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Understanding Private Investments 

As you sit at your coffee table reviewing your investment portfolio,  you can’t help but notice the sharp swings in value and think to yourself, “What else is out there?  Are we really looking at all our options?”

For many families, the answer is no as Private Investments are often not considered.  Yet, Private Investments may help you and your portfolio navigate through more difficult markets. 

Here are some answers to commonly asked questions about private investments:

What are private investments?

  • Private investments give access to privately originated asset classes that are often not available in a more liquid form.
  • A few examples of private investment strategies include Private Equity, Venture Capital, Private Real Estate, Private Credit.
  • They do not trade daily like more traditional public investments in stocks and bonds. 

Why have I never heard of private investments before?

  • They have historically been viewed as only being accessible to larger investors such as college endowments and  pension funds primarily because many private investments have had large minimum investment sizes of $10 million or more.
  • Recently, technological advances and the use of feeder funds have allowed high net worth individuals and families access to high-quality private investment strategies at significantly lower minimum investment amounts and at more reasonable fee structures.

What can private investments offer me that public investments may not be able to?

  • Private investments may be able to help reduce risk, enhance returns, generate higher yields, and/or offer additional tax-advantages that may not be possible to achieve solely in public investments.

What’s an example of a private investment that could be suitable for today’s market environment?

We believe that private investments may offer attractive solutions to many of the challenges  that investors are facing today. Here are a few of the strategies that we are looking at:

Unlisted REITs

  • Real Estate can be a great hedge against inflation due to its ability to increase rents as inflation increases.
  • Performance reflects the actual value of the real estate without the ‘noise’ or volatility that publicly traded REITs have from daily trading on a stock exchange.
  • Tax-efficient income generation

Middle Market Lending

  • Rising interest rates have inflicted pain on traditional fixed-income assets because of their fixed payouts. However, middle market loans, with their floating rate structure, have seen yields increase as interest rates rise.
  • Higher yields than comparable public market investments
  • Downside protection from strict underwriting standards and covenants

Private Equity/Private Equity Secondaries

  • Companies are staying private for longer
    • Eliminates the pressure from the public markets to manage quarterly expectations
    • Enables management teams to focus on long-term growth
    • Ability to raise larger sums of money in the private market
  • Many more private companies than public companies
  • Purchasing equity in these private companies, especially at a discount, may be able to enhance returns with less volatility than publicly traded equities.

Aren’t private investments risky?

All investments involve risk, returns are never guaranteed, and private investments are not immune to these risks.

  • Liquidity risk – the risk that you may not be able to access your capital when you want it – is one of the most important tradeoffs to take into consideration prior to making any private investment.
    • Illiquidity varies by strategy and can range from monthly access to liquidity to a 10+ year lock-up period. We recommend that clients invest in a combination of more liquid and less liquid private investments.
  • Asset class & investment-specific risk
    • Thorough due diligence is essential
    • Seek experienced managers & fund operators
    • Fees are typically higher, but are often appropriate for a skilled manager generating solid performance
  • Performance Reporting
    • Private investments are not priced as frequently as public markets.
    • Usually priced or ‘marked to market’ on a monthly or quarterly basis.
    • Strict valuation policies help maintain consistent and fair pricing.

These are a few of the risks that you should take into consideration as a tradeoff for the potential benefits that private investments can offer versus the public markets.

Should my entire portfolio be private investments? They sound like a great investment.

  • No.  Private investments are just one of the tools in your investment tool kit.
  • While we believe they may be able to provide attractive solutions in today’s market, there are tradeoffs such as illiquidity that should be considered.
  • Risks vary be strategy and you should work with a financial professional to understand which strategies are appropriate for you based on your financial goals.

Do you have a question that has not been answered? 

Please contact me or your RegentAtlantic Wealth Advisor and find out if private investments are appropriate for you and how they may help you navigate today’s volatile market environment.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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