Private equity opportunities rise in high-net-worth sector


“This is just the beginning,” said Eric Mancini, certified financial planner and wealth advisor with Traphagen Financial Group. “It’s only in the last couple of years we’re seeing any sustained push from [private equity] companies.”

In fact, according to Bloomberg, “private equity is trying to cut out the middleman — namely, the brokers at big money-management units at large banks [and] … could potentially automate a lot of the paperwork and tax documentation.”

Mancini sees it as a growing trend for several reasons, such as emerging technology platforms that facilitate the extensive paperwork, client tracking and communication specific to private investments. In addition, there is greater interest from advisors due to anticipated low returns from public investments and concerns about valuations, and private equity companies are now starting to understand how to package deals for accredited retail clients.

Private equity is an area of specialty for Matt Chancey, a CFP affiliated with the Clariphi Advisory Network. He also sees private investment options increasing and says some of the reasons are due to the fact that they are more:

  • Attractive. As competition grows, companies are putting deals together to benefit the investors — for example, giving a higher share of profits.
  • Accessible. Minimum investment levels are dropping, sometimes to as low as $25,000.
  • Transparent. Ownership partners are putting in their own money, with higher-quality management teams.
  • Niche. Deals are more sector-specific (e.g., fast food, auto dealers, IT services, waste management), resulting in more and smaller transactions.

“There are risks, and it’s important to understand each deal before committing client capital,” Chancey said. “But with appropriate position sizing and diversification across multiple deals, it’s a benefit to many investors.”

He cites the benefits over traditional equity and fixed-income investments as lack of liquidity, which keeps investors committed to the planning; enhanced return stream; potentially tax-advantaged returns; and lower volatility, because private equity does not trade in the liquid markets.

Chancey sees his expertise in private investing as a differentiator for attracting new clients.

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Similarly, private investment is a key component of LotusGroup Advisors’ investment strategy, according to Andy Seth, founding partner. The practice has executed 484 individual placements in the past five years.

Seth sees private equity as an important tool for generating cash flow, averaging $70,000 per year per client.

“Our selection criteria currently include only recession-resilient deals, such as mobile homes, affordable housing or skilled nursing facilities,” he said. “The deals are ‘stacked,’ and we educate and encourage all our [eligible] clients to make at least five private investments within two years of onboarding.”

Seth’s practice has a particularly high level of expertise in due diligence because of his in-house team of four, who just source private equity deals. “The work is very resource intense — there’s way more work in sourcing,” he said. “As a result, we are able to find valuations that are 50 percent less than in the public markets.”

This is because the public markets have a larger demand for shares, which increases their value, he said. In contrast, the private markets have less accredited funding available, which means companies need to make their shares cheaper, with higher returns.

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