The Patient Owner

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Most private market advice starts with the deal. Mellody Hobson starts with the portfolio underneath it, and with what private markets cost you.

She is Co-CEO of Ariel Investments, one of the most respected active-management firms in America, a Board Director at JPMorgan Chase, and the former chair of both Starbucks Corporation and DreamWorks Animation. She has spent 35 years in the investment business and has invested personally in private equity along the way.

Asked what people outside private markets are missing, she frames private markets as one more form of diversification rather than the whole plan. The difference she keeps returning to is time. You do not have the liquidity. You cannot change your mind and sell when something does not go well, and the returns private markets have produced depend on that longer holding period.

Her playbook for a first-time investor follows from that. Look at the rest of the portfolio first. Without a diversified stock and bond base, she would not be running to private equity. "This would be an add on, not an anchor." Once the base is in place, she would look for a financial adviser who can bring individual investors into private deals, because those deals are not going to come to you directly.

She is plain about access, too. Her own private fund currently takes commitments of five million dollars or more, because of the mechanics of running a fund with smaller checks. She expects that to change over time, including through 401(k) plans, and calls this the early days.

Her close is the title of the session. If you are going to be an owner, be a patient owner. Apple, Microsoft, and NVIDIA were decades of work, and in her words, nothing works the quick way. Literally nothing.

Three takeaways from the conversation

Build the base before the private deal

Mellody's first move is not a deal. It is checking whether a diversified stock and bond portfolio is already in place, with private markets added on top as an add on rather than the anchor of the plan. From there, the practical way in is usually a financial adviser who can bring individual investors into private deals, since those deals rarely come to anyone directly.

The lockup is the price of the return

She treats illiquidity as the defining difference between public and private markets. You cannot sell when something does not go well, and the returns depend on holding long enough for the businesses to prove what they are. Her firm uses a turtle as its logo, and her rule for both markets is time in the market, not timing the market.

Look where the market is not

Mellody's firm has spent 43 years investing in what is misunderstood, ignored, and under-followed, starting with small and mid cap stocks and moving into private funds. She reads women's sports through that lens and calls it the small caps of sports, a category where sponsorship, media rights, attendance, and merchandise sales are all rising.

Watch the full conversation

About this guest

Mellody Hobson is Co-CEO of Ariel Investments, one of the most respected active-management firms in America. She is a Board Director at JPMorgan Chase, Former Chair of Starbucks Corporation, and Former Chair of DreamWorks Animation. She is a New York Times bestselling author.

Resources

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