The evolving landscape of growth financials

Episode notes

Financials are no longer just banks and insurance companies.

Today's opportunity set spans exchanges, asset managers, private market platforms, data providers, payment networks, and hedge fund businesses—creating a much broader and more dynamic landscape for investors.

In the latest episode of Investor Exchange, Chris Perret sits down with Wellington's Ben Krause to discuss:
• Why "growth financials" have become an increasingly important area of the market
• The evolution of asset management, wealth management, and private markets
• How investors should think about recent headlines about private credit
• How AI, market structure, and data are shaping the future of exchanges
• The growth of hedge fund platforms and what might differentiate successful models

Transcript

Ben Krause: So, I jokingly start this by saying that growth financial sounds like an oxymoron or a bad thing. Growth in financial services is generally great until it's not. I'll start by saying what growth financials are not, which is they're not banks, insurance companies or consumer lenders. So, you can sort of think of them as pretty much everything else that you define as a financial services company. That is not a balance sheet financial in that sense. So, it's asset management both traditional and alternative. It's the wealth management space. I cover the parts of financial technology that are a bit more capital markets focused. You can think of them as data companies and some software companies in that space and then exchanges and market structure. That's really the core of what I look at.

Chris Perret: The financial sector has changed dramatically over the last decade. What was once often viewed as a mature, cyclical industry dominated by banks and insurance companies has become a much broader, more dynamic and in many cases, faster growing opportunity set. Enter growth financials.

These are businesses that sit within financial services but are often very different from traditional banks or insurers. They include exchanges, data and index providers, payment networks, asset managers, hedge fund platforms, and private market platforms. Many of these companies are more scalable, capital light, and more exposed to the long-term secular change than the traditional financials playbook might suggest.
But with that growth has also come complexity and more recently, some real challenges. Private credit is a good example. The asset class has grown more rapidly, and more lending has moved outside the traditional banking system. But recent headlines around borrowers’ stress, refinancing pressure, and redemption activity in certain vehicles, and questions about underwriting standards have put parts of the market under a brighter spotlight.

For investors, that raises an important question how do you separate cyclical stress from structural risk, and how do you identify the companies that are built to endure?

Today I'm joined by Wellington's resident expert on growth financials, Ben Krause. Ben is a global industry analyst on the firm's financials team and a member of the investment team behind our financials market neutral equity strategy.

There's a lot to unpack from private credit and exchanges to the future of asset management and the hedge fund platform model. So, I'm thrilled to have Ben on the show today. Ben, welcome to the Investor Exchange. It’s great to have you today.

Ben Krause: Thanks so much for having me today.

Chris Perret: So, before we get into your day job, give us a bit of your background. You started in investment banking, then spent time at various hedge funds before joining Wellington. How did that path shape what you're doing today?

Ben Krause: I started my career looking at financial services companies. It was always interesting to me that they did more than make widgets. You know, you have to care about the macro environment. You have to care about what the individual drivers are of each business, and they're not immediately clear or immediately as simple as, you know, price times number of good sold.
I think starting in investment banking gave me a little bit of a sense of how corporates really think strategically about their most important problems from that side of the wall. Spending time at two of the large multi-manager hedge funds definitely taught me sort of the psychology of the market, which is an ever-evolving thing.

Chris Perret: Great! So, how do you define a growth financial company or growth financial stock, and what makes it such an interesting area for active, long, short investors like yourself today?

Ben Krause: So, I jokingly start this by saying that growth financials sounds like an oxymoron or a bad thing. Growth in financial services is generally great until it's not. I'll start by saying what
growth financials are not, which is they're not banks, insurance companies or consumer lenders. So, you can sort of think of them as pretty much everything else that you define as a financial services company. That is not a balance sheet financial in that sense. So, it's asset management both traditional and alternative. It's the wealth management space. I cover the parts of financial technology that are a bit more capital markets focused. You can think of them as data companies and some software companies in that space and then exchanges and market structure. That's really the core of what I look at.
So, there are many different kinds of businesses in this space, and big secular trends and changes in financial services tend to touch the space a lot. Some recent examples of that are the fixed income market, electronifying. Even before that, you had the growth of the futures exchanges, particularly coming out of the GFC, where a lot more things had to be traded in a clear fashion. You know, you have growth in things like the M&A boutiques, as some of the European banks retrenched from the M&A and advisory businesses. You have the growth in U.S. wealth management, sort of the shift to the RIA model. And then now the interplay between the RIA model and the wire house model. And then, you know, the growth in, I would say, first the rating agencies and trading credit markets post the GFC. And then obviously the massive growth in private markets are the same since then.

