The Biggest Shifts Happening in Private Markets Right Now (Ft. Hamilton Lane Co-CEO Erik Hirsch)

More market details to come, but first, the race to dominate artificial intelligence is now a sprint to tap Wall Street. OpenAI, the maker of ChatGPT, has confidentially filed paperwork for an initial public offering. That comes just one week after its chief rival Anthropic, the company behind Claude, submitted its own confidential IPO paperwork to the SEC. A confidential filing allows companies to begin the SEC review process in private before publicly releasing detailed financial information. But in a cheeky post on its website, OpenAI said, quote, 'We recently submitted a confidential S1, that's the SEC filing. We expect it to leak, so we're just announcing it. We have not decided on timing yet. It may be a while because there are things we want to do that are likely easier as a private company, but it's a complicated set of trade-offs and this gives us the option to go public sooner if that ends up being best.' Well, as one of the most watched companies in the world right now, the assumption that details of OpenAI's filing would leak is probably a fair one because this is a major move for a company that we may remember was founded as a nonprofit research lab in 2015 and now, in a somewhat controversial mission switch, serves hundreds of millions of users worldwide in a decidedly for-profit fashion. Well, investors, as we know, have poured enormous sums into OpenAI with recent funding rounds valuing the company at more than $850 billion, with some analysts speculating that an IPO could hit the trillion valuation mark. Not far off expectations for Anthropic, by the way, whose most recent funding round valued that company at roughly $965 billion. Well, a race to IPO looks like it's unfolding as pure-play AI companies, there are others waiting in the wings, rush to tap liquidity before SpaceX and a flood of massive tech offerings force investors to make difficult choices around which stocks to back. And then of course, another consideration is the war for talent with employees at the AI juggernauts eager to know when they will be able to cash out at least part of their equity awards. Well, whether for them or for the venture capitalists who've invested in OpenAI, Anthropic, and SpaceX over the years, the shift to life as a public company will be a huge adjustment when it comes to tracking the value of their stakes in real time. The market narrative is wildly split on whether these IPOs are likely to sustain price growth with those who are more cautious pointing to historical data that shows tech listings often experience a massive pop on day one. But when you take a look at the data, over 70% of tech companies underperform the broader market in their first 12 to 36 months of public life. Enthusiasts of course saying this is a new industrial revolution and that it's different this time. We're going to keep on watching. Coming up in a moment, a spin through the headlines that are moving the markets today, including a $10 billion drug company acquisition that has quote multi-blocker potential. But first, this episode is brought to you by Public. John, how do you make sure you're up to date on market activity?

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Paid for by Public Investing. Full disclosure in podcast description. Well, in a moment, a deeper look at the potential impact from the pipeline of blockbuster tech IPOs with today's money mover. But before we get there, a few headlines from today's trading session. Starting with earnings results from JM Smucker, ticker SJM, because with a name like Smuckers, it's got to be good. Shares in the food and beverage company home to Jif, Hostess, and Meow Mix, are up nearly 10% after the company beat earnings and revenue expectations.

Coffee, which includes the Folgers brand, was a standout performer with sales up 12% year-over-year, aided by higher prices. And then there's Uncrustables, which we've discussed in surprising depth on this show, still having a remarkable run, sending the company's away-from-home segment up 12%. Also, yes, apparently kids and athletes love that product. Looking ahead, the company anticipates sales to decline nearly 4% this year as Smucker's expects to lower coffee prices as its own input costs come down. And as a programming note, this Friday on the show I'll be joined by Todd Kaplan, chief marketing officer of Kraft Heinz to talk about that giant food company's brands that includes Oscar Mayer and Jell-O. And we're going to talk about how Todd markets a massive food conglomerate and what the 150-year-old company is planning for America's 250th birthday. So that's coming up this Friday.

Now to other market headlines. This from the world of mergers and acquisitions. Shares in US-based drug maker Nuvalent, ticker NUVL, are up nearly 40% today.

