Erik Hirsch, CEO of Hamilton Lane, on the Explosive Growth of Private Markets

Erik Hirsch, CEO of Hamilton Lane—a $146B AUM alternative asset manager and provider of private market solutions—sits down with Michael Batnick to discuss the state of private markets. Hamilton Lane has grown from $6B in 2005 to $146B in AUM, with an additional $1 trillion in assets under advisory, primarily by serving institutional investors, pension funds, endowments, and increasingly individual investors through discretionary fund management and portfolio construction.

Hirsch begins by clarifying that Hamilton Lane is not a fund manager like Blackstone or KKR, but rather an outsourced provider of capital into thousands of fund managers globally. He emphasizes that private market investing is difficult and most institutional investors—even very large ones—outsource the work of manager selection, due diligence, and portfolio construction rather than doing it themselves.

On the topic of private market returns and correlation, Hirsch agrees with Batnick's critique that the industry has been misleading about uncorrelated returns. He acknowledges that private equity returns are correlated to public markets; what creates the appearance of non-correlation is the quarterly reporting lag inherent to private funds. Hirsch argues the industry has been "its own worst enemy" by maintaining excessive secrecy and making false claims about diversification benefits.

Hirsch confirms that the "golden era" of private equity—when managers could generate exceptional alpha by exploiting illiquidity discounts and deploying significant leverage—ended decades ago. Despite this, performance dispersion between top and bottom quartile managers has remained wide, not compressed as many predicted. He argues this is because private market returns depend heavily on manager skill and operational improvements post-acquisition, not purchase price, making outcomes highly variable.

Regarding current industry headwinds, Hirsch factually acknowledges that private market returns have lagged public markets over the past 3-5 years, distributions are down materially, and holding periods are increasing. However, he attributes individual investor outflows from private credit funds to industry immaturity and headline-driven panic rather than fundamental problems. He notes that institutional investors—including pension funds—continue deploying capital into private credit despite negative headlines, contrasting sharply with retail investor behavior.

On private credit specifically, Hirsch explains its emergence as a replacement for the regional banking system that historically financed private businesses. He notes that while some private credit portfolios do have problems (concentrated holdings, poor underwriting, excessive software exposure), the industry data does not support widespread distress claims: default rates sit around 2%, bankruptcies haven't risen materially, and marks remain stable. He predicts the industry will bifurcate into high-quality and low-quality managers, similar to other private market segments.

Discussing secondary markets and the controversial "day-one markup" issue, Hirsch explains that accounting regulations require secondary LP buyers to mark investments at the fund's GP valuation, regardless of purchase price. He defends this practice as following SEC-approved accounting rules and notes that the secondary market has matured significantly: average discounts have narrowed from steep historical levels to about 13% today due to competition among buyers and efficient selling processes. He also explains that pricing complexity stems from quarter-lag reporting and multi-month transaction close timelines.

On Hamilton Lane's performance, Hirsch notes the firm generated $640M in net inflows and positive flows across 10 of 12 funds without implementing gates, attributing this to rigorous portfolio construction and selectivity (investing in less than 1% of deal flow). He emphasizes that education around private markets remains insufficient and that more data transparency is needed.

On public market valuation of alternative asset managers, Hirsch expresses frustration that despite strong operational metrics—incentive fees up sharply, margins expanding, earnings growing—the public equity of firms like Hamilton Lane has declined roughly 50%. He argues the public market is being irrational and swinging too far in extremes, while he and insiders have been buying stock. He emphasizes that long-term growth in private markets is structural and sustainable because public company counts are declining, companies increasingly stay private, and major wealth creation (SpaceX, Anthropic) happens in private markets before public investors get access.

Hirsch concludes by arguing that investors need exposure to both public and private markets for proper diversification, noting that restricting to public markets alone means concentrated exposure to mega-cap, AI-driven companies. He notes that Hamilton Lane has democratized access through multiple channels including direct investment, advisor platforms, and tokenized funds with minimums as low as $500.