‘Equity is equity and debt is debt’

Steve Blewitt’s asset management career began in the group pension actuarial department at John Hancock in 1982. By the time Manulife had announced its purchase of the venerable firm in 2003, Blewitt was head of Hancock Capital Management, a role he would hold for more than 18 years.

In 2018, he was appointed global head of private markets, a position he held until leaving the industry in 2023 to work in academia and the non-profit sector.

Blewitt had a close-up view of the emergence of alternative investments in institutional portfolios.

“I was an allocator, a direct investor,” he said in an interview Thursday. “We sold primarily to institutions.”

More recently, Blewitt has been tracking the expansion of alternatives into the retail channel, particularly private market instruments. It led him to write Investing In Private Market Funds: Institutional Strategies For Individual Investors, his first book.

“I wanted to take my institutional knowledge and adapt it for an individual looking at private market opportunities,” he said. “I see people making mistakes that — if they just had more information — they maybe would have been able to avoid.”

Blewitt rejects the idea that private markets are too esoteric for retail investors. He argues private and public markets are more alike than different.

“Equity is equity and debt is debt,” he said. “I don’t consider private markets an asset class in a lot of ways. What you’re buying in private markets is the companies themselves … it is fundamentally the same as what you’re getting in public markets.”

I pressed Blewitt on the debt side of his argument. Are private market loans really comparable to corporate bonds?

“Private market companies can be smaller,” he said. “A smaller, middle-market company may not have as well a developed management team, … and there may be more risk there. But if you’ve paired with a sponsor who is very knowledgeable in the sector, has tremendous resources, you can balance that out at the company-level. There are differences, but again very, very similar.”

Blewitt acknowledges that much of the recent data supporting this argument emerged during a relatively benign market environment.

“If there’s choppiness in the market, you are going to see separation,” he said. “That’s going to put more responsibility on advisors and investors to really look at who the managers are and what their experience is from a lending perspective.”

Meanwhile, Blewitt believes private markets can deliver diversification and stronger long-term returns than public markets. He acknowledges that more research has been done on the private equity side to support that view.

“The dispersion of returns between any of the quartiles is much wider than the dispersion of returns within public markets,” Blewitt said. “If you’re able to choose the top-quartile managers in private markets, even in a down market, you may still be able to do better than your investments in public markets.”

Market saturation

We had one more exchange that I found particularly interesting.

One criticism of alternative investments in the retail channel is that the growth story may not be as organic as marketers suggest. Critics argue alternative investment managers have shifted their focus to advisors because institutional markets are saturated.

“This is a business,” Blewitt told me. “You’re being sold a product, and there’s nothing wrong with that.”

As long as it’s a good product.

“You try to have as wide a funnel as possible,” he said. “Investors should not be just buying whatever their financial advisor is trying to sell. What else do you have? Where else can I go to find products so I can choose the one that’s right for me?”

There is an important assumption underlying Blewitt’s argument that deserves scrutiny. He believes investors can learn enough about private markets to make informed investment decisions. Indeed, he would not have written the book if he believed otherwise.

But while that may be true for some investors, it is unlikely to be true for most. Advisors need to lead these discussions with rigorous due diligence and a detailed understanding of their clients’ needs.