Private Markets 360° | Episode 38: Sarah Samuels on Navigating New Frontiers of Private Markets

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Jocelyn Lewis [00:00:01]:

Welcome back to Private Markets 360, the podcast where we bring you candid conversations with the industry's most insightful leaders. In today's episode, we're joined by Sarah Samuels, Chief Investment Officer at nepc, a firm recognized for its deep institutional roots and innovative approach to navigating the ever evolving private markets landscape. Sarah brings over seven years of experience at nepc, overseeing investment strategy across a diverse client base, including endowments, family offices and public pensions. With a background that spans managing the endowment at Wellesley College, running a public pension, and time at a registered investment advisor, Sarah's perspective is both broad and nuanced. She began her career at Wellington and is passionate about education and financial literacy, serving as chair of the CFA Society of Boston and authoring a children's book on money and role models. With a keen focus on the lower middle market, Sarah has shaped NEPC's approach to private markets by championing smaller funds and specialized strategies that deliver outsized returns for clients. Today, Sarah will share her insights on the evolution of private credit, the convergence of public and private markets and opportunities arising from economic disruption, as well as her perspectives on building investor relationships, navigating risk, and the future of institutional capital in private markets. Sarah, welcome to Private Markets360.

 

Jocelyn Lewis [00:01:45]:

It's a pleasure to have you with us today. How are you?

 

Sarah Samuels [00:01:48]:

I'm great. Thank you so much for having me today.

 

Jocelyn Lewis [00:01:51]:

Thank you for joining us, Sarah.

 

Chris Sparenberg [00:01:53]:

We have so much exciting content to cover on this episode, but we thought it'd be best to just kick off with the story of your journey into private markets and what ultimately drew you to NEPC.

 

Sarah Samuels [00:02:05]:

Yes, well, I certainly didn't have, 22 years ago a long term plan to become someone who spends a lot of their time investing in private markets. I was a German major at the University of New Hampshire and my view of the world was incredibly small. I didn't know what I wanted to do when I grew up and I ended up taking an administrative assistant role at Wellington Management Company. I remember somebody saying to me, it doesn't matter, you know what the role is for your first role, just get into the best company that you possibly can. And I'd heard great things about Wellington. So I started as an admin, no idea that this industry existed and thought I'd be an admin forever. My family didn't come from much and I looked around and I said this is a pretty good gig. But then I was inspired by this, this one portfolio manager at Wellington who I would see in the morning meetings.

 

Sarah Samuels [00:02:55]:

She was young, she was a really, really good stock picker. And she commanded this room full of powerful people. And I said to someone, who is this person? She's really impressive. And they told me and they said she started as an admin. And so my entire world changed in that one small moment where I said, oh my gosh, I never thought I could like actually be an investor. And she didn't even know I was watching her. So that was the first instance of really appreciating the power of role models and how they can. Being a role model can transformationally change someone's future.

 

Sarah Samuels [00:03:33]:

And you don't always know you're a role model either, especially when you're in a senior position. So it's always important to act like one. And then I realized that I needed to get education. Being a German major, I was not given a natural advantage in the investment world. So I got my cfa, I got my MBA from Boston University, and I took on, deliberately took on more roles, became an analyst Wellington, and the rest is kind of history from there.

 

Jocelyn Lewis [00:03:59]:

It's such a great story about having the role model not really knowing what exactly you were getting into when you became an admin initially and then just finding the passion for private markets. Love that. So, Sarah, you've managed both endowments and public pensions. How have those experiences shaped your investment philosophy today?

 

Sarah Samuels [00:04:23]:

So the investment world in 2004, when we were talking about alternatives, we were mostly talking about hedge funds, certainly my time at Wellington, alternatives now private markets in particular have really become mainstream. But it wasn't so obvious at the time that that was where we were going. So at Wellington, I knew I wanted to do more and I was there for six years. But I remember seeing these allocators, these clients coming through and they were so smart in these meetings and the questions they were asking. And I knew I wanted to try my hand at being an allocator. First I took a pit stop and was a portfolio manager at an ria. It was a little too short term focus for me, but I remembered those impressive allocators and LPs. And so I went to go work at the state pension fund in Massachusetts.

