Richard Brekka - From Venture to Secondaries: Richard Brekka on Illiquid Market Advantages

Welcome to the Valley Investing with Lane's podcast. My name is Tano Santos, the Robert Helbron, Professor of Asset Management and Finance at Columbia Business School and the faculty director at the Hellbrun Center for Graham and Don Investing. So today I'm not here with my co-host Michael Mabusen, who is having fun traveling somewhere exotic and thus missing inaction, but no worries, he'll be back for the next episode. As all of you know, I teach every year a modern value block week to the students of the program, which is a value investing class heavy on valuation techniques, economics and competitive strategy, accounting, analysis of intangibles, the overall market, the works.

Now it is a class focused on public equity markets, which frankly have been the focus of so much of the activity of, I would say, the traditional value investor. I finished that class every year by telling the students that we have focused the course in public markets, which is appropriate. They are large today, more or less the market capitalization of US equity markets about $70 trillion, give or take, but that we live in the age in which private markets have grown tremendously. And it is difficult to contemplate a long career in asset management without some exposure to and understanding of private markets.

Now, it is difficult to get to know private markets. Information about individual companies is dispersed. There's very limited accounting information about them. Liquidity is sometimes poor, and the average investor faces what seems unsurmountable problems of adverse selection, which is a constant risk of the poorly informed investor. In what concerns private equity, there are two private markets.

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