Reporter's notebook: Democratization, divestment, AI at Milken conference

Pimco CEO Emmanuel Roman spoke about his expectations for generative AI during the conference. (PATRICK T. FALLON/Getty Images)
At the Milken Institute's 2023 Global Conference, the biggest names in finance deliberated over market setbacks. But in more sparsely attended panels and in five-minute lulls between the headline-dominating topics, private market executives addressed emerging themes in their industry.

These discussions touched on the democratization of the private markets, the impact of AI and the energy transition, at the California conference during the first week of May. Democratize, but also safeguard With the majority of institutional capital locked up in private fund commitments for the next few years, the world's largest private market managers have moved deeper into retail channels—including Blackstone's contentious Real Estate Income Trust. In Q4 2022, several public PE managers said they hoped the retail channel would comprise 30% to 50% of their firm’s total inflows, according to PitchBook's Q4 2022 US Public PE Roundup.

These products typically attract high-net-worth individuals through Registered Investment Advisors and private wealth managers. But in order to bring private market products to the masses, allocators want to see some guardrails. Suggested measures include enhanced disclosure and transparency in the RIA pipeline and increased regulatory scrutiny.

"There will have to be some protections in place before we open this market," said Molly Murphy, CIO of the Orange County Employees Retirement System. Generative AI: 'It's going to change your life forever' The recent advent and proliferation of OpenAI's ChatGPT prompted conference attendees to consider the implications of the growing technology on asset management.

"It's going to change your life forever and it's going to change your organization," said Pimco CEO Emmanuel Roman. "It's going to make people significantly more productive."

Capital Group partner Michael Gitlin agreed, saying AI could help structure unstructured private market data. The Carlyle Group CEO Harvey Schwartz acknowledged the technology remains in its early stages, but said AI will have an "evolutionary" impact on the industry. Debate persists on fossil fuel divestment In the hallowed halls of The Beverly Hilton, investors debated a hot-ticket topic: energy transition. Specifically, executives addressed concerns over how to invest in the climate transition and whether the best approach is to divest from fossil fuels completely or to maintain some ownership.

North America's largest public pension plan, Calpers, is not "divesting for the sake of divesting," said CEO Nicole Musicco.

While Calpers filters its investments through a set of sustainable investment guidelines, the plan is not completely divested from nonrenewable resources and is focused more on capitalizing on the energy transition.

It's a similar story at other pension plans. At the $180 billion Teachers Retirement System of Texas, CIO Jase Auby said divestment simply doesn't work in order to meet the plan's 6% allocation target to energy, infrastructure and natural resources.

"Very few of us actually believe in this idea of divestment. It doesn't work," said David Elia, CEO at Hostplus Superannuation Fund in Australia, which manages around $80 billion.

This article originally appeared on PitchBook News