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Advisors Feel Underskilled, Overwhelmed With Private Assets

Nearly 80% of advisors plan to allocate more assets into private markets this year — but it’s not always as easy as it sounds.

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Forget the Nasdaq, the Dow and the S&P.

The overwhelming majority of US companies are now private, and assets like private equity, credit, and real estate are becoming huge hits with clients. The bulk of advisors (80%) plan to boost private market allocations in portfolios this year, according to Blackstone. The problem is that these markets are far different from traditional ones, with limited transparency and low liquidity. There’s also less formal regulation, and irregular earnings reporting, that can create hesitation among advisors. Without proper expertise, some are feeling underskilled and overwhelmed. 

“It’s like a physician in general medicine deciding to become a brain surgeon,” said Matt Chancey, a CFP with Realta Wealth. “There is a lot of additional training required.”

Baby Steps

Private markets encompass a range of asset classes, including collectibles, real estate investment trusts, and business development corporations. While the hope is to find the next big success like Amazon or Google, there’s always the risk of failure. Advisors may consider starting small, investing in 10 private companies over shorter time horizons. Tom Balcom, founder of the Florida-based 1650 Wealth Management, said his firm added private markets allocations to client portfolios four years ago. 

“For most of our clients, we probably allocate about 10% to private credit and private real estate, and it’s increasing,” he told The Daily Upside. Despite some learning hurdles and leaps of faith, the benefits of private market allocations are significant. For almost two decades, assets in the sector have been surging, prompting advisors to diversify client portfolios: 

  • By the end of 2023, private credit totaled nearly $2 trillion as an asset class, about ten times larger than in 2009, according to a McKinsey & Company report
  • Younger investors, particularly Millennials and Gen Z, are increasingly allocating funds to alternatives. Bank of America found that these groups invest 17% of their portfolios in alternatives, compared with just 5% by older investors.

Endless Possibilities? Data providers like Blue Vault and platforms like Arch can help advisors gain insights into the often murky world of private investments, but advisors still face a steep learning curve. Traditional market research tools like Morningstar Direct and the Bloomberg terminal simply don’t exist for alternatives, said John O’Connell, CEO of the Oasis Group. 

“It took about 15 years for ETFs to shake mutual funds to their cores, and you’re going to see private markets do that much faster, given the appetite,” O’Connell said. “But, if you don’t understand what you’re investing in … don’t.”