 

Sarah Samuels [00:05:13]:

And to many that was a head scratcher, because at the time, again, it seems so obvious now, but in 2010, allocators were nascent. They were beginning to be considered true, really smart, sophisticated institutional investors. And I remember someone saying to me at the time, are you sure you want to go over there? Because you know you're just going to be an administrator and pushing papers. And I said, I have A feeling about this, it's going to be great. And sure enough, going to the pension fund was amazing. It was, I don't know, 60 billion at the time, it's over 100 billion today. You're given a lot more responsibility than you should have in your late 20s. And I learned about a lot of.

 

Sarah Samuels [00:05:47]:

So that was a wonderful experience where I grew up there really in terms of allocating capital, first covering public markets, then doing rotations through hedge funds and private markets and spending time as deputy cio. I knew I wanted from there to manage more venture. Public funds by nature, especially if they're large, can't really get the return on time invested for those small checks that need to be made into venture because they need to deploy a lot of money and venture is really just too small. And so we weren't doing a lot of venture. But I knew that was a missing skillset and I knew I wanted to work with a smaller pool at an endowment. So I shifted over to Wellesley College where we were generalists, a really small team, much smaller pool of capital and learned a lot more about top tier venture there as well as China and overseas investing. And then seven years ago I was approached by Nepc and by the way, I was a client of NEPC's in the former life for six years. We knew each other really well and they said why don't you come over here and, and run our investment team.

 

Sarah Samuels [00:06:43]:

So for the last six or seven years I've run public markets, private markets and hedge fund investments. And really what I've, what I've done is bring together the best, what I've seen is the best of different investment processes that are necessarily very different. So a public fund and an endowment, while they both have pretty aspirational nominal return expectations on the order of 7, 8% or so, they actually implement pretty differently. They're both pretty risk on and both investing in privates, but they're really different. For example, at the public pension fund we were, and I'm sure they still are, subject to FOIA Freedom of Information Act. We had 18,000 line items and can, could and did make decisions based on data. And we had to memorialize that so that if we were ever asked questions about why we made a trade, why we changed something, we'd be able to explain it. So we were deeply rooted in data.

 

Sarah Samuels [00:07:38]:

We also had more in public markets than privates given our size. So the focus was very much on quantitative analyses and backing things up with really sound investment analysis. Shifting to the endowment, the asset allocation is flipped on its head. You've got a lot more in alternatives and illiquid strategies, and it's a smaller pool of capital. And the focus actually was much more on critical thinking, because when you're investing in private markets, after the initial investment, things are out of your hands. You can do things on the margin, you can. You can advise the GP on decisions that they're making. If you're on the lpac, you can do a secondary sale.

 

Sarah Samuels [00:08:19]:

It's becoming more and more institutional, but for the most part, you really need to do that critical thinking with limited information and a tremendous amount of gray area with the private markets. So that was uncomfortable for me at first. And then that team at Wellesley really taught me how to think critically without having all the information and all the data at your fingertips, which is a.

 

Chris Sparenberg [00:08:38]:

Great lead into what you're doing at any PC now. So we'd love to pivot a little bit and talk about how you approach manager selection. And when you think about how you're advising clients, how you're out in the market talking to managers, looking at new fund types, what are the variables that you're taking into account and how does that lead your overall advisory practice?

 

Sarah Samuels [00:08:57]:

Yes. So the process that we've built here, as I mentioned, it marries what I saw as the best parts of very different process. Investment processes that I'd seen in the past, I also didn't mention, but I was involved with my alma mater's investment committee. I chaired the investment committee there and learned a lot of things about governance and decision making that I wanted to incorporate. For example, transparency and accountability and things like that. So the things that we brought together, every process that you're going to hear about out there has the people and the investment philosophy and process and performance. And that's kind of table stakes. But we are going deeper in two areas.

