Private Investments SubCommittee Update 

SEC Asset Management Advisory Committee – 1st 

December 2020 
 

 

 

 

 

 

 

 

Agenda 

 Recap on why we are focused on potential expansion 

of access to private investments 

 Today’s presenters: 

 Erik Sirri to summarize findings on whether private equity (“PE”) 

provides better and / or diversifying returns 

 John Suydam will provide an overview of the different private 

asset markets and the access points for investors today to help 

broaden our outlook beyond PE 

 Joe Savage will lay out some initial thoughts on design principles 

for wider access 

 Next steps: 

 Investigate returns on other asset classes 

 Seek data and evidence on risk of private investments 

vs some other retail products such as levered ETFs / 

ETNs and options 

 Seek feedback and refine Design Principles 

2 
 

 

 

 

Why are we 

looking at 

wider access 

to private 

markets 

 Growing pool of self managed assets in taxable and 

self directed retirement accounts 

 More concentrated public equity markets – larger in 

size but dominated by behemoths 

 The PI sub-committee is not yet ready to make 

recommendations: 

 Original “gating” issue of showing better and / or 

diversifying returns to public markets is likely to be 

inconclusive 

 Alternative approaches need to be debated furthereg: 

 Is the absence of evidence of worse returns sufficient? 

 Why should only institutional investors have access? 

 Risk of private investments compared to some other 

retail investment products 

3 
 

 

 

Private equity returns 

Erik R. Sirri 

Babson College 

December 1, 2020 
 

 

 

 

Three questions about private equity 

returns 

1. What are the challenges in measuring 

private equity returns? 

2. How do private equity returns compare to 

public market returns? 

3. Is private equity likely to provide a 

diversification benefit to a retail investor’s 

portfolio? 

1 
 

 

 

 

 

 

 

 

 

 

Measurement of private equity returns 

• Unlike a typical stock or bond, PE has irregular 

cashflows (size, timing, direction). 

• This causes problems for, and is a well-known 

weakness of, IRR. 

• There are other return measures: 

• Public Market Equivalent (PME) 

• Multiple of Money (MoM) 

• Others: Time Weighted Returns, Realized 

Value to Paid-in-Capital 

2 
Vintage year net performance 

3 
 

 

 

But the evidence on returns is mixed 

North American PE Funds versus Russell 3000 KS-PME 

Lerner (2020). Prequin data. 

4 
 

 

Performance summary: MOM vs IRR 

Would these numbers make sense to a typical retail 

investor? 

Phalippou (2020) 

5 
 

 

Spread of Net Returns 

Dispersion of Net Returns by Strategy & Geography 

Vintage Years: 1979–2017, Ordered by Spread of Returns 

Dispersion of Returns Median IRR 

Spread (bps) 

2,000 

1,600 

1,200 

800 

400 

0 

All PM 

CI Funds Venture 

Capital 

Growth 

Equity 

SMID 

Buyout 

Natural 

Resources 

Real 

Estate 

Mega/ 

Large 

Buyout 

Secondary 

FoF 

Infra FoF Credit ROW ex. 

Asia 

North 

America 

Asia Western 

Europe 

Global All PM 

Strategy Geography 16.0% 

12.0% 

8.0% 

4.0% 

0.0% 

Median IRR 

Source: Hamilton Lane Data via Cobalt (August 2020) 

Hamilton Lane | Global Leader in the Private Markets 
 

 

 

 

Private equity returns and risks vary by strategy and fund size 

US PRIVATE EQUITY (VINTAGE YEARS 1986-2017): TVPI

As of March 31, 2020 Net to LP TVPI 

3.5x 

3.0x 

2.5x 

2.0x 

1.5x 

1.0x 

5% - 25% 

2nd Quartile 

3rd Quartile 

75% - 95% 

Median 

0.5x 

0.0x 

≤$200mm $200mm-$500mm $500mm-$1.5bn $1.5bn-$5bn 

Fund Size 

$5bn-$10bn >$10bn 

N 

5% 

263 

3.4X 

296 

3.5X 

341 

2.9X 

170 

2.6X 

31 

2.4X 

23 

2.0X 

25% 2.3X 2.2X 2.0X 1.9X 2.1X 1.7X 

MEDIAN 1.7X 1.6X 1.5X 1.6X 1.7X 1.4X 

75% 1.2X 1.2X 1.2X 1.2X 1.2X 1.2X 

95% 0.6X 0.8X 0.8X 0.9X 0.8X 1.1X 

Source: Cambridge Associates LLC Private Investments Database. 

