Rory O’Hara, CFP®, CRPC®, is the founder and senior managing partner at Ausperity Private Wealth. He explains that in the past, private market investments were only accessible to the super-wealthy due to SEC regulations, legal hurdles, and high investment minimums. However, the landscape is changing, providing more opportunities for a broader range of investors.
Private investments offer attractive income streams and portfolio diversity, potentially capturing added gains and limiting losses during market downturns. State pension allocations to private equity have shown annualized returns of 11% over the past two decades, outperforming public stocks and bonds. Private equity investments also tend to be less volatile than large-cap U.S. stocks, making them an appealing option for investors seeking stability.
Evergreen funds can simplify the process of diversifying into the private market by investing in a collection of private equity funds. While these funds have higher fees and limited liquidity, they offer significant benefits for investors looking to access the private market without making a substantial commitment. With minimums as low as $50,000, they are more accessible compared to traditional private equity funds.
Unlike publicly traded investments, evergreen funds do not have a daily net asset value (NAV) and are re-priced monthly or quarterly. This lack of transparency can provide psychological benefits to investors during market fluctuations. Evergreen funds also tend to have a diverse range of holdings, reducing the risk of crippling losses and limiting idiosyncratic risk compared to private equity funds with fewer holdings.
Private equity funds can be industry-specific, exposing investors to sector-related risks. In contrast, evergreen funds invest across various industries, reducing the chances of significant losses. While private market investments may seem complex and opaque, they can be client-friendly and offer a reduced overall risk profile compared to traditional holdings like stocks. However, rigorous due diligence is essential, and investors should trust experienced financial professionals for guidance.
In conclusion, private market investments are becoming more accessible to a broader range of investors, offering attractive income streams and portfolio diversification. Evergreen funds provide a simplified approach to investing in the private market, with lower minimums and a diverse range of holdings. While these investments may be complex, they can offer advantages in terms of stability and risk management. Investors should consult with licensed professionals for personalized advice concerning their specific situation.