 

Sarah Samuels [00:09:37]:

And so one is the quantitative tools that we use and the way that we use them. So a lot of the quant techniques I used, I was trained by an experimental physicist who happened to become an investor who we hired at the pension fund. He had a really different way of looking at data, and we carry some of that through today. To unpack signal from noise, I'm looking at things differently. And then the other end is what I learned at the endowment, which is that critical thinking, are the interests aligned, whether it's terms or parts of the LPA key person provisions, is the strategy, are the people doing the deals focused on what they need to be focused on, or are they focused on raising new funds? So they can get more in management fees and then most importantly, succession. We pay a lot of attention to succession plans because there are a lot of funds and GPs out there who are facing succession matters in the next few years who probably haven't thought it through completely. And either they're going to sell to an outside investor, which is fine, but it does change the dynamics of your investment, or they're going to try to get it to the next generation who may or may not be financially or from a leadership perspective ready to do that. So there are a couple of underpinnings in our process.

 

Sarah Samuels [00:10:48]:

The mechanics of it are that we have an investment framework. And frameworks are so important, and I'll explain why in a moment. But it's anywhere between 250 and 400 questions for every diligence process that we go through underwriting a strategy. But I expect each and every analyst who underwrites something to be able to answer all of those questions. But the key underpinnings of our approach are that we are looking to employ second level thinking in everything we do. We have to be one or two or more steps ahead of the market and do things differently from others or else we're going to end up with the same performance. We seek to overcome bias at every step of the process. And investing is riddled with potential for bias when bias driven decisions, when the risk of bias driven decisions is highest.

 

Sarah Samuels [00:11:39]:

It's when the situation is complex or changing, when you're dealing with lots of different people and stakeholders to make decisions, and when the stakes are very high. And that is what we do all day long. So biases exist. We need to invest as much time in understanding how our own brains make decisions as we do how a deal creates value and how the deal person creates value. So we've got second level thinking overcoming bias. And the third thing is using a chief investment officer or CIO mindset, thinking holistically across all the asset classes and strategically how we want to invest capital to overcome that silo mentality that many large organizations have. I guess I would add when I was 15 years ago, when I was asking, just speaking with CIOs in the industry on the LP side, I remember asking a really, really legendary CIO. I said, how? What does it take to be a great cio, great investor? And she said, you have to articulate your investment philosophy in one minute or less.

 

Sarah Samuels [00:12:40]:

So your investment philosophy is why do you believe investing works? And then you have to be able to articulate your investment edge and your edge is why do you have a right to win in a sea of very talented investors? Why do you have an edge over all of them? So when we're meeting with managers, this is a little bit of a pro tip, but when meeting with gp, we're going to ask you about your philosophy and your edge. And what she told me is that 98% of the smartest people out there cannot articulate their philosophy and edge. And when they can, it's incredibly telling that they're introspective, they're smart, they've thought about things, and they're not just showing up. So for me, my investment philosophy is that I want any portfolio that I'm running to be a perennial garden. And in any given season we want something, some asset class to be in bloom. We want to take risks when we're getting paid for it. So in privates that means that we'd be getting paid to lock up our capital, among other things. And we want really deep relationships with the GPs with whom we invest, so we understand them well.

 

Sarah Samuels [00:13:46]:

All of this is underpinned by our edge, which is CIO mindset, second level thinking and overcoming bias. But it took me years to be able to refine that philosophy and edge, so I'll stop there.

 

Chris Sparenberg [00:13:57]:

What a wonderful way though, to take what is a large and constantly evolving landscape of investment opportunities of asset managers and really simplify your criteria to focus on the ones that matter.

 

Jocelyn Lewis [00:14:08]:

Yeah, it's a great analogy too, thinking of it as that perennial garden too, with always something being in bloom. I like that. And Sarah, also curious about how you view partnerships in general, because there's everybody's looking for scale and looking to partner with others for various reasons. But would love to get your take on how partnerships play an expanded role in accessing the private markets.

