Alt Investments

Is Your Retirement Missing Private Markets?

George Sullivan and Michael Weisz May 14, 2024

Is Your Retirement Missing Private Markets?

The story about private market investing is now an established one. But it appears that for a variety of reasons, such assets don't yet account for a large share of retirement fund portfolios.

This news service regularly notes the rising profile of private market investing. Several forces are driving this – more firms are not listing on the stock market, or are taking years longer than before to go to IPO. This means that for many retail, affluent and even high net worth clients, restrictions on access to non-listed markets means that they are not able to get a piece of an expanding economic pie in their quest to save for retirement. This isn’t simply an economics' issue; it is in danger, unless changes are made, of becoming a political justice one, too. 

George Sullivan, CEO of Executive Trust Company, and Michael Weisz, founder and CEO of YieldStreet, address the topic of whether retirement funds are missing out on holding private market assets, and what to do about it. 

As ever, the editors are pleased to add such ideas to the conversation; the usual disclaimers apply. Email if you want to respond.

In our opinion, alternative investments are like the vegetables of the core portfolio – most qualified investors are not getting enough. (2024 Wealth Outlook, Citigroup Inc)

This observation from Citi’s 2024 Wealth Outlook is a signal that most investors are still not heeding: private markets are no longer “alternative” – they’re fundamental elements of a well-rounded portfolio.

However, for decades, most retirement accounts have been constrained by limited options. Investing in private markets with retirement assets has been, for too many Americans, disappointingly out of reach. The problem of how to tap into the historically higher returns offered by private markets, with the attractive tax efficiencies of retirement accounts, was one famously solved by only the wealthiest individuals. 

But that was then. Now, financial technology innovations are opening new doors to investors at a pivotal time for retirement security. At Yieldstreet and Equity Trust, we have been at the forefront of this evolution, bridging the enduring potential of private market investments with the tax-smart structure of IRAs, delivering a powerful new tool for retirement planning.

The untapped opportunity in private markets
Private markets represent the vast pool of assets, estimated at $23 trillion, not listed on public exchanges. Key segments include private equity, which involves acquiring stakes in private companies to foster growth; venture capital, aimed at early investment in startups with potential for growth and scale; private credit, which offers debt capital to businesses outside traditional banking channels; and commercial real estate, focused on direct property acquisition for rental income and appreciation, among others.

Traditionally, retirement accounts have favored target-date funds, designed to shift from stocks to bonds as the investor approaches retirement. Yet, this “one-size-fits-all” strategy reveals its limitations during market downturns, highlighting the need for more dynamic investment solutions. 

This reality contrasts with strategies favored by institutional investors, who are increasingly diversifying their portfolios by doubling down on private market investments. This shift is motivated by the compelling performance and diversification benefits of private markets, which have shown remarkable resilience even in turbulent times. 

We do not believe individual investors should be held back by this disparity.

The strategic advantage of private markets in retirement planning
By implementing clear legal frameworks, providing detailed reporting, and leveraging user-friendly online platforms, we've dismantled the traditional barriers that kept private market investments out of reach. Today, integrating alternative assets into IRAs is easier and more widespread than ever before.

Private markets’ fundamental illiquidity is simultaneously their strategic advantage for retirement investors. This illiquidity commands a premium, offering returns that often surpass those of more liquid public market investments. This premium rewards investors for their extended commitment of capital, making it an ideal strategy for those prepared to invest their funds over the long term – a perfect fit for retirement planning's extended horizon.

For retirement accounts, which are inherently long-term, the illiquidity of private investments not only secures this additional yield but also discourages the selloffs that characterize the ups and downs of public markets. The long investment time horizon and illiquid assets fosters greater strategic patience – key to maximizing the potential of investments. 

Institutional investors have long recognized the value of this alignment, and now, individual investors are beginning to follow suit. A recent survey found that 53 per cent of investors with at least $10,000 to invest are planning to boost their allocations to alternative investments this year. 

New options and new possibilities for individual investors
At Yieldstreet and Equity Trust, our mission goes beyond merely offering access to these alternative investments. We are committed to guiding investors through this changing terrain by providing the same knowledge available to institutions. With these insights, investors can be confident that their decisions are well-considered and strategic, and advisors can offer truly comprehensive planning and investment advice. 

Our aim is to make it seamless for investors to incorporate alternative investments into their retirement plans, and our reward is seeing investors achieve their unique financial objectives. 

In the face of a more complex world, investors can approach retirement with more confidence, knowing that they are using every opportunity to its greatest advantage. 

The authors

George Sullivan is the chief executive of Equity Trust Company, a financial services company that enables individual investors and financial professionals to diversify investment portfolios using alternative asset classes. With 50 years in the financial services industry, Equity Trust Company holds $45 billion in assets under custody and administration (as of January 1, 2024). 

George Sullivan

Michael Weisz is the founder and CEO of Yieldstreet. Weisz began his career at a $1.2 billion New York-based credit fund, working his way to vice president before co-founding his own fund in 2013. During his 10 years on the institutional side of the business, he grew frustrated that access to superior wealth creation opportunities was not accessible to individual investors. In 2015, he teamed with Milind Mehere to create Yieldstreet. 

Michael Weisz

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