Craig Robson rarely has new clients coming to ask about how they can get into
Rather, said the founding principal and managing director of Regent Peak Wealth Advisors in Atlanta, they're usually looking for a way to avoid repeating the losses they might have suffered in both their bond and stock portfolios in a year like 2022. That's when the conversation often turns to the possible benefits of putting money into private equity, credit, real estate or venture capital funds, Robson said.
"The majority of them are saying, 'We've created a lot of wealth already, so we don't need to hit homeruns. We just don't want to lose our wealth,'" Robson said. "And so things that we could do to provide downside protection are certainly of interest."
Anywhere from 10% to 30%
Robson said he primarily works with high net worth clients and will recommend they have from
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The No. 1 reason that advisors in Blackstone's poll cited for
Again, he noted, clients almost never initiate a discussion of private markets with him or his associates. Rather, they'll come to him after finding that supposedly tried-and-true methods of hedging against investing risks came up short.
That was the case following the 2022 downturns in both the stock and bond markets. Before then, many investors and advisors believed the two types of assets were inversely correlated, meaning if prices went down for one they'd inevitably go up for another. Then markets gave the lie to that hypothesis.
"When we met with some prospects after 2022, they were coming because they were disappointed in that volatility," Robson said. "And they didn't necessarily say, 'Well, I want to talk about private investments.' But they said, 'We'll come to you because we're looking for something different because, candidly, what we owned wasn't working.'"
Blackstone's market survey found that 71% of its respondents cited diversification as their primary goal for helping clients invest in private markets. Only 11% said they were going after the often-trumpeted higher returns supposedly offered by alternatives.
Reasons for caution
Like most wealth managers, Robson is quick to acknowledge private markets aren't for everyone. He generally thinks they should be reserved for clients with at least $2 million in investable assets — a fairly high threshold.
Robson said there is always the risk that a private investment won't perform as well as hoped, but he's more worried about liquidity. Clients who can't afford to have a substantial part of their portfolios locked up for years on end should probably stick to public markets and the accommodations they offer to investors wanting to pull out cash.
Others have even greater misgivings. Noah Damsky, the founder of
There's also a lack of general understanding of how private markets work. Many of the best investments tend to be bought up by institutions, which often get first dibs simply because they can write the biggest checks, Damsky said.
By the time the opportunities reach retail advisors and their clients, he said, all that is left are "crumbs."
"When they can't syndicate these deals to institutional investors, well, they've got to get it from somewhere, because they don't want to hold it on their balance sheet," Damsky said.
Damsky didn't deny that there can be some good bets in private markets. He just questioned the ability of everyday advisors and investors to sort out the most promising from the downright treacherous ones.
Many wealth managers may not know what to look for when they're weighing the huge variety of opportunities presented by private markets. And even those who can pose good questions may not know the next steps to take with the answers they receive.
"You can ask for data," Damsky said. "But then you have to know what to do with the data. You have to know how to analyze it, and many probably don't."
Tech firms to the rescue
A number of firms have sprouted to help wealth managers untangle some of these complexities and clear investors' path into private markets. The investing giant BlackRock announced Wednesday it has enlisted the Chicago-based tech firm GeoWealth to offer unified managed accounts consisting partly of private funds. Wealth managers will be able to have the accounts set up on the behalf of their clients.
"By combining BlackRock's portfolio design expertise with GeoWealth's implementation platform, we will make it easier for advisors to build a models-based practice and enable broader access to private markets — one of today's most sought-after asset classes," Eve Cout, the head of portfolio design and solutions in BlackRock's U.S. wealth advisory business, said in a statement.
Blackstone's survey suggests that the main attribute advisors look for in an outside manager of private investments — cited by nearly half of the respondents — is a strong track record with performance.
One firm that's on the forefront of helping wealth managers and their clients through the
Instead, Opto sets up custom funds on behalf of investment advisors and charges them management and performance fees. It's a system that's at least somewhat similar to how many RIAs charge fees based on the total amount of assets they oversee for clients.
Did you try calling the auditor?
Miller said Opto often learns of possible private investments from existing clients like wealthy families or backers like the Government Investment Corporation of Singapore, a sovereign wealth fund. Then begins the difficult task of deciding which opportunities merit a closer look.
Miller said Opto relies on technology to screen out the roughly 90% of funds that are brought to its attention.
"From there, it's still a people-based process," he said. "And I don't think technology is likely to disrupt that anytime soon."
With the opportunities that remain following Opto's sorting process, Miller and his colleagues take a close look at factors such as how they propose to make money and how their managers expect to be paid.
"And then the simple thing that people forget to do sometimes is that we make sure to call everyone's auditor," Miller said.
Miller agreed that the illiquidity of private investments probably means they are best reserved for clients who aren't likely to need money at a moment's notice. But with diversification becoming an ever more desirable goal, advisors who haven't got at least some familiarity with alternative markets could end up doing their clients a disservice, he said.
Miller said Opto works with RIAs managing both as little $600 million and as much as $65 billion. Skepticism and wariness of private markets now run throughout firms of all sizes, he said.
Part of Opto's mission, Miller said, is to dispel some of those fears.
"If you think about a $10 million client making a $250,000 allocation to a fund that's going to last 7 years, were they actually going to spend that $250K in that period?" he said. But if that $250,000 can kick off a 15% yield with relatively compensatory risks and create a reliable source of income, doesn't that actually make a lot of sense?"