That's after GSK, Britain's second largest drug maker, announced plans to acquire the company in a $10.6 billion deal. The agreement values Nuvalent at about 124 bucks a share. That's a 40% premium to its last closing price. For GSK, the deal would mark its largest acquisition in around a decade and could bolster its oncology pipeline through Nuvalent's portfolio, which includes two late-stage lung cancer treatments that GSK says have quote multi-blockbuster potential. GSK shares are trading up over about 1% today.

And finally, as I explored at the top of the show, OpenAI and Anthropic have both made headlines for their recent IPO filings and are racing to tap into Wall Street funds and retail investors, too, by the way. But in the meantime, Anthropic just finalized one of the largest private credit deals in history.

The $35 billion deal led by Apollo and Blackstone will help fuel Anthropic's growth plans, specifically through funding the purchase of Alphabet-developed chips. Those are Google. Of course, there has been concern lately that the AI boom has overextended, played out in last week's semiconductor sell-off led by Broadcom. Shares in Broadcom still down 20% in the last week. But deals like this one with Anthropic suggests some of the largest private credit investors are still betting on big tech buildouts.

Well, in a moment, my conversation with Erik Hirsch, co-CEO of Hamilton Lane. And this could not be more timely when you consider that blockbuster deal just announced again. That's Apollo and Blackstone looking to fund some of Anthropic's activity. Well, Erik expresses his concern that the public markets have gotten fad-oriented on a handful of big tech plays and discusses what the repercussions there are for the private markets. So, we discuss private credit and where capital is flowing to in alternatives. Next, credibly topical money mover conversation coming up right after this.

The SpaceX IPO, potentially the largest public offering in history, it's meant to be happening this Friday. To some, it's a welcome sign that the IPO remains wide open, and to others, it's just another giant deal pulling capital into directions that are somewhat up for debate. Well, to break it down for today's Money Movers conversation, I invited Erik Hirsch onto the show. He's the co-chief executive officer of Hamilton Lane itself a publicly traded company but it's a private markets investment firm with over a trillion dollars a trillion in assets under management and supervision. Well, Erik has years of experience inside private funds, the deals and the data also that are driving moments like this. And during our conversation, he pushes back on the recent beating that private credit has been taking in the press. He comments on the possibility of private assets being introduced to Americans' 401ks as well as their self-directed retirement funds. And he discusses the growing divide between software investors and portfolio companies that are adapting to an AI world. While there are others who are might be out there quote just standing in the street waiting for the bus to hit them. It's a very topical conversation about all things at the intersection of private and public markets with a sprinkling of technology thrown in. So, it's about where capital is likely to be moving next. So Erik, given your unbelievable vantage point, could you comment on the big IPO that we're expecting this week, which is SpaceX, and when I talk to folks in the industry I grew up in, which is private equity, there's sort of two sentiments out there, and people are pretty binary about it. Either they say, 'This is great. The IPO markets are open, right? It's a sign that exits are finally going to come for private equity firms that have been waiting, waiting, waiting to sell their businesses.' And you've got others saying, 'So head in hands, this is going to drain liquidity out of the public markets. And in fact, this is like the opposite of a good time to try and IPO and exit.' Where do you land on that spectrum of perspectives?

So what does this say to you about the thesis and the narrative that's been going around for a while that it is now so attractive to stay private for so long for many exciting companies? Is this a moment where the IPO is back? Does this say that this is a proof that once you hit a certain size, a certain valuation, you have no choice but you have to go public?

Well, let's talk about the prospect of privates doing great because that has not been the headline catching people's attention frankly over the last year and specifically private credit has taken a real beating reputationally. I don't think all of it's been fair. But talk to us about what investors are saying to you, Erik, about private credit at this moment in time.

Let's talk about those people because you've just sort of paraphrased Jamie Dimon, of course, the CEO of JP Morgan. So, the voices that are coming out and saying there is something to worry about when it comes to private credit are extremely influential and they do have access to a lot of data, Erik. So, when you say we're not seeing in the actual information sets the things that would typically worry those of us who are invested in private credit, where's Jamie Dimon's perspective coming from, do you think?