 

Sarah Samuels [00:14:43]:

Yes. So when we work with GPs and managers of funds and deal people, we're really looking for that strategic type of solution, successful partnership, where we are working together for a long time. Investing in private markets is like entering into a marriage. You don't do it lightly. These are long, long holds. With venture, you might be getting your money back in 17 years. So you have to know at the outset that you are aligned, that there is trust and that you really understand how they do what they do. So that if there are times of underperformance or lack of liquidity or something like that, or a misstep, that you can be able to be a long term investor and not get swung around by noise as opposed to signal.

 

Sarah Samuels [00:15:25]:

So some of the things that we look at we love to invest in funds that are either newly launched or earlier on in their fund lives. I would say about 30% plus are in funds one, two or three in terms of what we invest in. We also like to look at niched or difficult to categorize and bucket on an LP's performance statement or asset allocation in opportunities because that means they often get overlooked. So you mentioned scale. Scale is many times the enemy of alpha when it comes to investing. Not all the time. It's not a bright line that we have, but oftentimes the best returns are generated when a fund size is small and then we see the degradation over time. So we really look for discipline in terms of fund size management and we really look for the GPS to be motivated more by carry than management fee.

 

Chris Sparenberg [00:16:25]:

It's a great way to again focus in on managers who are worth your time and where you think you get the best benefit for yourself and for your clients. Which brings us to the other element of this and your outlook on risks and other insights you have on what's happening in the market today. Can you share your views with us on what you think the biggest risks facing institutional investors are in private markets and how you're steering clients through this environment?

 

Sarah Samuels [00:16:50]:

Yes. So this is a really interesting environment that we're in for a variety of reasons. So I'll just summarize a few key common themes across all private markets that I would keep in mind as we begin to talk about risks. So one is that AI is a major accelerant for many strategy types in the private markets. So we need to just really be careful that we are believers of the AI investing that we're doing and that we have specialists who understand that we are dealing with extremely narrow market leadership in both public markets and private markets alike. And this makes active management in the public markets challenged and it makes broader participation in exits and putting performance numbers on the board more difficult in privates too. We're seeing a tremendous amount of pressure to transact in privates and I'll explain where that's coming from. But this has to do with liquidity challenges for both LPs and GPs alike, leading to a lot of creative liquidity tools, seen a lot of secondaries which is related to that.

 

Sarah Samuels [00:17:51]:

One of the pieces of advice we're giving to clients is that in many areas of the private markets it's okay to be boring right now that in some areas you are not going to get paid to stretch for returns by going riskier or find more leverage or fill in the blank or however you define risk. We think it's a great time to be a provider of capital, whether it's a lender or secondary player. And we think that the dispersion between the winners and the losers, or the haves and the have nots is going to widen going forward and that manager selection is going to matter more than ever. If you think about the dispersion between the best and the worst private market funds within a universe that could be on the order of 40% plus or something like venture, whereas in public markets it's maybe 4% dispersion between the best and the worst. So it really, really matters who you partner with and that you have great access and that's a full time job and then some. But going back to this, probably the most important crux of where I see the market shifting today is this mega theme of convergence. And when we, when I say convergence, it's really along two prongs. One is convergence between public and private markets.

 

Sarah Samuels [00:19:01]:

So we're increasingly seeing a blurring of lines between public and private markets. The second prong is a convergence between institutional and wealth investors. And with that we're seeing crossover vehicles. ETFs on the rise, the rise of wealth, the introduction of interval funds and the real uptake there, and all of the asset funds flows, market structure and future performance potential implications that come along with that.

 

Jocelyn Lewis [00:19:31]:

There's really so much going on in the private markets today, everything that you just touched on and it makes it somewhat difficult to navigate that all unless you have a lot of the information to make really informed decisions. And one of the things that I'm curious about, Sarah, staying on the theme of risk and insights, is how has NEPC adapted your pacing plans to respond to the market disruptions and some of this economic uncertainty?

