And just like that...

Cities, private markets, and clubs aren't so special anymore

Photo by Andreas Niendorf on Unsplash

Hello,
Welcome to Known Unknowns, a newsletter written in New York, in a private, yet not at all exclusive, space.

End of cities
I am a die-hard New Yorker—I’ve been here almost all my adult life. I’ve given up some great jobs to stay. Living anywhere else was unthinkable. There’s lots of great culture I don’t often partake in, but I mean to. That’s OK, because it spills over and enriches my life, and Greenwich Village is beautiful and quite pleasant. Most critically, I work in media and finance—industries that were, until recently, mostly based here. But the world has changed, technology has changed, and big cities aren’t run that well anymore. They’ve become grim places.

I wrote for Bloomberg about the end of big cities. People have predicted this forever. Any “end” is not necessarily permanent; the appeal of cities tends to follow a cycle. In the 1970s and 80s, no one wanted to live in them—they were crime-ridden and unpleasant. Suburbs offered more space, safety, and better networks. With cars and telephones, commuting was possible.

This started to reverse in the 1990s. Crime receded, cities became better governed, and networks of ambitious young professionals flocked back. They enjoyed a high quality of life, combining cultural amenities with the network effects of being at the center of their industries. Urban renewal brought a golden age for cities—enough so that living in them became very expensive.

Is it over? I’m not sure, but we can’t take it for granted. Public safety matters. Crime may be falling, but it’s still not at pre-pandemic levels. And quality of life isn’t what it used to be. Urban disorder is a real problem, even if it doesn’t show up in crime stats.

Even worse, cities can no longer count on ambitious people needing to live here. When you can work from home and technology enables network effects across locations—why pay all that rent? Most people leave because of the cost of living.

I have no plans to leave now. But the future of cities is not guaranteed. High costs, crime, and poor services are not a sustainable model. They may drive people away. Once you lose that network of professionals who no longer need to be here, we could slip into another cycle of people moving to smaller cities and suburbs again. It’a already happening.

Private markets, public availability
I have nothing against private equity and credit. They play an important role in our economy, especially for innovative companies that can’t handle the regulations of going public but still need capital. But you can have too much of a good thing, and not everyone should be investing in private funds.

I consider myself libertarian-ish. But I also think the concept of an accredited investor is a good one. The average retail investor should stick to assets that are well-regulated, transparent, and have a market price. Our current regulatory structure is imperfect and burdensome for small companies, so alternatives are useful. But once we open private markets to everyone, nothing good happens. The little guy tends to get access to the worst funds, doesn’t know what their assets are worth, and gets burned. Then more regulation follows, undermining the very point of private markets.

Between the executive order allowing private assets in 401(k)s (the way most Americans invest) and a new bill to change accreditation standards, we seem to be loosening the rules. Actually, I kind of like the new bill—I’m not convinced accreditation should be based on wealth or income; a literacy standard might be better. But the 401(k) change is potentially a very big deal.

Private markets have an important role. Some companies belong there. Take Soho House, where I’m writing this newsletter. It just ended its four-year foray in public markets. It didn’t go well. Turns out public markets cared too much about profitability and too little about growth. Members clubs aren’t profitable businesses. You need exclusivity, so you can’t have too many members, but you also need expensive real estate. The solution is more clubs—growth over profits.

For private markets, that’s fine: growth matters more than profits. But how long can that last? When there are no market prices, who knows—growth looks great, until reality sets in. Like a members club, the more public private markets become, the less special they are. Eventually, reality catches up.

It’s your grandmother’s fault
A new paper shows the real wealth inequality is between generations. I’ve long thought the 1% versus everyone else gets too much attention. What really matters is a more mundane inequality—between Americans over 75 and those under 35.

To some extent, this is the natural result of our ownership society. People save and invest for retirement. Policy has strongly pushed homeownership for decades. If you push people to own more assets, older people will, by definition, accumulate more wealth. They’ve had more years of compounding and saving!

But with a finite amount of housing and desirable goods, resentment builds. It also raises questions: why does the government spend so much on benefits for the richest segment of society? Especially when it pushes us further into debt that younger generations will have to repay. Once, poverty was highest among the elderly. Now not only is it lowest, but older Americans are the richest group among us.

No wonder everyone hates the Boomers.

Talking about the Fed
I went on C-SPAN to talk about the Fed. It felt very serious. I never realized they have different call-in numbers depending on your political affiliation! Both sides had strong feelings about gold and mortgage securitization.

I was also on Squawk Box to talk about Fed independence.

Until next time, Pension Geeks!
Allison