range of outcomes exists in middle market private equity deals compared to mega-deals, requiring specialized expertise to access the upper quartile returns while avoiding the significant downside risks.

• Structural market evolution: The shift toward companies staying private longer creates societal concerns about democratic capital market participation, making retail access to private markets beneficial beyond just investment returns.

• Control premium in private ownership: Privately-owned firms offer better long-term earnings growth potential through investor control, better representation of mid-cap growth opportunities, and ability to focus beyond quarterly pressures.

• Data as competitive advantage: Hamilton Lane's decades of reach across the industry generates proprietary data that provides significant value in opaque private markets where information asymmetry creates opportunity.

Key Insights:

• Private allocations remain elevated despite concerns: Northwestern maintains approximately 50% of its endowment in private assets and is only edging down "a percent or two" rather than making dramatic reductions, reflecting continued conviction despite liquidity challenges.

• Quarterly reporting debate reflects deeper tensions: While European companies avoid quarterly reporting and claim long-term focus benefits, the transparency-versus-flexibility trade-off reveals fundamental questions about corporate governance and investor rights in an era of growing private market opacity.

• Endowment models diverging significantly: Universities are "splitting apart" as institutions face vastly different pressures—some paying 1.4% excise taxes while others pay nothing, some facing severe operating model stress while others remain well-capitalized—making historical peer comparisons increasingly meaningless.

• AI presents binary outcomes: The technology represents both "enormous opportunity and enormous risk" with significant potential for disintermediation, requiring cautious positioning while working to understand impacts that remain genuinely difficult to handicap.

• Labor market softness signals broader concerns: Despite stable inflation and likely declining rates, indications of employment weakness could feed through to demand more generally, warranting caution particularly given robust market valuations that may not reflect underlying economic fragility.

• Education requires social stability foundation: Access to stable housing, nutrition, and freedom from mass incarceration challenges must exist before education can serve as the pathway to lift people to their highest potential—a lesson learned through foundation board work.

Memorable Quotes:

• "I think the retail investors are seeing some of the best deals right now because the institutional investors are a little bit frozen" - Hartley Rogers, countering concerns that retail access to private markets arrives at the wrong time given institutional saturation.

• "Private assets are about half of the assets of the endowment" - Amy Falls, revealing Northwestern's substantial allocation to private markets despite ongoing liquidity challenges in the space.

• "If you really want to access alpha in the asset class, you want to get into this part of that middle market area" - Hartley Rogers, explaining Hamilton Lane's competitive positioning against mega-fund managers like KKR and Blackstone.

• "I actually think one good thing about retail coming in is a problem with companies staying private is people don't participate in the democracy and in the capital markets in the same way" - Amy Falls, on the societal benefits of democratizing private market access.

• "We have a lot of data at Hamilton Lane about the outperformance of privately-owned companies over public companies of comparable size and scale" - Hartley Rogers, on the fundamental advantage of private equity ownership structures.

The Wrap:

This conversation reveals a market at an inflection point where traditional institutional capital remains paralyzed by past commitments while new structures democratize access to historically exclusive opportunities. The couple's complementary perspectives—Falls' top-down macro caution meeting Rogers' bottom-up opportunity identification—highlight both the promise and peril of current market conditions. Their emphasis on education and equity in both professional and philanthropic work suggests a broader recognition that sustainable returns require addressing foundational social challenges, not just financial engineering. As private markets continue absorbing companies that might historically have gone public, the stakes around access, transparency, and societal participation grow beyond mere investment considerations.