October 30, 2018
Hamilton Lane’s annual Market Overview is a data-driven review of the trends, challenges and opportunities in today’s private markets. The recently released episode of the Hamilton Lane Live podcast features Hamilton Lane CEO Mario Giannini discussing key concepts covered in this year’s Market Overview.
Market Overview: Predictions for 2019
Uniquely, the Market Overview is centered on a theme. This year’s theme, “Gravity’s Rainbow,” [endnote symbol=’1’ text=’A novel written by Thomas Pynchon in 1973’] is representative of the current state of the financial market and the question of when the market may reach its peak in this cycle.
Giannini asks, “Can we begin to figure out… whether that forward speed is slowing down depreciably or not?” Giannini continues by advising investors to “have ways of measuring what’s going on in their portfolio and how it works in different investment scenarios, particularly as you think about some downturn over the next three to four years.” For investors to analyze their portfolios in this way, Giannini recommends a data-driven approach in order to determine how investments behave in different environments and economic scenarios.
Market Overview: Time Horizon Variances
The theme of data utilization continues as investors look to compare the performance of their private market portfolios to the public markets. In the Market Overview, Hamilton Lane analyzes performance over long-term time horizons and uncovers some interesting results. Giannini goes on to explain that the firm compared outcomes going 15 to 20 years back, where private equity clearly outperforms its public benchmarks. Yet performance seems to narrow for private equity strategies in time horizons of less than ten years. Giannini poses the question, “Is this something different in the private markets or is it just because we’ve had an enormously powerful bull market in the public equities, particularly in the U.S.?”
Additionally, the public markets index you benchmark against adds another layer to this discussion. Private markets investors traditionally use the S&P 500 as a benchmark against their whole portfolio. However, most modern portfolios are not solely U.S. based investments and should be benchmarked against a more applicable index, like the MSCI. When using a benchmark that doesn’t represent the whole portfolio, investors are likely disappointed with their relative private markets performance. Meanwhile, the opposite is likely true of those using a more representative benchmark.
Market Overview: Other Topics Covered
Other topics that Mario discusses in the podcast, and covered in this year’s Market Overview, include:
- Fees in the context of performance
- Technology investing in the private markets
- Operating partner impact on performance