 

Sarah Samuels [00:20:09]:

Yeah, thank you for asking that question. And this is something that's so important. So pacing plans, I'm sure your listeners know what they are, but in case they don't, a pacing plan is a pretty important part of managing a private markets program. As an LP, it's not something all GPs are necessarily aware of either. But the key inputs are the fund life of the funds in which you're investing, the assumed fund life. And this is a model. You're going to put in the expected fund life, you're going to put in the expected rate of capital calls and distributions, you're going to put in an expected return, among other things, a yield. If you've got something that's distributing cash back regularly, like private credit.

 

Sarah Samuels [00:20:49]:

Now this was built in the mid-2000s by the Yale investment office, Takahashi and Alexander at the time. And there's a great paper out there that's available for anyone to read. And this is the basis of how many pacing plan models are built. The challenge is that product markets have changed since then and some of those inputs may or may not continue to be relevant and giving proper output. Pacing plans in our we did a tremendous amount of work to understand and research whether we needed to make any changes to our pacing plan assumptions. The short answer is that we did make some changes a couple of months ago. The output of a pacing plan and why this all matters is that you're essentially modeling out how much you should be committing in the next calendar year, the calendar year after that, and so on and so on. And that all underlies what belies all of that is an assumption on how much you're going to be getting back from your private markets program.

 

Sarah Samuels [00:21:46]:

The objective is to try to get as close as you can to your target allocation of private markets. Let's say it's 20% as a percentage of a total portfolio. You are never going to be right on that 20%. Or if you are, it's a function of a pendulum swinging and you just happen to measure it at the right time. Because you can't control public markets, the denominator is going to move all around. But you can be tactful and you should be. It's a big part of the risk management process to have a sound, solid pacing plan to guide you in terms of how to manage your private market commitments. So what we found, and I've had many discussions with institutional LPs who are not clients at our at any piece, we have a hundred plus programs in private markets that we do manage.

 

Sarah Samuels [00:22:33]:

In all of these conversations we found one common theme and that's that LPs didn't know what to do with pacing plans. They knew the assumptions were busted. And how did we know that? Here's an example. 20, 24 and 25, we really didn't see a lot in distributions, certainly not what was modeled into the pacing plans. So the model was off and it had a certain amount of distributions that the model wanted to get back two LPs within the time frame of the fund. So it was stuffing all of these distributions into 20, 26 and 27 for venture portfolios, for example. And we knew that wasn't reasonable, that we'd get all the capital back that we haven't gotten in one year. So that was the first piece of output.

 

Sarah Samuels [00:23:18]:

And then the other is that we knew that the implications of capital not coming back to us at the same pace as it was modeled means that the NAV of the private markets in a program remains elevated because the capital is not coming out and coming back to the lp. If the NAV is elevated, a percentage of the total portfolio is higher than it would be and you don't need to commit as much to private. And so the implications are that it's possible that some clients were under committing to private markets and overestimating the distributions that would be coming. So based on our research, what we found is that it was important to extend the fund lives of venture investments. And we added two years to that and that is a more reasonable expectation. And the other is that we found that the growth of assets within a fund tends to get locked in anywhere between years 8 and 12. And so we were measuring where does that actually cap out and what the implications of us capping the growth of assets in the pacing model of every single fund that we invest in is that it decreased the nav, which means that our clients would probably have been committing a little bit more in the new regime in the new model and receiving a little bit less back. We have a blog about this, we're happy to talk about it with anyone who wants to talk about it.

