Understanding Evergreen Funds and Asset Allocation Strategies

Welcome back to the Alt Goes Mainstream podcast.

Today’s podcast was a conversation that was recorded live at Morningstar’s Investment Conference in Chicago earlier this year.

Morningstar CEO Kunal Kapoor took time out of his packed schedule at the event to sit down with me for a thought-provoking conversation that dove into the nuances of many of the trends that are shaping private markets today.

Morningstar and Kunal have quite an interesting perch in the market. They occupy a critically important function in the market: helping investors understand the data, structures, and trends in public and private markets. They provide fund ratings, investment analysis, and market data to both individual and institutional investors.

As public and private markets experience increasing convergence, Morningstar finds itself at the intersection of markets that are undergoing rapid evolutions across product structures, asset allocation frameworks, and weighty questions around conceptual frameworks of liquidity, risk, volatility, concentration that are on the minds of many. Amongst the wide range of topics Kunal and I covered, one stood out: Morningstar is fiercely on the side of the investor.

If there’s anyone who has a deep understanding of Morningstar’s DNA, it’s Kunal. Kunal started at Morningstar in 1997 as a data analyst, holding a variety of roles at the firm, including leadership positions in research and innovation. He served as director of mutual fund research and was part of the team that launched Morningstar Investment Services, Inc., before moving on to other roles including director of business strategy for international operations, and later, president and chief investment officer of Morningstar Investment Services. During his tenure, he has also led Morningstar.com® and the firm’s data business as well as its global products and client solutions group.

Kunal and I had a fascinating and lively conversation. We covered a number of the most pressing topics in private markets today: the convergence of public and private, liquidity vs illiquidity, investor education, the importance of transparency, and the why, what, and how behind evergreen funds.

Thanks Kunal for coming on the show to share your wisdom, expertise, and passion for public and private markets.

A word from AGM podcast sponsor, Ultimus Fund Solutions

This episode of Alt Goes Mainstream is brought to you by Ultimus Fund Solutions, a leading full-service fund administrator for asset managers in private and public markets. As private markets continue to move into the mainstream, the industry requires infrastructure solutions that help funds and investors keep pace. In an increasingly sophisticated financial marketplace, investment managers must navigate a growing array of challenges: elaborate fund structures, specialized strategies, evolving compliance requirements, a growing need for sophisticated reporting, and intensifying demands for transparency.

To assist with these challenging opportunities, more and more fund sponsors and asset managers are turning to Ultimus, a leading service provider that blends high tech and high touch in unique and customized fund administration and middle office solutions for a diverse and growing universe of over 450 clients and 1,800 funds, representing $500 billion assets under administration, all handled by a team of over 1,000 professionals. Ultimus offers a wide range of capabilities across registered funds, private funds and public plans, as well as outsourced middle office services. Delivering operational excellence, Ultimus helps firms manage the ever-changing regulatory environment while meeting the needs of their institutional and retail investors. Ultimus provides comprehensive operational support and fund governance services to help managers successfully launch retail alternative products.

Visit www.ultimusfundsolutions.com to learn more about Ultimus’ technology enhanced services and solutions or contact Ultimus Executive Vice President of Business Development Gary Harris on email at gharris@ultimusfundsolutions.com.

We thank Ultimus for their support of alts going mainstream.

Show Notes
00:00 Introduction to our Sponsor, Ultimus

01:18 Podcast Opening and Theme

01:55 Welcome to the Morningstar Investment Conference

02:29 Convergence of Public and Private Markets

03:12 Challenges in Transitioning to Private Markets

05:26 Morningstar's Evolution and Impact

06:59 Morningstar's Role in Reducing Costs

08:15 Evergreen Funds and Transparency

08:48 Complexities in Private Market Structures

09:36 Liquidity and Innovation in Private Markets

12:27 Investor Education and Common Language

14:34 Comparing Public and Private Market Investments

16:28 Standardized Documentation and Regulation

18:00 Educating Investors on Private Markets

18:52 Morningstar's Style Box for Private Markets

19:14 Data Availability and Analysis

20:24 Evaluating Different Investment Structures

21:09 Public-Private Partnerships and Transparency

21:38 Philosophical Questions on Private Markets

22:58 Behavioral Aspects of Illiquidity

24:00 Evergreen Funds as Buy and Hold Vehicles

24:15 Asset Allocation and Evergreen Structures

25:16 Investor Behavior and Market Volatility

25:25 Individual Investors vs. Advisors

26:32 Stability of Retail Assets

26:56 Retail Brokerage Apps and Crypto Trading

27:15 Impact of Social Media on Young Investors

27:29 Exposure to Private Markets

28:01 Market Drawdowns and Young Investors

28:27 Advisor-Led Models vs. Self-Directed Investing

28:57 Investor Behavior Across Different Age Groups

30:06 Morningstar's Role in Investor Validation

30:50 Morningstar's Independent Voice

32:01 Transparency in Private Markets

32:24 PitchBook and Data Transparency

33:02 Challenges in Private Market Data

33:26 Tipping Point in Transparency

34:54 Private Market Indices

35:37 Challenges in Benchmarking Private Markets

36:29 Lessons from Public Markets

37:12 Evolution of Private Markets

37:37 Future of Private Markets

38:41 Fee Structures in Private Markets

39:38 Operational Burden in Private Markets

40:50 Pre-Trade Market Structure

41:16 Access to Private Markets for All Investors

43:06 Returns and Diversification in Private Markets

44:51 Building Portfolios in a Lower Return Environment

47:15 Brand vs. Performance in Alternative Assets

49:18 Favorite Alternative Investments

Editing and post-production work for this episode was provided by The Podcast Consultant.