Notes: Pooled returns are net of fees, expenses and carried interest. Private equity includes buyouts and growth equity. Includes vintage years 1986-2017. Vintages after 2017 are 

considered too young to have meaningful returns. 

Copyright © 2020 by Cambridge Associates LLC. All rights reserved. 
 

 

 

 

 

 

 

 

 

 

 

 

Global Mega Cap PE Funds 0.61 0.59 0.61 0.63 0.62 

Global Large Cap PE Funds 0.59 0.54 0.57 0.58 0.60 

Global Mid Cap PE Funds 0.27 0.17 0.20 0.23 0.28 

Global Small Cap PE Funds 0.44 0.38 0.41 0.44 0.53 

US Mega Cap PE Funds 0.62 0.61 0.64 0.65 0.62 

US Large Cap PE Funds 0.59 0.56 0.59 0.59 0.57 

US Mid Cap PE Funds 0.42 0.35 0.37 0.38 0.43 

US Small Cap PE Funds 0.38 0.36 0.37 0.36 0.41 

Correlations also vary by fund strategy and size, providing more diversification at lower end 

CORRELATION TO RESPECTIVE PUBLIC MARKET MPMEs: GLOBAL BUYOUTS 

As of September 30, 2018 

S&P 500 Russell 2000 Russell 2500 Russell Midcap MSCI ACWI 

CORRELATION TO RESPECTIVE PUBLIC MARKET MPMEs: US BUYOUTS 

As of September 30, 2018 

S&P 500 Russell 2000 Russell 2500 Russell Midcap MSCI ACWI 

Source: Cambridge Associates LLC Private Investments Database. Copyright © 2020 by Cambridge Associates LLC. All rights reserved. 

Notes: Data as of September 30, 2018. Vintage years included are 1995–2015 for Mega Cap and 1988–2015 for Large, Mid, and Small Cap. By Cambridge benchmark definitions, Mega 

funds don’t date back further than 1995. Funds raised after 2015 are considered to young to have produced meaningful results. Data shows the correlation between the return of each 

sub grouping and the return of respective public mPME. Mega is defined as >$10B from 2006–2015, >$3.5B from 2000–2005, and >$1B 1995–1999. Large is defined as $1B to $10B from 

2006-2015, $1B to $3.5B from 2000–2005, $750M to $1B from 1997–1999, $500M to $1B from 1995–1996, >$500M from 1993–1994, and >$300M from 1988–1992. Mid is defined as $350M to 

$1B from 2000–2015, $250M to $750M from 1997–1999, $200M to $500M from 1995–1996, $100M to $500M from 1993–1994, and $100M to $300M from 1988–1992. Small is defined as 

<$350M from 2000–2015, <$250M from 1997–1998, <$200M from 1995–1996, and <$100M from 1988–1994. 
 

 

 

 

 

 

Summary 

• The magnitude, timing and direction of cash 

flows present significant challenges for the 

presentation of returns to retail shareholders. 

• The evidence on PE returns is mixed: it may be 

that no one single performance measurement is 

sufficient to tell the whole return story. 

• There is some evidence that private equity 

returns provide diversification benefits to retail 

investors, but the difficulty in measuring returns 

makes such an inference difficult. 

9 
 

 

 

 

 

 

 

 

 

Sources 

1. Hamilton Lane, “SEC Asset Management Advisory Committee,” Hamilton Lane, 

September 2020. 

2. Cambridge Associates, “Private Investments, AMAC Private Investments 

Subcommittee,” September 16, 2020. 

3. Josh Lerner, “Remarks to the SEC Asset Management Advisory Committee Private 

Investments Subcommittee,” September 16, 2020. 

4. Ludovic Phalippou, “Track Record Marketing in Private Equity,” undated, presented 

September 16, 2020. 

5. Memorandum to Private Investments Subcommittee of the Asset Management 

Advisory Committee, “Academic Literature on Potential Benefits for Portfolio 

Efficiency of Private Equity Investments” September 1, 2020. 

