Alternative investments platform CAIS and Mercer Consulting are teaming up to give financial advisers streamlined access to private-equity investments.
The question is whether
advisers are ready for private equity, a strategy that typically requires lock-up periods of three to five years.
“Private equity is a great investment if you have the time, and I know we've left some money on the table by sticking to more liquid and transparent alternatives,” said Thomas Meyer, chief executive of Meyer
Capital Group.
“For those advisers who want to put money away for a while in a non-liquid structure, I think
private equity still has a lot to offer, even if now might be a little late to the game,” he added.
Mr. Meyer might not be the target market for the CAIS platform, but Chief Executive Matt Brown said the appetite for
private equity investments across the financial advice industry is growing.
“The reason we're doing this is our wealth management firm clients have a strong demand for institutional quality
private equity investments,” Mr. Brown said.
CAIS launched five years ago, originally as a platform to connect hedge funds with independent advisers and family offices. In addition to conducting due diligence and negotiating with funds added to the platform, CAIS links to custodians to enable advisers to include private investments alongside publicly-traded investments like stocks and mutual funds in client portfolios.
OFF THE GRID
“All of those private funds used to be held off the grid,” he said. “What we're doing is integrating private funds so that they can show up in client accounts.”
Mr. Brown said he is currently working with several hundred advisory firms that are accessing more than two dozen hedge funds, as well as various capital market offerings through relationships with 30 investment banks.
He described the deal with Mercer as further democratizing the private equity space. But, even though CAIS is often able to negotiate lower minimums for investors, those investors still need to meet certain net-worth requirements. Private equity is one of the few investment categories that is not easily replicated in a registered mutual fund format.
“As an asset class, private equity is something that most investors should be taking a serious look at, but the practicalities are very daunting,” said Bob Rice, chief investment strategist at Tangent Capital.
Beyond the basic due diligence challenges, which CAIS handles on its platform, Mr. Rice cited the layers of fees that can be a turn-off to investors. He also stressed the unique commitment requirements.
“With private equity, you are not just writing one check,” he said. “You're writing a series of checks over a period of time, and it can be years before you get any capital back.”
NAVIGATING UNFAMILIAR MARKET
One thing a platform like CAIS is likely to do is help financial advisers better navigate what might be an unfamiliar marketplace.
For instance, Bob Jesenik, chief executive and chief investment officer at Aequitas Capital, explained that some of the higher-profile PE firms are now selling off their portfolios of fully-valued larger companies. But there are still opportunities for growth, he said, in many niche sectors, such as real estate, emerging growth and financial technology.
“In some areas of private equity it's a good time to be selling instead of buying, because some of the valuations of the larger companies have gotten extremely high,” Mr. Jesenik said. “The challenge for advisers is many are new to alternatives, and they get more comfort from large names, and those names happen to be focused on the large cap market.”
This will not be advisers' first opportunity to move into private equity, but CAIS'
relationship with Mercer introduces independent research on the funds that will be offered over the platform, and is expected to lead to more private equity fund offerings.
For advisers embracing the private equity space, the primary selling point is often a lack of correlation to traditional investments.
“Private equity allows me to go into the alternatives space where there is zero correlation to stocks, which is something I can't easily find in hedge funds or REITs,” said Patrick Dougherty, president of Dougherty Wealth Management.
“If you're not an RIA, you probably don't have access to private equity because the wirehouses are not offering it,” he added. “I think it's always good to be allocated to private equity.”
Last year, the Cambridge Associates U.S. Private Equity Index returned 11.25%, net of all fees and expenses. That compares with a 13.69% gain in the S&P 500 Index.
Over periods longer than five years, the
private equity index has steadily out-paced stocks.
