Where to Find Pure-Play AI Exposure

SPEAKER_1 (0:00)

To discuss the latest in private market, let's welcome in our next guest, Howard Ng, Chief Strategy Officer at Forge Global. Howard, great to have you on. Now, private, you say, is no longer synonymous with small. And I think that's a huge change. Here's people used to always think of private as, as meaning it's early stage companies or a smaller company. What does this shift mean for investors now that we're seeing companies reaching valuations of hundreds of billions, trillions of dollars before they ever go public?

Howe Ng (0:33)

Right. You're right to say that people usually just associate private with small or startup companies and size becomes a factor. So I think what this means to ask you a question about what this means for investors today is that size is becoming less of a deciding factor when it comes to public and private, but ownership is like how do you actually own the underlying stocks? Now, we have seen some of the most consequential companies have reached enormous scale before they went public. SpaceX just went public at IPO at 1.75 trillion dollars, and now you have private companies such as OpenAI and Anthropic in what I call the trillion dollar private company club. So these companies have achieved enormous scale and size.

So deciding how to actually own them is more important than just the size itself.

SPEAKER_1 (1:28)

And as we look at the private market recovery and the shifts that we're seeing in private markets, it's real, but you say it's not broad. So what are you seeing in terms of where the capital is flowing today and why are investors being so selective?

Howe Ng (1:46)

Yeah, so I think today's environment is very different than say 2021

When you think about 2021, it was easy monetary policy, cheap capital, so you had a lot of names who were actually trading at very, very high valuation across different sectors. Since then, 2022 to 2024, we actually went through what we call the great reset, which is where when peak to trough for the private market, the great reset of valuation and interest rate were rising then. Now, we're in the regime where the capital is just becoming a lot more selective compared to the capital back in 2021, and is concentrated in the leading categories. Not surprisingly, AI, defense, infrastructure, and software, that's where we see a lot of the performance and increase activities in.

SPEAKER_1 (2:36)

And so, as we look at the outperformance, I mean, the private market index has outperformed the S&P 500 over the period that you were measuring in the notes that you sent over, despite experiencing a steeper drawdown. So, what does that tell us about the risk return profile of private markets today?

Howe Ng (2:56)

So, the performance is definitely there, but I think investors need to approach this with both education and knowledge about the private market. So, there is the illiquidity premium certainly in the private market. So, we need to be cautious about that, and you actually have to pay a price for that. You potentially can also reap the rewards from that. There is typically a leading and lagging factor in terms of price discovery.

Between public and private, it takes a little bit longer for the theme in the public market to play out. So, I do think investors need to approach this asset class with understanding and education and also be cautious about portfolio exposure allocation.

SPEAKER_1 (3:37)

And AI really highlights the difference between the two markets, right? I mean, if we look at public investors trying to get AI exposure, we're talking about massive names, NVIDIA, Microsoft, Amazon. Private investors are focusing more on those pure plays on these upcoming, you know, Unicorn IPOs, Open AI, Anthropic. As we look at how investors think about these different types of AI exposures, how should investors think about them differently? And are you seeing the same kind of enthusiasm for AI in private as we are in equities?

Howe Ng (4:15)

Definitely, we are seeing that same level of enthusiasm and also the capital that's being allocated to this space. So I do think investors need to look at public and private together increasingly because as private becomes more accessible. To your point, as it relates to obtaining AI exposure, and it is true that in the public market today, not there will be more coming on line soon, that the IPO into the public market. But if you think about how investors typically in the public market accessing AI today, it is the MAX7 name, it is the hyperscaler, is a diversified tech play.

But you could actually obtain AI exposure from pure plays like OpenAI and Anthropic. So I think increasingly people need to be looking at private and public together and figure out what is the right balance between ownership of these names in their portfolio.