Eric Hirsch is the co-CEO of Hamilton Lane. I just asked him, has he got as many leather jackets as Jensen Huang? Apparently not. Eric, good morning to you, sir.
It's one of my shortcomings.
It is definitely. Well, there you go. There's something to address. Look, what an amazingly exciting week for journalists to look at the financial markets, especially technology, not so much for investors.
Well, yeah. I mean, gosh, it keeps us in business.
But look, you specialize in private markets as well. And one thing that is the most obvious thing I'll say today is that whilst public markets, the oscillation and volatility is on display, it is beneath the surface in the same private markets. But is it creating wobbles in valuations in the private markets?
There's no question there'll be some valuation fallout because so much of this is a mark-to-market using public market comparables. So you're going to certainly see some wobbling to use your word. That said, I think what's happened in the last two weeks has sort of shown frankly one of the major shortcomings of the public markets. It is so reactive, paint with a broad brush, and there's no room for nuance anymore. I think as we've moved into such an aggressive kind of passive-oriented model trading world, we've lost sort of the stock-picking skill set of trying to distinguish between true winners and losers and instead it's, oh, it has software in the name. That's a huge problem.
I would probably disagree with you, Eric, because on the public markets I can find valuations from five times forward to 200 times forward. You know, we know a couple of the names at the top end there as well. Whereas in the private sector, I don't see much nuance when I see the valuations of SpaceX, when I see the valuations of Anthropic, when I see the valuations of OpenAI pretty much doubling every 6 to 12 months.
I agree with you there and I think that is interestingly the part of the market that's not really fueled by private equity. That is the part of the market that right now is getting an enormous amount of hype from follow-on rounds of financing, opening up to retail investors and trying to continue to kind of compound that. I think if you look inside of the private markets, which is again most of those companies are tiny, not household names, there you certainly see a wide array of valuations and I think that's exactly what you would expect. But I think there is a lot more nuance. I think what you're about to start seeing is the private markets are going to weigh in here and start taking a bunch of public companies private again.
I've got to say I do agree with you on the stock picking side and we were coming at it from our own perspective. I spent yesterday trying to look at co-work and how Anthropic's co-work technology would be folded in and it's really hard to tell unless you get the subscription, you fold it in across your own existing software, you can't really see the capabilities. And I think that's the problem as we saw the wash up last week and the aggressive sell in software, nobody really knew how it was going to hit because they haven't used the technology.
Agree. I mean, look at our own sector. The publicly listed private equity asset managers have gotten absolutely clobbered in the last couple of weeks despite all of us basically coming through earnings seasons with double-digit growth. Why? There's this sort of ethereal concern over private credit and now there's the concern of private equity owns a lot of software and the combo of that has weighed heavily on those stocks despite again double-digit revenue asset management earning growth coming from the huge part of the sector and yet those macro fears played down.
So here's a question I asked it Friday and we couldn't get a response. So Anthropic is meant to be coming to the markets this year, the IPO well slated, but what you've seen has been destruction across the board in technology over the past week. Does that also impact Anthropic's valuation even though it was the disruptor on the market that caused the carnage?
I think it's an interesting question because what you don't know right now is the market I think mostly is telling us that we expect it to be a total disruptor without being a partner. Whereas if you talk to a lot of the software businesses they're saying it wasn't like we were oblivious to the fact that Anthropic existed or what they were doing. We're planning on sort of folding in pieces of that. This is the part where I feel like we're a little bit losing the nuance, which is the software business has the customer, has the install, has the trust, and is tied through the infrastructure of many cases large corporations who, as we know, don't love to rip a bunch of stuff out. If they can make that existing service offering better using AI tools and overlays, that's probably the better winner as opposed to we're just going to start from scratch and everything's going to be a brand new AI bot. So, is Anthropic going to be a disruptor? In some cases, I believe yes. And in some cases, it's going to be a client and in some cases it's going to be a partner.
That's what Jensen Huang was saying.
I'm missing the leather jacket, but we share the other things in common.
No, you look spitting image. I just want to follow, I think there's an amazing line in your copy. The death of the exit markup, the hidden pop in private equity returns has evaporated. That is quite stark. Can you explain that to us?
So a couple of things. If you look back at the industry over the last couple of decades, what you see is private equity tended to be extremely conservative in their valuation practices. So we'd be holding it here, holding it, holding it, and then ultimately they would sell it. And so you'd see a huge spike between the last quarter holding value and the ultimate exit. That has gone away. Now, one thought is, well, it's gone away because the markets are terrible and everything's bad. I think what it really means is that the industry's gotten a lot better at actually valuing things to value as opposed to sandbagging valuations and then waiting for this big upside surprise.
But it does have ripple effect because in many cases investors were always kind of banking on that upside surprise. The secondary market banking on that upside surprise. It's gone away. I think net-net it's healthier for the industry. We should be marking to market not marking to oh this is pretty low and then look at my big surprise to you. So I think generally healthy but it is a factor.
Great. And Eric, given the big story from Japan and that election victory and the stalking majority, super majority the prime minister now has, it makes Japan far more interesting to investors than it has for a long time. What effect do you think that's going to have on the private credit markets?
So I think it's going to have a big impact on the private equity market in Japan. So if you look at that country as a sort of GDP and then compare that to just overall private equity volume, high GDP, relatively low private equity volume. Over the last year, you've seen that trade begin to come on. No different than you've seen it in the public markets where you're starting to see a lot more investment going into that country. Frankly, that victory is telling us very clearly the alignment between Japan and the US is going to get very, very strong around things like manufacturing and sharing of resources. I think you're going to see a lot of US-based private equity firms deploying a lot of capital into Japanese equities through the private sector.
Sorry, Eric, before we let you go, there was a story in the FT yesterday talking about the IPO period that it's been effectively sped up. There's an accelerator push now trying to get this happening in a very small window on the book building days. What does that suggest to you? Does it suggest a sense of nervousness that there's like a louver rather than a bay window for IPOs now?
I think there's a nervousness. I think the window is sort of there. People are not sure how long it's going to last. Part of this again is we're in an incredibly volatile US market politically speaking and so one more tweet, one more comment, one more whatever and then the market can continue to turn or shut off. So I think there is going to be a huge rush through what might be a relatively short but open window.
I was just going to put in but unfortunately, hang on, just give me two seconds left.