So, all these are secular growth industries for a time. And then they become share shift industries. What I mean by that is, like, KKR made a comment that I think was a bit hyperbolic, but captures the point of like, there are more private equity funds than there are McDonald's in the United States. And like private equity allocations to the asset classes matured. But even within that, there's a lot of alpha as a stock picker to be generated from picking the winners and losers, because the winners are still going to grow a lot and the losers may be flat or shrink.

But I think when it comes to generating a spread perspective or the relative attractiveness of stocks in that space really understanding the businesses, the individual drivers and what gives a business in that space its edge is incredibly important, and something that I do think requires real fundamental work.

Chris Perret: Excellent. So, let's dive a little bit into your coverage. One of the biggest areas of change in the investment business or asset management is the traditional asset managers, alternative managers, private market platforms and wealth distribution. How do you see that entirety of an industry evolving over the next 5 to 10 years?

Ben Krause: So, I think maybe just starting with the asset management space. The end market at the end of the day is I'll call it the broad pool of global wealth. Right. You have institutions who manage money on behalf of retirees. You have sovereign wealth funds, wealth management platforms that make allocation decisions, at the financial advisor level on behalf of individuals. So, at the end of the day, I think of that as about producing outcomes. And for a long time, the industry, if I just speak about wealth management for a moment, went from financial advisor as stock ticker to financial advisor as sort of individual asset management product selector. And I think over time that's going to move to financial advisor as sort of relationship manager, where an increasing amount of the portfolio allocation, if the financial advisor wants it, is going to happen at more of like a CIO or model portfolio level. If you separate maybe investment capability from investment wrapper, we've seen the rapid rise of ETFs. I think there are several reasons for that. And I think it's also an important distinction that ETFS are not just passive. The active ETF industry’s growing massively. The ETF as a wrapper, I think it's more efficient from a tax perspective. It's more efficient sort of just level of understanding perspective from a transparency around sales commissions perspective. And so, I think the growth in active ETFs is really going to continue.

And then in terms of private markets, most large institutions in the world are near their allocation, near something like a 20% allocation to private markets. Some are more some are less. Within that allocation bucket, we've seen shifts a couple of years ago it was you saw a massive inflow in the private credit and, you know, and of out of private equity and real estate as rates rose and the comparable returns for similar for the first lean in a capital structure versus even a private equity investment. You know, right now, I think with everything going on in digital infrastructure, you're going to see sort of continued growth in the infrastructure bucket, which for many large institutions wasn't even an allocation five years ago, and now is increasingly sort of breaking away from the real estate allocation.

And then in the wealth channel, I think any industry goes through sort of significant growing pains. I think that there is a real long-term opportunity for, especially for wealthy individuals for whom it's the right product for allocations in the wealth channel to look more like allocations in the institutional channel, which would suggest privates’ allocations meaningfully higher than the low to mid-single digits where they are today. But I think it being right for the right end investor is really important. And I think in general one should not be investing in private markets if one needs the money tomorrow or a year from now. And I think that's a little bit of what the industry grappling with today.

Chris Perret: That's a great segue into the topic of private credit. Obviously been in the headlines recently. Just to level set quickly before we get into the bigger debate. How would you define private credit? Why did it grow so quickly and what caused the recent stress?

Ben Krause: Yeah. So, I would say defining private credits is a really important exercise. You can think of roughly half of the market as what you call direct lending, which is lending to usually sponsor-backed companies. That market really grew out of post-GFC changes in regulation around the levered lending guidelines. But I think an important interim step that often sort of gets missed as we discuss this is the broader, post financial crisis regulatory framework that wanted to push more risks, especially in sort of sub investment grade credit out of the banking system and into fund form of some kind.