So if we haven't seen the data that shows stress in the private credit space, what kind of data have you seen, Erik, when it comes to the ability of firms to raise new private credit funds? How's the fundraising cycle going for that particular asset class at the moment?

And what have you seen specifically within Hamilton Lane? Because I do recall Hamilton Lane launched an infrastructure fund that was accessible to retail investors. What have you seen there in terms of either inflows into that fund from retail investors or on the flip side folks getting out?

Would you mind commenting, Erik, on one headline that got a ton of attention and everyone in the private equity space was very excited and that was the executive order that was signed in the White House to effectively make private capital, private assets more accessible to retirement funds. And you know there's huge excitement now that the 401k is coming to private equity, but I feel as though that's sort of quietened down over the course of this year. What is actually the latest on that front?

So given your position, Erik, what's going on? I mean you're exposed to so much. You're so close to the hub of activity. Is lobbying happening in the background? Yeah, it is happening. I mean you...

Can we talk about a different area of the private markets, Erik? And it's at that intersection of both equity and credit. The funds that got a lot of exposure to software are those that have had some of the toughest wraps in the headlines and for those are publicly listed getting the toughest repercussions for their share prices. What is your perspective just given all the funds you look at the line of sight you have into their underlying portfolios for those who heavily exposed to software? Are people pushing the panic buttons? Has it been overhyped? What are you seeing?

For the ones that can already see that there's risk to those software portfolios, what are they actually doing? Right, when your teams are going in and saying, 'Okay, you can kind of see the writing on the wall for some part of your portfolio. How are you preparing to handle this and preserve some capital? Like forget returns but defend your position. What are they saying to you? Are they saying we're preparing to sell? Are we preparing to make sure that the data has some residual value? Like what is the game plan for companies like those?

Well, the flip side of how do you get out is where are people putting money to work? And when you look at the managers who are already sitting on capital, they've got their war chests, what are they doing in this market, Erik, the public markets, which is the benchmark for so much private activity. You can argue whether or not they're expensive or cheap. That depends on your view of fundamentals. But multiples are high relative to prior periods, right? So are people just sitting and waiting for something to crack? You got others saying look this is the new normal. We need to embrace this and put capital to work. If you break down what's going on in buyout versus venture versus can we talk about hedge funds? Where are people actually deploying at scale?

Just a last question for you, Erik, which is when you think about the skill sets of fund managers and what's made good fund managers in the past. One of the key areas in which people can prove themselves is in value creation. So they make an investment into a private company and then the private capital firm finds a way to enhance the operations of that business some way somehow. Right now where AI is buzzword du jour and it feels as though lots of companies but also fund managers are AI dressing. How do you cut through it in your due diligence? How is your team cutting through it and saying, 'Hang on a second. Two years ago, four years ago, you fund manager were saying that your strength was in industrials figuring out how to find supply chain efficiencies. Now they're coming to you and saying we're going to figure out how to AI all of our portfolio.' Who's credible in pitching themselves that way to you and who's not?

And give us finish up, Erik, with your own sales moment. What's going on and what's new at Hamilton Lane that we should be keeping our eye on for the rest of this year as we go into H2?

Erik Hirsch, CEO of Hamilton Lane, thank you very much for sharing your perspective. Come back. It was terrific.

Well, huge thanks for Erik Hirsch for joining. There it is, the closing bell. It's 4 p.m. on the East Coast. The market's wrapping up for the day and we don't have a ticker tape, so we'll throw it over instead to our human ticker, our producer, John.

The S&P 500 finished down 3/10 of a percent, the Nasdaq down 1% and the Dow finished the day up 2/10 of a percent.

Lots of big moves in technology again driving a lot of those swings. Well, hope you enjoyed the conversation with Erik. We've got a lot more great conversations coming up, including, as we said, one this Friday with the chief marketing officer of Kraft Heinz. So, stick around. And in the meantime, that's it for today's Brew Markets Daily.