All materials available on SEC website at https://www.sec.gov/page/asset-managementadvisory-committee 

10 
 

 

 

A P O L L O G L O B A L M A N A G E M E N T 

December 1, 2020 

Access to Alternative Investments 

John Suydam, Senior Partner & Chief Legal Officer – Apollo Global Management 

SEC Asset Management Advisory Committee 

Unless otherw ise noted, information as of November 2020 
What are Alternative Investments? 

While there is no standard definitionof alternatives, alternatives are any investment 

strategy that is not purely long-only, unlevered and investing in equities and/or debt 

instruments 

Key Alternatives Characteristics1 

Low correlation with traditional asset classes 

Not listed on an exchange 

Private fund structures or ‘40 Act compliant vehicles

Reduced liquidity 

Common 

Alternative 

Asset Classes 

Alternative Asset Classes 

Private Equity 

Venture Capital 

Private Credit 

Real Assets 

Structured Products 

Hedge Funds 

 

 

 

 

 

 

Source: Citi Alternative Investments 2008. (1) These view s reflect the view s and opinions of Apollo Global Management. 

2 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternative Investments Come in Many Different Forms 

Private Equity 

($4.5Tn Market)1 

Negotiated private investments in (most often) non-public companies at different stages of 

maturity with the objective of improving performance and reselling at a higher price in the future 

Venture Capital 

(1.5Tn Market)2 

A type of private equity investing where capital is provided to startups, early-stage, and/or 

emerging companies that are generally viewed as having high growth potential or 

demonstratable high growth 

Private Credit 

($848Bn Market)3 

Directly originated financing or secondary market loans or bonds (predominately corporate) that 

are not traded and often unrated 

Real Assets 

($1.8Tn Market)4 

Negotiated private investments in real assets (real estate, infrastructure, natural resources etc.) 

with the objective of generating current income, improving performance, and/or reselling at a 

higher price in the future 

Structured 

Products 

($7Tn Market)5 

Pools of fixed income securities purchased with equity from investors and leveraged with the 

objective of generating spread income for investors above comparative non-structured yields 

Hedge Funds 

(3.5Tn Market)6 

Private investment vehicles primarily focused on global equity, fixed income, and/or (gold, 

commodities etc.) exposures created by sophisticated trading strategies – including short selling 

and hedging – that can employ leverage and/or derivative instruments 

Note: These view s reflect the view s and opinions of Apollo Global Management and w e believe they represent broad directional characteristics, but these view s are not absolute and certain alternatives may not fit w ithin the mentioned 

context. Sources: Citi Alternative Investments; (1) Preqin, Bain, Institutional Investor (2) Crunchbase (3) Preqin Future of Alternatives: Private Debt (4) Preqin Future of Alternatives: RE, Infrastructure & Natural Resources, 

respectively (5) Bloomberg (6) Preqin Future of Alternatives 2025: Hedge Funds 

3 
 

 

 

 

 

 

 

 

 

 

 

 

 

Alternatives Differ From Traditional Investments in a Few Key Ways 

Traditional Investments Alternative Investments 

Relative performance objective Generally absolute performance objective 

Generally no leverage May use leverage 

Performance dependent primarily on market returns Performance dependent primarily on alpha generation 

Historically high correlation with market indices Often low-to-moderate correlation with market indices 

Typically offers daily liquidity Typically offers less than daily liquidity 

Fixed management fee on assets under management Can have management and incentive fee structure 

Source: Citi Alternative Investments 2008. Note: These view s reflect the view s and opinions of Apollo Global Management. 

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Retail Investors Can Only Access Certain Types of Alternative 

Investments 

▪ Today’s regulatory format limits retail access to private vehicles that employ alternative investment strategies

Daily Liquid Semi-Liquid (Less Than Daily) Illiquid 

Moderately Accessible 

Easily Accessible 

Not Accessible 

Common Institutional 

Access Points for 

Alternatives Investing 

Retail Accessibility 

‘40 Act Liquid Alts

Mutual Funds 

with Alternative Assets 

Public REITs 

Public BDCs 

Public SPACs 

Non-Traded REITs 

Non-Traded BDCs 

Tender / Interval Funds 

Private Funds with Incentive 

Direct Co-Investments 

Private Funds without Incentive1 

Listed CEFs 

Hedge Fund Reinsurance 

Alternative-Like 

Vehicles Accessible by 

Retail 

(1) In this format, incentive fees can only be charged on Net Interest Income (“NII”), which is defined as interest income, dividend income and any other income accrued, less operating expense and not on capital gains. If NII 

surpasses the hurdle rate, then the GP is entitled to carry. Carry cannot be taken on any capital gain at any time if there are over 100 accredited investors in a vehicle. 

