If you’re looking for another technical prediction for alternative assets in 2021 post (one that is largely the same as others), read this one at your own risk. I’d rather be wrong about all but a single big thematic one than I would keep it conservative and regurgitate what others have filled search results up with. Track records are all the rage, and ours is one rooted in having seen broader thematic shifts, so we’re sticking to our roots. Here we go with my #riskybets for 2021:
- #neverforget WallStreetBets
“But these are alternatives and not accessible to retail investors”, you say. And you’d be right, but this is something bigger than Robinhood and Reddit and GameStop and Silver, for that matter. This is a new generation and it’s here to stay. The status quo/” system” is the target, and nothing is out of bounds. People are frustrated, they feel left out, and there’s more money behind it than many institutions feel comfortable with. Its impact may not be revolutionary, but it will absolutely be evolutionary and it will ripple into less liquid, less accessible markets.
- A new category of competitor will emerge that won’t be taken as seriously as they should, and will go on to make even the oldest and most successful firms feel uncomfortable
It will be started by Robert Downey, Jr. Not really (maybe), but you get the idea.
WallStreetBets is the climax of a story about the evil empire against the rebels. Wall Street has been reluctant to accept that certain companies (take Tesla, for example) could sustain valuations that violate everything the market has (mostly) agreed upon historically. GameStop may not be able to, but Tesla has, and not because of fundamentals. Millennials don’t care about valuation, they don’t care about research upgrades/downgrades, nor price targets, nor much else that the traditional Wall Street machine subscribes to. They buy stocks that mean something to them and which line up with their vision for the future; they buy Teslas because they think they’re cool, and they buy Virgin Galactic (SPCE) because their lives will see commercial space travel become mainstream.
The status quo is right until it’s wrong, and the ways in which capital is raised for private markets will begin to change to reflect opportunities that are “cool” vs. fundamentally sound. They’ll go after ambitious, world-changing opportunities, and they’ll break all of the rules as they do it. This won’t require extensive track records to attain; “cool” people will emerge with access to “cool” investment opportunities, and they’ll have legs.
- ESG/Impact/JEDI won’t be table stakes; those late to the game will struggle to keep up with returns generated by leaders in this emerging category
Public market ESG-focused funds have begun outperforming their non-ESG counterparts and Millennials are skipping starter homes and buying mansions. Turns out, as I recently heard it put, that millennials are more “woke” than we gave them credit for. They speak with their wallets, and the massive generational transfer of wealth has begun. Their assets are here to stay, they’re growing as a proportion of total assets, and those assets may not always be pointed in the same direction they were pre-transfer; they’re focused on the future and ESG/Impact/JEDI encapsulates the driving forces behind their vision for the future. Be prepared to tell them a story, make it meaningful beyond returns (have an impact!), and be prepared to be accountable to them if there isn’t support for returns and impact. (Support = data.)
Be prepared to struggle with this data support early on. We’ve heard a great deal from the market about the challenges that still exist in the early innings of this evolution, and they’re mostly around the ability to produce the data for ALL companies, and the lack of standards in how the data is defined, measured and reported on.
Be prepared for technology to solve these challenges quickly, so above all things be prepared.
- Annual Meetings will never be the same, and will mark the beginning of a new era of GP-LP engagement
We’ve believed for years that technology would begin moving to the forefront of this relationship, and it’s a welcome sight. But we’re just getting started; technology will take on an increasing role and everyone will be better off for it.
Annual Meetings are the most immediate problem that technology is evolving quickly to solve, but it won’t stop there. Information will be more readily available, and technology will begin playing a bigger part in the matchmaking of GPs and LPs. Truth is that everybody wins somehow in this, so the genie is simply not going back in the bottle.
- Public market liquidity will be front and center. Again.
Risk is on in public markets and we’re told that won’t change for years. IPOs, SPACs, and other creative ways to access risk-on equity markets will continue to provide liquidity at premiums, and preparing those assets will be of utmost importance.
Firms best positioned in terms of the scale of portfolio companies and application of technology (ie solar/green/EV) to access public market liquidity will dominate fundraising and are likely to provide liquidity sooner, which will further help them dominate fundraising — a virtuous cycle!
- 2021 will be the year that strategic technology roles emerge in Private Markets
Get ready to meet some new colleagues! Globally technology has taken an even bigger, more important role in our lives, but certain parts of the world had been a bit slower to adopt technology ahead of Covid. They scrambled to catch up, but they’re going on the offensive at the same time. Private capital markets are one of these areas and will go on the offensive hiring technology-focused executives that begin to get far more strategic about using technology as a differentiator.