The mass affluent, or the 15 million American families who can afford to retire comfortably, represent about $7.5 trillion in investible capital. Yet less than 3 percent of that capital is invested in alternative investments that can provide income and principal protection in a rising rate, or inflationary environment.
As RCS Capital CEO and director William Kahane laid out that scenario yesterday at the annual Retirement Symposium in Las Vegas hosted by Financial Advisor and Private Wealth magazines, he called it America’s durable income story. Or, more specifically, the lack of durable retirement income in the face of current low returns from most fixed-income securities.
“There are lots of places you can look to achieve durable income other than fixed income,” Kahane told attendees at a conference panel session devoted to income-producing alternatives to bonds. Among them: global investing, real estate and health care, which he described as “truly a juggernaut driven by compelling demographics.”
Kahane, along with fellow panelists Christian Magoon, chief executive of Yield Shares, an ETF sponsor focused on income strategies, and Leonard Tannenbaum, CEO at alternative asset manager Fifth Street Management LLC, talked about investing in three types of assets that can provide alternative sources of retirement income in the current low-interest rate environment:
Non-traded REITs
Kahane’s firm, which has made a big push into the retail broker business with its recent acquisitions of Cetera Financial Holdings and J.P. Turner & Company, along with prior deals for Investors Capital Holdings, Summit Financial Services Group and First Allied Holdings, previously made its mark as a provider of non-traded real estate investment trusts.
Non-traded REITs, also known as private or non-listed REITs, are similar to publicly traded REITs in that they own—and in most cases, manage—income-producing real estate; they distribute at least 90 percent of their taxable income to investors as dividends; and they're registered with the Securities and Exchange Commission.
But non-listed REITs significantly differ from their public counterparts in how they are priced and traded, and in how liquid and transparent they are. Non-traded REIT prices, for example, are set by the REIT sponsor, and the industry standard is $10 per share. That price will remain constant during the life of the fund, which can last anywhere from five to ten years (or more). After that, its investors hope to cash out through an initial public offering, by selling the fund to another portfolio or by selling off internal properties.
Detractors say the pricing of non-traded REITs is much less clear than it is for publicly traded ones, where prices are set by the open market.
Proponents recognize that a lack of transparency can be negative for some investors, but they believe non-traded REIT prices more accurately reflect the value of the underlying real estate than do public REITs, whose prices are set by the whims of Wall Street.