 

Sarah Samuels [00:24:38]:

But we did a tremendous amount of work based on our experience with hundreds of private market plans. Which brings us to secondaries. Tail end funds are something that are getting a lot of attention. These are funds with 13 plus years into their fund lives that have a significant amount of remaining capital still left to go. So One example, in one vintage year, 2010 vintage year for a certain asset class within privates 2010 vintage year, there was still 30% of the fund that had yet to be sold. 13 years in or longer, 15, 16 years in. And the likelihood of that capital doing much of anything in the next few years is pretty low. So what a lot of LPs are thinking about is proactively pricing their portfolios, especially those tail end funds getting quotes from secondary brokers whether they plan to do a secondary sale or not and then just be closer to the pricing.

 

Sarah Samuels [00:25:34]:

Because the secondaries transaction market has really become much more institutionalized and destigmatized. So we are seeing a lot of folks using secondaries as a primary investment tool today for portfolio construction and management. Whereas before it was a Hail Mary, I'm in trouble decision to do a secondary resale.

 

Chris Sparenberg [00:25:55]:

It's definitely an important tool that we're seeing more and more utilization of and as we stay on that theme of risk and just where we are in the current liquidity environment and how you're advising clients. Another component to this is spread compression, the challenges of large fund sizes in today's market. Can you talk to us about how you're advising clients there, what some of your observations are in relative performance and some of the other factors?

 

Sarah Samuels [00:26:22]:

Yes. So I'll probably simplify this to an answer that centers around buyouts and then private credit. So within buyouts, the components of buyout value creation are really three things. Multiple expansion, earnings growth and use of leverage. And we're happy to pay 2 and 20 or whatever the fee structure is for the first two for earnings growth and multiple expansion, but not necessarily for use of leverage. For a long time when we were at zero interest rate policy, it was pretty easy for funds to create quite a bit of value by just putting apply and leverage and then doing some financial engineering to create value. We know that that's not possible today. And while rates and spreads are coming down on the cost of debt, they still are quite a bit higher than they were in the past.

 

Sarah Samuels [00:27:12]:

So really focused on lower middle market, which I know everyone says it's a very common thing to go after. But the reality is that especially large allocators of capital and we're putting between 6 and 8 billion to work in a given year. And our best ideas, larger pools of capital often do go into the mega funds. The reason we like earlier's lower middle market and middle market is that there are lower entry valuations, the use of debt is oftentimes lower, and then most importantly the optionality for exit is much more vast. So those are really important things for us and the opportunity to use to grow earnings is great there. Whereas it's harder to move a big ship in the mega space when we think about private credit. Oh, this is an area that's come a long way and really evolved over the last 15 years. The punchline is that there are a lot of new entrants into private credit and this has led to consolidation and it's led to lots of pressure to transact, whether it's on the buy or the sell sign.

 

Sarah Samuels [00:28:21]:

So within credit we are emphasizing a move away from large vanilla direct lending investments. We think that there's some stuff going on with those types of companies that we're not eager to take on that risk. And there's plenty of capital propping up the price at which things transact, which is limiting the upside potential. So we really are focused on the smaller end. If we're going to be doing direct lending, the other areas where we're focused are we believe we're going to get paid for complexity today within private credit. And that means that we want GPS and partners who have both financial and operating restructuring experience, which a tourist in the private credit space may not have that experience. It's a pretty nascent asset class. And we're also focused on doing stressed investments where we're more senior in the capital stack.

 

Sarah Samuels [00:29:16]:

We have a white paper with some overall views on private credit that we just published. But in general, if we were to be a player in the secondary space within private credit and within biotech for that matter, we would be sellers of large companies and buyers of small.

 

Jocelyn Lewis [00:29:32]:

That was a great overview, Sarah. Really appreciate that. I feel like a lot of what you've shared today, you've provided a lot of knowledge for our listeners, which has been fantastic. And one of the things, thinking back to the introduction, we mentioned that you're really passionate about education and financial literacy. So along those lines, I'm curious what advice you might have for emerging managers that are trying to stand out in the competitive fundraising environment.

