Every investor wants to get in on the “ground floor” of a great private investment. The key is, of course, making sure it doesn't collapse underneath them once they put their hard-earned money into it.
As companies remain private for longer, direct private investments can offer exposure to innovative businesses and add much needed diversity to equity portfolios. That said, private market assets don't offer the same level of transparency or liquidity as public markets. And there’s the rub.
As a result, advisors say direct access may not be attractive for all investors. And even when it is a suitable investment, it is imperative to work with a professional financial advisor who has experience investing in private markets.
Christian Salomone, chief investment officer at Ballast Rock Private Wealth, believes liquidity must be the starting point when assessing a private market opportunity for a client. Typically, private investments involve long investment periods with little or no ability to liquidate positions before maturity. Even the most liquid alternatives only provide selling opportunities on a monthly or quarterly basis.
“Though higher risk adjusted returns and diversification are beneficial to an investment portfolio, if a client's financial situation changes and they need to sell that portfolio, the illiquidity of private investments could prove catastrophic,” Salomone said.
Dr. Preston D. Cherry, founder of Concurrent Wealth, says the determination requires both financial capacity and emotional readiness. In his view, clients should only consider private investments after securing strong liquidity, a diversified public market foundation, and a clear long-term plan.
“Equally important is the psychological side: do they have the patience and resilience to ride out illiquidity without regret or stress? Often what gets overlooked is capacity, which is not just the ability to invest but the ability to stay invested without compromising financial harmony,” Cherry said, adding that the right allocation is relative to the "size and structure of household wealth, not merely accreditation status."
Kevin Thompson, founder and CEO of 9i Capital Group, says a client with a substantial time horizon and the need for quality diversifier is ideal for private market assets.
“All of these key items would need to align before I consider an investment into private markets,” Thompson said.
Sevasti Balafas, CEO & founder of GoalVest, believes the “upside is clear” and that private markets are where much of today’s growth is happening outside of the “Magnificent 7.” In her view, private companies not only offer high growth potential but also provide diversification to complement public markets.
“Today, the top 10 names make up more than 30% of the S&P 500, so private markets give investors an additional way to diversify in an environment where public market valuations remain stretched,” Balafas said.
The main risk in her view is investing too early in a company’s life cycle, or before it’s clear whether they’ll emerge as a sustained winner in their field. That’s why she prefers companies with proven track records and visibility into profitability, if not already profitable.
“We’re not focused on startups, but rather on growth companies that have a clear path to profitability,” Balafas said.
Private markets are undoubtedly playing a much larger role in modern portfolio construction, but a consensus of advisors says they are not essential for every investor.
“Institutions and ultra high-net-worth investors have long used them to enhance returns and diversify. Individual accredited investors can also reap these benefits, but they have to understand the associated risks,” Salomone said.
Thompson agrees that these investments are not essential but can be a quality diversifier for the right clientele.
“As for now, it will remain a niche environment for high net-worth investors looking for an alternative approach with the possibility of above market returns,” Thompson said.
Cherry says public markets still provide broad opportunity, liquidity, and efficiency for building wealth. In his view, private investments can serve as an alternative growth sleeve, although not a replacement for disciplined diversification.
“At the ultra-high-net-worth and family-office level, the calculus is different: private equity, direct deals, and private credit are often treated as core holdings because those households have the scale, patience, and infrastructure to manage them. For the majority of accredited investors, however, private markets remain best used in moderation and only after public market foundations are secured,” Cherry said.
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