Selling swimming trunks when the tide goes out (a cautionary blog).


Today should be an interesting one , I can spend much of it listening to others talk about why pension funds should be giving money to managers who invest not in public stock markets (where we can see what’s going on) but in private markets (where it’s a lot harder).

The job of the managers is to convince us that it’s worth giving up liquidity and transparency in return for greater returns and greater impact  on environmental and social issues  and the  governance of companies we invest in or lend to.

After the fact accountability

Rather than using Latin words, I’ll stick with ones most people generally understand. the problem with these managers is that they can’t tell you what you get till you’ve got it (or haven’t if something goes wrong.

Which makes listening to managers telling you it’s going to go right an uncomfortable experience – the inevitable question “what could possibly go wrong?” isn’t as ironic as current usage suggests. Knowing what risks you are taking determines whether to buy equity or issue debt (and at what price or rate).

Private market managers have been awash with investment from pension funds looking to get better returns on their “risk-free” portfolio than could be achieved from lending to Government or even to public debt to large companies. They promised to lend to areas of the economy the banks didn’t reach and invest in companies inaccessible to the public.

The result has been an explosion of lending into private markets where private credit has become a secondary source of funding to organisations who might previously have courted banks.

Nearly £500 bn of the money at the end of last year, had yet to be lent – known as “dry powder”, this got a cash return less management fees, clearly not what was wanted by those investing in private credit funds. The pressure on managers to get invested creates risks and one senior commentator on this market broke ranks in the FT this weekend to ask whether the underwriting of this lending was all that it should be.

Howard Marks, of Oaktree Capital asked

‘Did the managers make good credit decisions, ensuring an adequate margin of safety, or did they invest fast because they could accumulate more capital? We’ll see’

Get rich quick strategies rarely prosper but if pension funds are to invest in private credit funds that don’t get their money invested, then they might as well have stayed in cash and saved on fees.

Undoubtedly, some smart managers, this Howard Marks-claiming to be one of them, are getting wise after the event.

“[Warren] Buffett says it’s only when the tide goes out that you discover who has been swimming naked,” he said. “The tide has not gone out yet on private lending, meaning the portfolios haven’t been tested.”

But- surprise, surprise, there is already a peddler of swimming costumes ready to offer relief to naked swimmers. We learn from the FT, that Howard Marks is busy raising £10bn for corporate takeovers. Does he – by any chance – have those companies sunk by private debt repayment schedules – in mind?

Judging by this report in Monday’s (15/05)  unhedged, he may not be short of targets.

Good morning. Tiger Global is looking to sell a big chunk of its portfolio of private companies in to the secondary market. It needs the cash to pay its investors. We’ll see more stories like this in the months to come; the economic cycle applies to private assets too.

For those in the audience today

The DG publishing event today will have delegates who are responsible for the investment of our DC pension funds. Whether trustees or the investment officers who direct them, they will be hearing pitches from managers keen to extract money from DC pension funds currently invested in public markets for the promise of higher returns from private ones.

Some DC funds have already dipped a toe in the water, many are considering the trade-offs of allocating more to private markets to invest in  credit , infrastructure or corporate equity.

Will they be hearing from managers who can find opportunities like Marks and Buffet, or will they be their prey? It’s a kill or be killed world, where the lack of transparency and liquidity means taking big bets with other people’s money – blind.

If you have an FT subscription, read Howard Mark’s interview here.

If you don’t – drop me a line to and I’ll use one of my guest-link passes.

If you want to go to DG publishing’s Strategic DC Conference, then I fear you may be too late as it starts at 8.15 today. I’ll be reporting on the credibility of what I hear tomorrow, including my thoughts on the City of London’s Lord Mayor keynote – on DC funds investing in private markets.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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