Corrections on listed markets over the last 12 months had to some extent assisted Hamilton Lane in building private markets investment programs for high net-worth individuals, chairman Hartley Rogers told a media briefing in Sydney on 24 January.
Rogers said the “return to rationality” in public markets had flowed on to private markets making it much harder to make successful investments but interaction between the markets had assisted his firm in portfolio construction.
A key factor, he said, had been the “denominator effect” in which downturns on listed markets had resulted in large institutional investors finding they were over allocated to private markets. This had boosted the volume of private capital assets available on secondaries markets. [Purchasing entire private capital portfolios or individual assets on secondaries markets is recognised as an effective way to build portfolios diversified by vintage and industries, but limited availability has long been a problem].
Meanwhile, lower than anticipated allocations by Limited Partner (LP) institutional investors to General Partner (GP) fund managers had resulted in more GPs offering co-investments in their deals to LPs. GPs had also offered stakes in continuation funds. [a new style of private equity vehicle that some GPs have been raising over recent years. They are set up, either as single asset or multiple asset vehicles, to enable the retention of stakes in the most successful investments in funds that are approaching the end of their term.]
The trends for institutional investors to allocate more to private capital and for individual investors to invest in the space for the first time were continuing, Rogers said.
This had resulted in institutional investors significantly improving portfolio planning in private capital.
“When you have 40% in private capital, it really matters,” he said.
Questioned on economic conditions in the US [which remains the leading investment market for private capital from around the world], Rogers said he believed the Federal Reserve’s policies to fight inflation had basically worked, inflation appeared to be tapering off and the US was likely to avoid a full-blown recession.
“The Fed didn’t want a recession,” he said, “but they had to talk tough. They said they were going to go on until 2% [rate of inflation] but I don’t believe they really planned to go that far.”
He said he anticipated the Fed increasing interest rates 25 or 50 more basis points but noted he was not an expert on the subject.
Was private capital being affected by the current return of rationality to the investment world? Rogers conceded it was, but noted private capital investments were in more selective areas than public capital investments.
Key areas at present were: healthcare services; technology enablement of businesses; business services and energy transition.
Hamilton Lane was continuing to invest in secondaries – very much a growth area – in GP funds and in co-investments alongside its fund managers.
The firm was maintaining a global strategy and anticipated renewed growth in China, where it had recently added a Shanghai office to its long-established Hong Kong office; it also anticipated growth in South-East Asia.
Australia’s place in Hamilton Lane’s investment landscape?
Rogers said 25 years ago the firm had seen Australian industry as dominated by the resources sector but today recognised plenty of investment opportunities in other areas such as healthcare and technology.
Hamilton Lane has had a Sydney office since 2017.
Image: Hamilton Lane chairman Hartley Rogers.