 

Sarah Samuels [00:30:08]:

Yes. So advice to emerging managers. One is to, as I mentioned earlier, really be able to clearly articulate your investment philosophy and most importantly, your edge. It's a question you're certainly going to get from my team at IEPC and likely from many other allocators out there. So make sure you're really punchy and crystal clear as to why you have a right to win. The other is to be able to tell a story with your track record and to bring that to life. But probably the most important thing for anyone in a fundraising position is, please, I beg you, lead with asking questions of the LP sitting across the table from you. I can't tell you how many times GP of an emerging fund or a very established firm comes in, opens up the pitchbook and starts talking at the prospect for the client.

 

Sarah Samuels [00:31:04]:

And asking questions at the outset does a number of things for you. It's a gift that keeps on giving. Ask the LP what their mission is. Ask them what they're working on, where they're allocating capital. Tell me a little bit about your background, establishing the connection. Getting the LP talking gives you information about what they're looking for so you can be sure that you're talking, not talking at them. You're. You're providing a solution for something that they need and it establishes an actual human connection.

 

Sarah Samuels [00:31:32]:

So it really gets overlooked because People are so excited to show the slides of Payco created.

 

Chris Sparenberg [00:31:36]:

That's really good guidance. And staying on the topic of education, there's another really interesting tidbit for us to talk about here, and that is you've written a children's book about money and role models. Would love to hear more about what inspired you to write that book and what you hope readers take away from it.

 

Sarah Samuels [00:31:55]:

Yes, thank you for asking about it. It's. The book is called Braving Our Savings. And it was the child of an idea that I have had for a long time, this concept of 30 seconds of bravery. Lots of people over the years say, what's your career advice? And it's always, for me, be brave for just 30 seconds. Doesn't matter how scared you are, how much you want to run away, how much you have, like literal and figurative indigestion about what you're about to do. If it's asking for a promotion, if it's raising your hand for a project, or in the personal realm, it could be asking for a divorce, like I did. So these things, these 30 seconds of bravery can be really pivotal moments.

 

Sarah Samuels [00:32:34]:

They're tiny acts that can change your entire trajectory of your life or your career. So with that in mind, as I mentioned, being divorced, having two little girls who I want to make sure they can stand on their own two feet if they ever need to, like I did, I began to teach them about investment concepts. And I realized how hard it was and that my acronyms and MBA and cfa, they didn't care about that. I had to find new ways to reach them and to make something tangible and accessible, these concepts. And so I basically just wrote down what worked with them. And the long story short is that I ended up going down the book route with the idea of again, how we opened this discussion that I believe so strongly in the power of role models and the power of education. So the role models are the kids in the book who are actually my daughters who were six and nine when they entered their first trades. And the education is that this book is actually practical.

 

Sarah Samuels [00:33:33]:

There's actually a stock picking worksheet in the back and how to enter a trade and things like that. So really hoping to teach kids about bravery, doing something scary, even if their parents didn't tell them that it was possible to become an investor. Like, my family told me that you can do it with only like $10 in the stock market and that beginning to view the world as a capitalist and beginning to touch and play with and feel risk and what it Means is a really important skill. So we've given away a lot of copies of the book I teach kids in my free time. And it's amazing how smart these kids are. They just, their fire just needs to be lit.

 

Jocelyn Lewis [00:34:10]:

That's so interesting. Yeah, I have to take a look at the book. I'm just so curious. But I think that it's great to start financial literacy young, hear all the time that it would be great to have more content around that. And I think we're at the point where more and more is in the market. So I think that that's really, really great and hopefully will change some of the trajectory and like you mentioned, have that kind of bravery start out early. So I'm wondering too, with just the importance of education now pivoting more a little bit to the investment ecosystem, but how do you see financial literacy impacting the overall investment ecosystem?