So, you saw really big growth in the CLO industry. You've seen really big growth in fixed income mutual funds and ETFs and really big growth in rated issuance at both of the major credit rating agencies in the US. And so, you know, I think in general, for certain types of credit risk fund form is a more asset liability matched way to negotiate credit risk right. If you think of a even a publicly traded BDC, or a business development company is a fund that buys loans or makes loans to usually private companies, very often private companies owned by private equity. which is getting a lot of attention in the press right now, you have sort of relatively low leverage limits. You have a perpetual capital vehicle.

You have seven plus year fund life generally matched against less than seven-year loans. That's a good ALM matching mechanism. I think what the industry is grappling with right now is for competitive reasons, the non-traded BDC space had to offer some amount of liquidity. And I think that anytime people hear some liquidity they think liquid. So, I think there's an education element of that in addition to to just the product structure. But my personal belief is the 5% redemption limits exist for a reason. I think any product that has a redemption limit is going to have that limit tested at some point. And the most important sort of KPI, is does the product do what says it's going to do. And thus far, those products have done what they say they are going to do.

The other sort of half of the private credit market that I think, depending on who you believe, is somewhere between an 8 and $40 trillion opportunity to sort of everything that's not lending the sponsor-back companies. That's a super exciting space. It's growing really quickly. You know, they're sort of on the spectrum of risk. There is everything as simple as investment grade. Corporate issuer wants to issue a 12-year amortizing bond that doesn't conform to basic fixed income market conventions, so negotiates that directly with a credit investor or several credit investors to the financing of the data center and data center infrastructure build out. That's incredibly important for sort of the future of AI and that non direct lending part of private credit, I expect it's going to grow pretty substantially from here. It's really mostly been institutional and insurance capital in that space. There are some firms that around the edges trying to figure out ways to bring those products to the wealth channel. But, at the end of the day, the private credit works if the structure is sound and if there is a real spread on a sort of a term’s equal basis over public fixed income market, so you're paid in a liquidity premium.

It doesn't work if the structure doesn't work and the illiquidity premium dissipates and/or terms degrade. And so, I think, like any market that grew really quickly, there's growing pains and indigestion happening in it right now. But I do think that it's been proven over a long period of time, the private markets are here to stay, as they mature, it becomes more of a share shift dynamic versus a rising tide lifts all boats dynamic.
But yeah, I would I would anticipate that overall, the private credit industry grows pretty substantially from here. I would expect direct lending to grow at a slower pace than does the rest of the industry, but I would expect the whole industry to grow.

Chris Perret: So, you've also been constructive on exchanges and market structure businesses. What makes exchanges so interesting today?

Ben Krause: I think there are a few things, if you look at what they actually do and what they sell, right. They are marketplaces where liquidity gathers to match buyers and sellers. If you maybe go through the different pockets of the exchange landscape, you have the US equity exchanges, which basically function as sort of a regulated share accretes to the top industry, the futures exchanges, where individual contracts are often traded on just one exchange, and then you have, I'll call them the fixed income plus electronic trading platforms. If you go through each of those and you think about what an AI first world looks like, as information gets processed more quickly, the need for data goes up. Another driver of this is the potential move to 24/ 5 equities trading. I think that not just the value of the data to make trading decisions, but the value of the data too as an input to sort of any other things you do, whether you're a bank or an asset manager doing risk management, whether you're writing reports, whether you're trying to figure out correlations between asset classes and building an algorithm. None of that works without the data and the data that is produced by an exchange where the trading happens is, I think, as as moated as any data set can be. You know, I think there are also some pretty important and big secular changes happening in terms of workflows that AI will only accelerate. If you look at how fixing and trading desk in a bank was structured ten years ago versus how it's structured today, a lot more is done electronically, a lot of work for automations happening. I think AI is only going to be an accelerant to that. And so, I think the exchanges in general, sit at a pretty interesting intersection of you could see AI driving an increase in turnover across a whole bunch of different asset classes. Workflow automation generally some of that benefit accretes to, you know, places where liquidity is aggregated and electronification really happens. And then the last piece is, you know, it's it's early, but I think the data around equity tokenization is pretty fascinating. And I think you could see that as adding more fuel to the fire of increase in turnover and increase in value of market data.

