WEST PALM BEACH, Fla.: The recent rush to sell private market investments to everyday savers is risky and could have negative consequences for other investors, prominent private equity executive Josh Harris said Tuesday. Many large funds and regulators, including the Trump administration, are pushing for more individual retirement funds to be put into the private market, believing they will yield better returns for a “world population” that is likely to live longer than ever before.
Retail money is “the last big pocket of money, so everyone is after it,” Harris said at the WSJ Invest Live event in West Palm Beach, Florida.
“My own view is that this is not going to end well,” Harris, co-founder of Apollo, now one of the world’s largest alternative asset managers, said before leaving to start his own firm, 26North Partners. Many retail investors “don’t understand that if things go south and they need money, some of these new structures may become illiquid,” he said.
Alternative assets like private equity have traditionally been the property of large, sophisticated investors because they lock up money for longer periods of time than listed equity or bond funds, and prices are determined on a monthly or quarterly basis.
Private capital firms are focusing on individual investors as part of their response to the suspension of trading, which has reduced payments and curbed financial institutions’ appetite for additional investment.
Some funds created to give individual investors access to alternative assets, such as Blackstone and Blue Owl, have faced investor anxiety.
“I hope that we, as an industry, do a better job than we have in the past in educating people about the risks,” Harris said. “But my concern is that we’re not doing that.”
Institutions such as pension funds and endowments invest money over long periods of time and can afford to wait for returns. But retail investors need faster returns, putting more pressure on investment managers to deploy, Harris said. “The influx of retail money and the upfront payment of money that has to be invested immediately will definitely hurt the bottom line for everyone.” (Reporting by Ira Binney; Editing by Edward Tobin)
