Many investors are beginning to recognize that what got them here – namely, equity risk – may not be what brings them forward.
Let’s say you were completely unburdened by and unanchored to portfolios you built in the past, and there were new tools to help you build more intentional and controllable outcomes for your clients. Would you go about it the same way you did 30 years ago? Likely not. You’d use an expanded tool kit.
Expanding the toolkit to enhance outcomes and experience.
Private markets are part of that expanded tool kit. Their existence is not new. In fact, much of private markets investing more closely resembles what finance looked like at its origins — helping good businesses become great through true earnings growth financed with direct loans. The use of private markets in portfolios to meaningfully enhance outcomes is also not new. These strategies have been in use in institutional portfolios for decades.
What is new? First, availability. New tools are great if you can afford to own them, but it’s a moot point if you can’t. Evolved structures made private markets accessible to a broader universe. An expanded definition of investor suitability and qualifications (accredited or below) — coupled with better liquidity (quarterly, monthly), investor-friendly reporting (1099s), and operational integration — made these solutions a viable option for inclusion in more portfolios.
Investor-friendly structures are expanding the opportunity set for financial advisors:
| Considerations | Qualified Purchaser solution | Qualified Client / Accredited Investor solution |
|---|---|---|
| Structure type | Finite-life | Perpetual life (evergreen) |
| Funding structure | Drawdown | Fully-funded |
| Registration status | Unregistered | Registered |
| Minimum investment size | $5mm | $25k |
| Offering availability | Intermittent | Continuous |
| Tax Reporting | K-1 | 1099 |
| Cash flow management | Advisor responsibility | Fund manager responsibility |
| Documentation / connectivity | Follow their own process (not integrated) | More integrated (“off the shelf”) with simplified administration |
2. Source: CAIS-Mercer survey, " The state of alternative investments in wealth management" (https://info.caisgroup.com/state-of-alternative-investments-in-wealth-management)
Second, ease of access. You’re never going to use a tool if it is cumbersome and the marginal benefit is small. Evolution of both regulation and technology combine to create new channels of access by which to evaluate and select investment solutions. Electronic subscription documents, e-signatures, and other conveniences all contribute to a more familiar and smooth experience. A perpetual offering means capital is deployed immediately. Doing so, moves the practical burden of cash management from the advisor, outside the fund, to the asset manager, within the fund — similar to public market commingled fund structures.
Finally, familiarity. A tool is no good if you don’t know what it is for and how to use it. Yes, in many ways equity is equity, whether it exists in public or private form. And a loan is simply a loan, whether it’s originated at a bank or a private lender. But private market asset classes are fundamentally different in the way they seek to generate performance relative to their public market equivalents. The chart to the right demonstrates this point
A new approach to an old problem.
What investors need is not wholesale new. They need a new approach to the same old problem they’ve been trying to solve since the dawn of time: having enough money to maintain the lifestyle they desire post-retirement and achieving it in a relatively smooth, consistent way. We believe private markets can be a part of that new solution, particularly now that they are available in more accessible structures.
We acknowledge that to maximize the utility of these strategies, they need to be deployed in the right way. That means education on the asset classes and asset allocation, which we deliver via AccessAres.
To begin your journey and learn more, check out these resources:
