By David French and Isla Binnie
WEST PALM BEACH, Florida, Feb 3 (Reuters) – A recent rush to sell private markets investments to everyday savers is risky and could have negative consequences for other investors too, prominent private equity executive Josh Harris said on Tuesday.
Many large funds and authorities, including the Trump administration, have advocated for putting more retail retirement funds into private markets, where they see the promise of better returns for a global population that is likely to rack up ever longer life spans.
Harris told the WSJ Invest Live event in West Palm Beach, Florida, that retail money was “the last big pocket of capital, and so everyone’s going after it”.
“My own view is that it’s not going to end well,” said Harris, who co-founded Apollo, now one of the world’s largest alternative asset managers, before leaving to start his own firm, 26North Partners.
Many retail investors “don’t understand that some of these new structures may not be liquid when things go wrong and they need the money,” he said.
Alternative assets like private equity have traditionally been the preserve of large sophisticated investors because they lock up money longer than publicly traded stock and bond funds, and their prices are determined monthly or quarterly.
Private capital firms have looked to retail investors in part as a response to a dealmaking hiatus that sapped payouts and curbed the appetite of institutions to invest more.
Some funds that are set up to give retail investors access to alternative assets, including by Blackstone and Blue Owl, have faced investor jitters.
“I hope that we as an industry do a better job than we’ve done historically in educating people about the risks,” Harris said. “But I fear, and what I see, is that we’re not doing that.”
Institutions like pension funds and endowments commit capital for a long time and can afford to wait for returns.
But retail investors need returns more quickly, increasing pressure on money managers to deploy, Harris said. “Retail money pours in, you get the money up front that has to get invested very quickly, and it definitely hurts returns for everyone.”
(Reporting by Isla Binnie; editing by Edward Tobin)
