00:00:07:09 - 00:00:28:05
KATHERINE LUCAS: So great to be joined today by Scott Carpenter and Susan Doyle. And we are going to dive in to a fantastic and fast-tracked conversation around all things private markets. So I think I want to start really with kind of the obvious question. Right? Growth in private markets. It's been huge recently.
00:00:28:07 - 00:00:43:22
I think a lot of it we've seen is really due to this kind of trend around democratization in private markets, as well as the increase in semi-liquid funds that we're seeing. But I want to hear from each of you, Susan, perhaps I'll start with you. Your views on what's happening in the market.
00:00:43:22 - 00:00:57:14
SUSAN DOYLE: There's been an explosion of new products traditionally semi-liquid funds were available only to institutional investors in areas like core real estate and infrastructure.
That vehicle has now become available in many different types of private market sectors and become available particularly importantly to retail investors. Whereas minimum investments used to be 5, 10, 25 million for institutional investors. Those numbers have fallen dramatically. And for $1,500 in some cases, retail investors can access these private market sectors. Semi-liquid vehicles are, a different beast than what many investors are used to. And quarterly liquidity potential is very important to emphasize that it's the potential for quarterly liquidity, not automatic liquidity, really makes a difference in accessing the private markets for those individual investors.
00:01:49:22 - 00:01:58:17
SCOTT CARPENTER: And I think that's right. And, and I think it's important to define, too, what democratization actually means, because some people confuse that. I think sometimes with retail. And I'd say that we're on a march towards eventual retail. We've gone from ultra-high net worth to institutional investors. The push today is really out through wealth so the mass affluent and I think we're on the doorstep of seeing many more products launched, for defined contribution retirement plans. There's still work to do, I think, across the industry ecosystem to get to a true retailization, including relaxing some of the restrictions on what types of investors can be in these products. But, to Susan's point, we have seen an incredible proliferation of these products in a variety of different vehicle wrappers as well. So business development companies, Opcos, tender offer funds, ELTIF, ELTAF in Europe, and obviously interval funds have been, a bit of a flavor of the year. In terms of folks launching new products. So definitely, an explosion of these, as Susan said.
00:02:52:05 - 00:03:12:04
KATHERINE LUCAS: So I want to shift a little bit now to another big trend that we're seeing is the idea of quality over quantity. So our latest research is suggesting that expected 3 to 5 year PM allocation increases are kind of starting to level out a little bit for LPs and GP's. And then we saw in our 2024 study the deal due diligence and risk assessment were really growing priorities in PM operations.
So I suppose my question, Susan, that I'd love you to touch on it, if you wouldn't mind, is, is this focus on deal quality over quantity? Has this really become entrenched in asset allocation approaches? Is Does this tally with what you're seeing in the market?
00:03:28:17 - 00:03:34:07
SUSAN DOYLE: It does. I think in times of turbulence and uncertainty, people do seek quality.
Also investors have been receiving fewer distributions as private equity in real estate exits have taken longer than, historically. And therefore their allocations, are somewhat static. They aren't able to, commit to new funds either, follow on funds or new strategies while they're waiting for the return of capital from their existing strategies.
00:04:01:17 - 00:04:18:17
SCOTT CARPENTER: And in addition to Susan's points about, institutional investors looking at their allocation and, and looking to rebalance in some cases, that's been a challenge historically, with private equity investments, which tend to be illiquid and tend to have 7 to 10 year locked capital. But we've seen the advent, of a whole new generation of secondaries funds that are actually negotiating exits from private equity funds on behalf of institutions, and introducing new capital into those funds at the same time. So very interesting in terms of another method to try to create liquidity and an interesting servicing opportunity for State Street, as well.
00:04:39:09 - 00:04:48:15
KATHERINE LUCAS: So we've hit on a number of trends that the market is seeing. I'm going to hit on a third trend. You know, you can't have a conversation without talking about AI and generative AI.
Now in this instance, right. Technology and data is a major part of institutions strategies for improving their private markets operations and due diligence. And I think we've seen that significant utility could potentially be generated by new generations of AI that could potentially help analyze unstructured textual information and even convert all of that to repeatable data. So I'd love to understand. And, Scott, maybe I'll come to you first. What are some of the use cases that we're seeing out there for Generative AI and LLMs?
00:05:20:03 - 00:05:34:10
SCOTT CARPENTER: Yeah, for an operating perspective, I think it's well known fact that this is a challenging ecosystem. There is a lot of manual conveyance of information. There's a lot of unstructured data trying to pull together things and have them digitized. Automated is a challenge. I think every firm that you talk to has an ambition to double or triple their assets under management via private markets, but nobody wants to double or triple their operating and tech budget to support that growth. So interestingly, in a survey that we recently issued this year, 83% of firms are planning to use gen AI and adopt it into their environments to create more efficiency. Last year, it was only 58% of firms were thinking that. So a lot of people are looking at it. And some of the specific use cases that I would point to for credit investing. As an example, trying to get information and updates from agent banks is a very difficult, painful process which involves faxes still in 2025, a lot of screen prints, a lot of updates along those lines. So we ourselves at State Street and others in the market are looking at tools that are more sophisticated than your traditional OCR tools to try to digitize more of that information to begin with. And the other good example, I think, is for administering fund to fund portfolios, you need to collect a vast amount of information from funds, from managers, from other administrators, most of which does not come in an easy digitized format. So again, we are working with a number of different firms to create better data acquisition and orchestration into our environment that reduces some of that operational friction in the ecosystem.
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KATHERINE LUCAS: Susan, would you like to comment on the AI topic?
00:07:00:09 - 00:07:14:06
SUSAN DOYLE: I would and I agree completely with what Scott said as a limited partner, it is very difficult to get any look through information or deal level information when you're investing in fund of funds or in secondaries vehicles, relative to primary investments in vehicles.
I think also, one of the underappreciated facts about these evergreen funds is that the exit decision is transferred from the general partner to the limited partner. Every quarter that you stay in a fund is a decision not to get into the redemption queue and exit, and the ability to analyze the outlook for hundreds of underlying investments in many cases, is one that I think AI will be greatly beneficial.
KATHERINE LUCAS: Well, this has been a wonderful, quick hit, but wildly interesting conversation with the both of you. It is so wonderful to see you both, as always. I hope to bring you back soon so we can continue our conversation. But thank you so much for joining me today.