Chris Perret: Since this is part of our hedge fund series, I want to spend some time on the hedge fund industry itself. You've spent time at other hedge funds and platform models, and what's your take on the growth of that model specifically? And are there risks or excesses similar to what we've seen in private credit?

Ben Krause: I think and I'll speak generally for the industry; The growth has come from good performance, and that's how the whole asset management industry works. And this pocket is no exception. You know, I think increasingly the most sophisticated institutions in the world are looking at risk-adjusted returns. So, while the absolute performance has been strong, the risk-adjusted performance for many in the industry has been very strong. You know, I think with any investment strategy one needs to be very cognizant of capacity. And so, the multi-manager model pretty elegantly solves the idea of an individual risk taker’s capacity. And I think those terms in general have done a very good job of the talent funnel and making sure that they are able to find some of the best pockets of capacity and link them together in a way that the return stream is diversified and no one risk taker is going to be an outsized constituent of that, good or bad.
In terms of potential excesses. I think the big firms have taken a bunch of market share because the returns have been so great, and I speak with nothing but admiration of them. I think where others have struggled is trying to copy the exact same model or substantially similar model, just at smaller size. These are incredibly resource intensive firms to operate from a talent perspective, from an infrastructure perspective. And, you know, that's where you've seen I think performance falter somewhat. But in terms of like systemic risk, you know, the prime brokerage industry is pretty consolidated. And I think it's pretty sophisticated in terms of how it evaluates risk. And so, you know, you worry about things like de-grossing or crowding on longs. But the prime brokerage space tends to be pretty diligent around those things. You know, there are a few hiccups over the last little while on this that were more related to actual misbehavior on the side of the hedge fund than they were just sort of bad risk taking.

Chris Perret: Thanks for that great explanation, Ben. So, let’s turn the lens now to Wellington, there’s been a lot of firms that have tried and failed to launch hedge fund platforms, many of which have been in the news recently. You've been at the firm now a few years and have seen up close our transformation to a hedge fund platform. What do you see as Wellington's Edge?

Ben Krause: I think if you have great investors and great alpha generators, the other things you can figure out, the other things are what you need to overlay on top of those risk takers. But I think it starts with just do you have the investment talent and capabilities to generate a really compelling alpha streaming? As far as that is concerned, I think we have an incredible roster of talent in our hedge fund business and a diverse set of alpha streams in terms of barriers to entry. We talked a little bit about technology and infrastructure, like that's sort of an ever-evolving journey. And then finding the exact ways to express those alpha streams to different types of clients. I think one thing that does set is apart in the industry is there are sort of several different ways to express that alpha stream versus, you know, there are some of the large firms in the space. It's sort of a huge component of what they do is just this is the one fund that you're able to invest in. I think the flexibility that having great risk takers and great alpha streams creates is just super important. And I think it allows us to think about how we want to compete in this industry pretty differently than some of our peers. And I think at the end of the day, that's sort of the very, very large multimanager market is incredibly hard to crack into, as you've seen with some recent headlines of of
firms not succeeding in trying to break into that space. Whereas I think not to speak for Mark Sullivan. But what we are doing is fundamentally different. But it starts with just we have great alpha generators and we're trying to bring them to to clients in the best way we possibly can.

Chris Perret: Ben, this has been a fascinating conversation. We've covered a lot across your coverage of growth financials. I think the big takeaway for me is that financials are far broader, more dynamic and more complex than they used to be. And that's creating real opportunity for active, long, short investors like yourself. So, thanks for joining the podcast today. It's great to have you.

Ben Krause: Yeah, thanks so much for having me. Appreciate It.

Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk. Podcast produced August 2026.