 

Sarah Samuels [00:34:59]:

Well, I hope that there continues to be a focus on it because we certainly need smart, strong investors from every part of the world and every part of the social demographics and backgrounds, because this pool of capital that we are all involved with stewarding and shepherding forward is incredibly important and it makes the world go round. So we need people from all different backgrounds, not just a group of people who have been privileged to continue to enter the investment industry and the market to oversee that capital. You think about the importance of this capital. It sends kids, first generation kids to college through endowments. The capital we oversee is helping hospital systems care for the sick. It's helping retirees live comfortably. Both of my parents benefit from pension funds or 401ks, and it's really helping to fund all the innovation that we're beneficiaries of in this world with technology and other. So it's super important that we continue with financial literacy so that we can drive this capital forward.

 

Sarah Samuels [00:36:02]:

And I hope that there's both government support of that as well as private sector investment.

 

Jocelyn Lewis [00:36:08]:

Agree with all that. And Sarah, looking ahead, what do you see as the future of private markets and how is NEPC preparing for that next wave of innovation and opportunity?

 

Sarah Samuels [00:36:22]:

Private markets are a mature industry now. So the fund structure of private markets dates back to the 1960s and it really hadn't changed all that much up until a few years ago. Where fund manager creates a fund, they draw down the capital, they invest it, they return it, they close the fund, they rinse and repeat. The other part of why private markets are mature is that most institutional LPs are at or pretty close to their target allocations to privates this is no longer a nascent asset class that is only for the the cream of the crop or the smartest or the biggest investors out there. It's something that's really pretty prevalent across all sorts of institutional portfolios if they are return seeking. So what's the next generator of growth for GPs? 1 is the untapped wealth market which is extremely fragmented. So on the one hand you've got the mature investment industry, on the other end you've got at the other end of that spectrum a very not mature wealth channel that is fragmented and that has very little invested in privates. So one of the questions that we've asked ourselves, we did a crystal ball exercise last week at our investment off site and what could the future hold? And some of them were deliberately provocative and some were pretty reasonable future states.

 

Sarah Samuels [00:37:34]:

But we basically asked ourselves what if 60, 40 becomes 50, 30, 20? So what if 50, 30, 20 is the new 6040 for individual investors? What if they're all individual investors end up with 20% in private markets from I don't know, 1 or 2% in aggregate today. And the answer is that that would actually be quite a bit of capital coming into privates. We have seen fund structures change with the introduction of semi liquid vehicles, which introduces a host of things to watch out for from an asset liability mismatch perspective and what that means for future returns. We think that, as I said, that some of the outcomes of this are that the haves and the have nots, the top performers and the bottom performers, that spread is going to widen. So you want to increase your focus even more on being in the top investment. And then we think that continuing to focus on pacing models, on seeking value and under trafficked and undervalued opportunities as opposed to the big beta plays, is where you're going to be successful in private markets. I'll just close with another analogy that investing in private markets is not just slapping together a series of allocations and hoping to have the same returns as the best private market investors that we all watch some of those top university endowments. The devil is in the details.

 

Sarah Samuels [00:38:56]:

You can't just say I'm going to do this much in venture and this much in Biotes and I'm going to do just as well as everyone else. It's as though you have a recipe from France and you try to apply our measurement system as opposed to the metric system. We don't have the same French sugar and we don't have the same way of baking things. You need to have exactly the playbook that the best investors in private markets have, which is deep, deep understanding of partners being early, taking risks, whether it's in early managers or unproven areas of the market, and ensuring that you are with the very best GPS out there as opposed to any old investment. So that's what I'll close with.

 

Chris Sparenberg [00:39:39]:

Awesome. Thank you for joining us for this episode of Private Markets 360 where we had the pleasure of speaking with Sarah Samuels. Sarah shared her invaluable perspectives on the evolving landscape of private markets, offering deep insights into current trends, unique challenges and emerging opportunities for investors. We explore the dynamic nature of capital raising, the importance of thoughtful due diligence, and the critical role that innovation is continues to play in shaping the future of private investments. Sarah's expertise and thoughtful commentary truly illuminated the complexities and potential of this ever changing sector. We appreciate you tuning in and hope you found this discussion as enlightening as we did. Don't forget to subscribe to Private Markets360 for more expert insights and trends in the world of private investments. Until next time.