Do you ever feel that others have access to better investment opportunities than you? You might be right – it’s certainly not a level playing field. But one investment strategy that family offices, pension funds, insurance companies and banks make extensive use of is private assets.
Private assets are investments bought and sold privately between two willing parties i.e. not publicly traded via an exchange. Residential property is probably the most widely held private asset in most investment portfolios.
When added to a portfolio of shares/unit trusts, private assets provide an opportunity to further protect and grow your capital. Private assets add a different source of return that is not necessarily linked to the vagaries of stock markets.
But as with any investments, some minimum criteria need to be met:
- Access to investment opportunities
- Ability to lock up capital for periods of three to ten years (illiquid assets)
- Ability to meet the minimum investment criteria per investment, which is typically USD 100 000.
BlackRock, the largest asset manager globally, allocates 40% of their family office portfolios to “alternatives”, a word used to describe private assets and hedge funds. This puts it in perspective, private assets for an important weighting in a diversified portfolio – yet many qualifying people don’t make use of the opportunity,
Examples of Private Asset Investment opportunities include:
Banks have withdrawn from lending to small and medium-sized businesses in the UK and Europe because of regulatory changes and reduced risk appetite due to the pandemic. And, in a world where interest rates are close to zero, investors are looking for higher income returns. As a result, private investors have stepped in to lend to companies that banks will not support. The least risky way to access these opportunities is via a fund that lends to a diversified group of 30 to 50 different borrowers in different sectors of the economy. These funds typically yield 5% to 7% per annum in hard currency.
With the rate of innovation presenting investment opportunities, many ventures these days include a technology or innovation element. One way to access this theme is via a venture capital fund that backs these opportunities. These are riskier investments, targeting returns of 25% to 30% per annum.
It is possible to gain exposure to prime properties in the UK, Europe and the US via property syndications. A specialist fund manager will identify an opportunity and offer the opportunity to co-invest to certain investors. Returns vary depending on the level of risk involved. However, they typically return 10% to 20% per annum.
With the US equity market valuations stretched to historical highs, we have increasingly looked to expand our investment horizons to areas that are less correlated to equity markets, of which private assets are one. It has been interesting to see that we are not alone in this endeavour.