Wellington Management Company LLP (WMC) is an independently owned investment adviser registered with the US Securities and Exchange Commission (SEC). WMC is also registered with the US Commodity Futures Trading Commission (CFTC) as a commodity trading advisor (CTA) and serves as a CTA to certain clients including commodity pools operated by registered commodity pool operators. WMC provides commodity trading advice to all other clients in reliance on exemptions from CTA registration. WMC, along with its affiliates (collectively, Wellington Management), provides investment management and investment advisory services to institutions around the world. Located in Boston, Massachusetts, Wellington Management also has offices in Chicago, Illinois; Radnor, Pennsylvania; San Francisco, California; Frankfurt; Hong Kong; London; Luxembourg; Milan; Shanghai; Singapore; Sydney; Tokyo; Toronto; and Zurich. This material is prepared for, and authorized for internal use by, designated institutional and professional investors and their consultants or for such other use as may be authorized by Wellington Management. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. In Canada, this material is provided by Wellington Management Canada ULC, a British Columbia unlimited liability company registered in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, and Saskatchewan in the categories of Portfolio Manager and Exempt Market Dealer.

In Europe (excluding the United Kingdom and Switzerland), this material is provided by Wellington Management Europe GmbH (WME) which is authorized and regulated by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin). This material may only be used in countries where WME is duly authorized to operate and is only directed at eligible counterparties or professional clients as defined under the German Securities Trading Act. This material does not constitute investment advice, a solicitation to invest in financial instruments or information recommending or suggesting an investment strategy within the meaning of Section 85 of the German Securities Trading Act (Wertpapierhandelsgesetz). In the United Kingdom, this material is provided by Wellington Management International Limited (WMIL), a firm authorized and regulated by the Financial Conduct Authority (FCA) in the UK (Reference number: 208573). This material is directed only at eligible counterparties or professional clients as defined under the rules of the FCA. In Switzerland, this material is provided by Wellington Management Switzerland GmbH, a firm registered at the commercial register of the canton of Zurich with number CH-020.4.050.857-7. This material is directed only at Qualified Investors as defined in the Swiss Collective Investment Schemes Act and its implementing ordinance. In Hong Kong, this material is provided to you by Wellington Management Hong Kong Limited (WM Hong Kong), a corporation licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), and Type 9 (asset management) regulated activities, on the basis that you are a Professional Investor as defined in the Securities and Futures Ordinance. By accepting this material you acknowledge and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available to any person. Wellington Investment Management (Shanghai) Limited is a wholly-owned entity and subsidiary of WM Hong Kong.

In Singapore, this material is provided for your use only by Wellington Management Singapore Pte Ltd (WM Singapore) (Registration Number 201415544E). WM Singapore is regulated by the Monetary Authority of Singapore under a Capital Markets Services Licence to conduct fund management activities and is an exempt financial adviser. By accepting this material you represent that you are a non-retail investor and that you will not copy, distribute or otherwise make this material available to any person. In Australia, Wellington Management Australia Pty Ltd (WM Australia) (ABN 19 167 091 090) has authorized the issue of this material for use solely by wholesale clients (as defined in the Corporations Act 2001). By accepting this material, you acknowledge and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available to any person. Wellington Management Company LLP is exempt from the requirement to hold an Australian financial services license (AFSL) under the Corporations Act 2001 in respect of financial services provided to wholesale clients in Australia, subject to certain conditions. Financial services provided by Wellington Management Company LLP are regulated by the SEC under the laws and regulatory requirements of the United States, which are different from the laws applying in Australia.

In Japan, Wellington Management Japan Pte Ltd (WM Japan) (Registration Number 199504987R) has been registered as a Financial Instruments Firm with registered number: Director General of Kanto Local Finance Bureau (Kin-Sho) Number 428. WM Japan is a member of the Japan Investment Advisers Association (JIAA), the Investment Trusts Association, Japan (ITA) and the Type II Financial Instruments Firms Association (T2FIFA). WMIL, WM Hong Kong, WM Japan, and WM Singapore are also registered as investment advisers with the SEC; however, they will comply with the substantive provisions of the US Investment Advisers Act only with respect to their US clients.

©2026 Wellington Management Company LLP. All rights reserved.