Advisors aren’t offering the most diversified approach unless they are educating the client in the advantages of alternative investments, according to a panel of investments officials.
And one of the better alternatives is private equity investing, XA Investment officials and others in the private equity business said at a news briefing at the New York Stock Exchange yesterday.
That is in part because regulators are moving to open up private equity investment to a broader range of individual investors. Ultimately, the argument for private equity comes down to having enough good investment choices, one official said.
“The growth of the private equity market and the private credit market now swamps the size of the public markets,” said Kimberly Ann Flynn, a CFA and managing director with XA Investments. Flynn noted that private investing can’t be provided in an ETF or mutual fund.
She added that those ignoring or without access to the private equity are missing out on significant investment opportunities that could improve retirement assets. Regulators want to help individual investors become involved in a market where they have been traditionally shut out or received very little in entities such as IPOs, she noted.
“Historically, the big institutions have had access to these deals, but you want the individual investor to also have access to them,” said Chris Shepherdson, managing director of CR Capital Group. “You don’t want the leftovers for the average retail investor.”
Other big private equity investment firms, most notably Blackstone, have made similar arguments. Their reasoning is that individuals typically start investing in 401(k) plans or IRAs in their late 20s or early 30s and are understandable to access those funds without paying a penalty until they are 59 1/2. Consequently, the typical five- to seven-year lockup period for a private equity fund fits well within their time horizon.
The SEC recently issued a proposal stating their desire to expand retail investor and retiree access to private equity and venture capital.
Individual investors may be missing out on opportunities because they are overallocated to stocks and underallocated to private equity, Flynn argued. She and others at the conference contended that the SEC will likely change the qualifications for investing in these funds, making it easier for small investors to buy private equity shares.
“We’re a big fan of what the SEC is trying to do,” Shepherdson said.