Investing in Private Markets

Investing in Private Markets

Once aimed exclusively at institutions and the ultra-rich, private market investments are more accessible today thanks to funds formed to give high-net-worth individuals access to asset classes like private equity and private credit.

The trend has accelerated both because technology has helped democratize these nonpublic funds and because investors are looking for new options for diversification and potential returns.

Here’s more on this popular topic from our leading in-house expert.

Chief Investment Officer Tim Clift

Q: What are private market investments?

Tim: Private market investments are made in companies and/or assets not traded on a public exchange or stock market. This includes investing in private equity, private real estate and private credit funds—all of these are types of alternative investments.

Q: Why invest in private market investments?

Tim: Private markets provide access to a wider field of investment opportunities. Many investors are surprised to learn that there are over 10,000 private-equity-owned companies in the U.S. compared to less than 6,000 that are publicly traded. And many of these private companies are waiting longer to go public so they can delay the regulatory headaches of being publicly traded. This means private market investors can benefit from more of their growth cycle. Portfolio diversification is another reason to consider private markets. Investing in a mix of public and private companies may help smooth out returns over time and reduce the impact of market volatility. And finally, private markets can provide investors with the ability to achieve higher risk-adjusted returns.

Q: What are some risks and trade-offs?

Tim: Private investments can involve complex terms, higher fees, lower transparency and less liquidity compared to traditional investments. As a result, they typically require an additional level of due diligence and a clear understanding of the trade-offs. Your wealth advisor and our research team can help with that.

Q: Who should invest in private markets?

Tim: Private markets are for long-term investors. For instance, private equity and private credit funds invest in growing but less developed companies that can take considerable time to mature—and many of them don’t. Investors need to be comfortable remaining invested in a private market fund for seven to 10 years or more.

You may also need to meet minimum net worth requirements or otherwise be accredited to qualify for this type of investment.

Your wealth advisor will assist you in assessing your financial objectives, risk tolerance and investment time horizon to determine if incorporating private markets into your portfolio is right for you.

If you have any questions regarding private investments, please contact your advisor today.

Having Money Conversations With Your Kids

Clients tell us they worry about how wealth will impact their children. Some fear that being open about wealth may have a negative effect on their kids’ ambition and work ethic.

Yet transparency is an important part of estate planning and wealth preservation. And it may bring your family closer together.

In our 30 years serving clients, we’ve guided countless family conversations about trusts, living wills, business succession and estate planning. We’re here to help you when the moment is right. In the meantime, here are some strategies to make money discussions more successful.

Be a role model. Show your children how to be responsible by demonstrating positive fiscal behavior—and talking about it. This can be simple: Make a point of canceling a streaming service your family no longer uses, or discuss the pros and cons of purchasing a car versus leasing one. For teenagers and young adults, explain your rationale for setting up a family trust. And we suggest using your 529 accounts as Exhibit A to teach kids about tax-advantaged investing and the value of compound interest. Sharing real examples from your life opens up opportunities for dialogue and helps pass your fiscal values along to the next generation.

Provide hands-on experience. Involve your children and grandchildren in age-appropriate financial decisions to help them grasp the value of money. Encourage them to save their allowance to purposefully buy something that brings them joy. Have them pay the gratuity at a family dinner. Give older kids skin in the game by letting them invest a small sum in a money market or mutual fund. Actively involving kids in financial decisions and inculcating savings behaviors can be educational—empowering them to take responsibility for their finances.

Be philanthropic. If you are involved in a charity or family foundation, encourage your children to donate some of their savings alongside your own—and explain why the cause is important to you. Even better, let them choose the charity. Philanthropic endeavors reinforce core values such as gratitude and generosity; they also help kids appreciate their financial situation and put wealth into larger context.

Enlist the help of your financial advisor. Young adults may benefit from a more formal conversation, calibrated to their maturity level. Start by including them in one of our preplanned check-ins so they can take stock of your family’s wealth plan and long-term objectives. Always reserve time to ask your child about their own plans and financial goals. This structured chat will serve as a foundation for future conversations.

We’re happy to facilitate these discussions. Don’t hesitate to call us if we can help get the dialogue started.

Adviser Market Update

Here are some of the other items our research team is watching and why they matter:

• The tech-heavy Nasdaq composite index posted its best first half of the year since 1983, powered by excitement over the transformative potential of artificial intelligence. And while a handful of companies fueled the stock market’s rise for most of the first half of this year, gains became more broad-based in June, with all 11 S&P sectors posting positive returns—a boon for well-diversified investors.
• Second-quarter earnings season kicks off next week with financial giants BlackRock, Citigroup, JPMorgan Chase and Wells Fargo reporting on Friday. Our analysts will be monitoring results to get a read on the health of consumer and business borrowing. We’ll also be following what corporate leaders see on the horizon and how they are preparing, and we will adjust our investment plans accordingly.
• Time will tell if business leaders are feeling optimistic—but consumers sure are. Consumer confidence rose in June to its highest level since January 2022 on the back of a strong labor market and lower inflation expectations. And consumers are walking the talk: In May, sales of new homes reached the highest level since February 2022 despite mortgage rates that remain stubbornly high. Given the robust ripple effect new home sales have throughout the economy, this may signal that a recession is further forestalled.

Strategy Activity Update

Please see below for a summary of the trades we executed over the week through Thursday and our current tactical strategy allocations.

Dividend Income

AIQ Tactical Defensive Growth

AIQ Tactical Multi-Asset Income

Sell Cash

Buy Invesco Senior Loan ETF (BKLN)

AIQ Tactical High Income

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Please note: This update was prepared on Thursday, July 6, 2023, prior to the market’s close.    

 

This material is distributed for informational purposes only. The investment ideas and opinions contained herein—including but not limited to the Your Question Answered section—should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

 

Purchases and sales of securities listed above represent all securities bought and sold in each strategy during the period stated. Each strategy’s portfolio generally includes more holdings in addition to the transactions listed above and in some cases the securities listed above may only represent a small portion of the particular strategy’s complete portfolio. Further, the securities listed above are not selected for listing based on their investment performance; thus it should not be assumed that any of the securities listed above were profitable or will be profitable, nor should it be assumed that future recommendations will be profitable. Clients and prospective clients should only make judgements about a strategy’s performance after reviewing the strategy’s composite performance information. There is no assurance that each security listed above will remain in the strategy’s portfolio by the time you have received or read this email. Securities are listed for informational purposes and are not intended as recommendations. Existing investor accounts may not participate in all transactions listed above due to each account’s particular circumstances.

 

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

 

Alternative investments are intended for qualified investors only. Alternative investments such as hedge funds, private credit, private equity, private real estate, and venture capital can result in higher return potential but also higher loss potential. Changes in economic conditions or other circumstances may adversely affect your investments. Before you invest in alternative investments, you should consider your overall financial situation, how much money you have to invest, your need for liquidity, and your tolerance for risk. Always consult a financial professional before taking specific action.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

 

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.

 

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