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Alternatives Provide Much Needed Returns for Institutional Investors 

Alternatives assets are expected to grow at a 9.8% CAGR through 20251 

US state pension funds have significantly increased their 

allocation to alternatives...

...In order to generate returns in a challenging rate

environment 

Avg 30-Year Treasury Yield Asset Allocations of US State Pension Funds2 

Avg 10-Year Treasury Yield 

Pension Fund Plan Target Return 

16% 

14% 

2001 2019 

5.6% 12%

60.4% 

33.6% 

10% 

8% 

6% 

4% 

52.7% 

28.3% 

19.1% 

Allocation to alternatives has increased from 

2% ~5% to 19% over the past ~10 years 

0% 

1980 1985 1990 1995 2000 2005 2010 2015 2020 

2.58% 

Pension funds have recorded a 

decline in their assumed rate of 

return as interest rates have fallen 

over the past ~20 years 

(1) Preqin Future of Alternatives 2025 (2) Equable Institute State of Pensions 2020 (July 2020) Note: “Alternative” investments include private equity, hedge funds, real estate, commodities, and tactical asset allocations. 2020 yields are 

the average as of June 2020. (3) No 30-year treasury bonds w ere issued betw een February 18, 2002 and February 8, 2006. 

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Retail Investors are Underinvested in Alternatives Relative to Institutions 

6% 

18% 

28% 

12% 15% 

94% 

82% 

72% 

88% 85% 

Retail / HNW Pension Funds Endowments / 

Foundations 

Insurance Sovereign Wealth Funds 

Private Market Alternatives Other Investments 

$40.4 $16.8 $2.3 $13.9 $3.7 

Private Market Alternatives vs. Total Channel AUM ($Tn) 

Total 

Channel 

AUM & 

% of Portfolio 

Source: Large, w ell-know n global consulting firm. As of August 2020. 

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Retail Investors Face Disadvantages When Investing in Alternatives 

Expanding access to alternatives vehicles could mitigate certain issues retail investors face today 

Liquidity Mismatches 

Retail vehicles invest in illiquid 

assets and are unlikely to provide 

liquidity in times of stress despite 

stated liquidity parameters 

-

Lack of Incentive Fee 

Prohibition of incentive fees for 

certain investor types creates 

misalignment with investment 

manager 

Concentration Risk via SPACs 

Sub-accredited retail cannot 

invest in PE, but can invest in 

SPACs, which are more 

concentrated versions of PE 

Limited Access for Retirement 

Defined benefit staffs can access 

alternatives easier than defined 

contribution participants 

Distribution Fees 

Up front and ongoing 

brokerage fees are high 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note: These view s reflect the view s and opinions of Apollo Global Management. 

8 
 

 

Private Investments SubCommittee Update 

SEC Asset Management Advisory Committee – 

1st December 2020 
Design Principles 

2 
 

 

 

 

 

 

Design Principles 

 Assuming the Committee generally agrees that investors would 

benefit from greater access to private investments, what should be 

the design principles for this access? 

 Goals -- provide greater access with attention paid to other investor 

objectives: 

 Understanding and managing potential risks and rewards 

 Meeting investors’ liquidity needs 

 Reducing or disclosing conflicts of interest 

 Understanding impact of fees and expenses 

 Requires adjusting or eliminating current private investment 

standards: 

 Wealth 

 Income 

 Financial Sophistication 

 Natural Person vs. Institution 

3 
 

 

 

 

 

 

Design Principles 

 Principles for Wider Access: 

 Diversification 

 Disclosure 

 Transparency of Fees and Performance 

 Reasonable Costs to Investors 

 “Chaperoned” Access with Fiduciary Obligations? 

 Full Retail vs. “Super Retail” Investor Access 

 Balancing Investor Protection and Investor Choice 

 Potential Access Vehicles 

 Private Equity Funds or Funds of Funds 

 Mutual Funds 

 Closed-End Funds 

 Retirement Plans 

 Other Structures 

4 
Design Principles 

Committee Input: 

What factors are most important in 

designing greater access? 

What investor protections are 

needed? 

Next steps 

5 
Questions and 

Comments 

6