Happy Thursday evening.
Off the top: we’ve launched a podcast!
I want to thank Rob Heyvaert for joining Modern Capital: The Private Markets Podcast as my first guest. There is no firm - and no individual - doing more to shape the rapid infra build-out private markets need.
I enjoyed the conversation with Rob, and hope you do too.
As an aside: I asked GPT for lessons from my best-performing LinkedIn posts, and how they should influence the content structure of the pod.
Its advice: my best writing excel in capturing a “cinematic economics”: a sense of how capital is shaping the tectonic plates of the economy, and where it’s taking us. I like that.
On to this week’s newsletter…
The current thing is: institutions vs retail.
Let’s get into it:
ILPA released a white paper on it last month. Their polling shows 83% of institutional PE heads would be less likely to back a manager taking large amounts of retail money. The WSJ ran a piece on pension managers sounding alarms:
“Private equity’s old money is not happy about the new.”
The surface narrative is almost too easy and fits a nice clean frame: established institutions getting frustrated as the GPs eyes gaze toward enticing new market entrants.
This story is one of turf protection. Human nature as it is, that may be partly true.
But it misses the more interesting structural problem underneath, which I describe below. And besides, this train isn’t stopping. There is no near term scenario where retail and institutional capital do not co-exist in the world’s major private capital firms.
So how do we resolve the tension? By first getting very clear on what it is, structurally:
Two clocks, one pipeline
Institutional capital is built for long timelines. The capital sits committed, uncalled, in a queue. Capital gets drawn down when deals close. That system runs on patience.
Retail evergreen capital works differently. Investors fund upfront. To justify fees and avoid cash drag, GPs need to deploy it immediately. The system runs on far shorter timelines (even if we all argue it shouldn't).
Both now feed from the same deal pipeline. The clocks don't sync.
And when they collide, the friction shows up in places most LPs can't easily see.
Where does the friction live?
Three places.
1. Allocation. Retail funds increasingly consume deal capacity that historically flowed to institutional co-investment. ILPA's polling found this is the number one alignment concern among institutional PE heads.
Not because retail access is wrong. Because the mechanics are opaque.
LPs can't see how overflow gets divided. They can't see whether retail vehicles get first look. They can't see how "excess capacity" gets defined when both pools want the same deals.
2. Warehousing. If a GP stages assets on balance sheet before transferring them to an evergreen fund, the question becomes: at what price?
If an asset appreciated while warehoused and retail buys at original cost, institutional LPs who bore the holding risk subsidized the transfer. If it depreciated and retail still buys at cost, someone is being bailed out.
This isn't a compliance issue. It's a pricing transparency issue.
3. Liquidity mechanics. Evergreen funds promise monthly or quarterly redemptions while holding illiquid assets. To manage this, they hold liquidity sleeves. Typically 10-20% of the portfolio in tradeable securities.
Under redemption pressure, which assets get sold first?
If the answer is the most liquid positions from shared portfolios, institutional LPs inherit a more concentrated, harder-to-exit tail.
What are institutions actually asking for?
In my reading, the ILPA white paper isn't a call for regulation. It's a call for plumbing.
Explicitly defined allocation policies in LPAs. Separation of "inside fund" and "outside fund" cash flows in reporting. Auditable pricing on warehoused asset transfers.
The November updates to ILPA's capital call templates now require GPs to break out flows by vehicle type. So LPs can see whether they're effectively acting as a liquidity backstop for retail redemptions.
These are infrastructure requests. Standards. The same connective tissue LPs have been asking for in reporting, valuations, and data.
The difference is urgency.
Evergreen funds have raised an estimated $450 billion, most of it in the last several years. The trajectory points toward $1 trillion by 2030.
What to watch
The flood of retail capital isn't slowing.. and it shouldn't. Broadening access to private markets is a good thing. Diversification, risk-adjusted returns, access to where innovation value creation really now sits, all of it.
But here's the question worth sitting with: does the infrastructure exist to manage two capital bases fairly and transparently?
Right now, it doesn't.
That's not an argument against retail. The world’s largest LPs share the most abiding goals in private markets, which is to offer capital stewardship that’s positive sum to the world’s savers.
It's an argument for building MUCH better private markets pipes… before the pressure breaks something.
In the news:
MSCI launches that informs how public and private equity assets move together. Private credit profits “under threat” as loan margins narrow and banks offer the most attractive borrowing costs in years, leaving funds with idle cash. BoE targets resilience of $16tn private markets with first-ever sector-wide stress test - Apollo, Blackstone, KKR, Carlyle among those to participate. Mubadala backs private credit after deploying $20 billion, calling it their best-performing asset class for three years running. Investors clamor for a peek behind the private markets curtain as transparency demands intensify amid valuation concerns. Canadian endowments double down on private markets even as long-term returns fall short of expectations. Nevis raises $40M to scale wealth tech for private markets access. KKR makes the case for private equity for individual investors as democratization accelerates. Golden handcuffs come off: private equity employees leave megafunds for smaller firms as talent war reshapes industry. Questions linger as Wall Street readies for 401(k) blitz, with operational and suitability concerns around retail private markets access.