A bold new era for private markets is on the horizon, and it's all thanks to a potential influx of retirement funds. KKR's Eric Mogelof has sparked a conversation about the future of daily pricing in private markets, and it's a topic that's sure to get people talking.
Imagine a world where the value of your investments is calculated daily, providing a transparent and up-to-date picture of your portfolio. This is the vision Mogelof is hinting at, and it's a game-changer for the industry.
But here's where it gets controversial...
Traditionally, private equity assets have been locked up for extended periods, with their prices determined monthly or quarterly. This approach has created a market dominated by expert investors who are comfortable with slower payouts and less frequent price updates.
However, with the potential influx of retirement funds, particularly from 401(k) plans, the demand for more frequent pricing and disclosure is set to skyrocket. These retirement funds, which currently hold around $12 trillion, are traditionally invested in publicly traded stocks and bonds, but with the backing of U.S. President Donald Trump, asset managers like KKR are pushing to redirect this money into alternative assets, including private equity, real estate, and even cryptocurrency.
The challenge, as Mogelof points out, is how to assign a daily price to these private market assets. It's a complex task, especially when considering the potential for increased transactions and the need for accurate valuations.
"The bigger challenge is assigning a price each day, which could be necessary for the more frequent transactions those investors want to do," Mogelof said.
So, what's the solution? Mogelof suggests two paths forward. Either the structure of 401(k) plans needs to change, restricting transactions to a monthly basis, or the industry needs to adapt and work towards daily pricing for all private markets.
And this is the part most people miss...
The market for defined-contribution plans, which offer no guaranteed payout upon retirement, has been built on a foundation designed for public markets and daily pricing. This means that the infrastructure and processes need a significant overhaul to accommodate the potential influx of retirement funds into private markets.
While most alternative asset managers acknowledge that large-scale participation from 401(k) savers will take time, KKR and other firms are already taking steps to secure their piece of the pie by partnering with groups that manage these plans.
Mogelof is confident that within a decade, we will see significant allocations within the defined-contribution market moving towards private markets.
So, what do you think? Is daily pricing in private markets a step too far, or is it a necessary evolution to accommodate the changing needs of investors? We'd love to hear your thoughts in the comments below!
