Are Private Investments Right For You?
You’ve likely encountered discussions about private investments in financial news or industry reports and may have wondered what this term entails. Simply put, private investments allow individuals and institutions to grow their wealth outside of publicly traded markets. Unlike stocks and bonds, which are bought and sold on exchanges, these are assets such as private equity, venture capital, real estate, and hedge funds.
For example, purchasing shares of one of the approximately 6,000 U.S. companies listed on the New York Stock Exchange or Nasdaq constitutes a public investment. Conversely, investing in a privately owned business or real estate opportunity is considered a private investment.
Historically, access to private markets has been limited to highly credentialed or exceptionally wealthy investors. This exclusivity can make private investments seem particularly appealing, but exclusivity alone is not a sufficient reason to pursue them. That said, private investments offer compelling benefits that may align well with certain investment objectives.
Research has shown that private investments can provide valuable diversification by exposing investors to a different set of businesses than those traded on public exchanges. They also enable investors to target valuation inefficiencies not found in public markets, thereby lowering overall portfolio volatility while still generating attractive absolute returns.
One of the most compelling aspects of private markets is their sheer size. According to Capital IQ, 87% of U.S. companies with revenues exceeding $100 million are privately held.1 While not all of these companies are accessible or suitable for investment, the scale of private markets presents undeniable opportunities. Over the past 30 years, the number of publicly listed companies has declined due to industry consolidation and the availability of substantial private capital.
Today, businesses have multiple options for raising funds beyond the traditional IPO process. Given this choice, many business owners prefer the flexibility of private ownership over answering to a large shareholder-appointed board and complying with extensive public disclosure requirements. The private structure often allows for long-term strategic decision-making, rather than the short-term performance pressures commonly seen in public markets.
As companies remain private for longer periods, a significant portion of their growth may now occur before an IPO rather than afterward. This underscores the potential performance benefits of investing in private companies. Additionally, these advantages extend to private real estate and private credit (fixed income), where partnering with top-tier managers can leverage strategic management, operational efficiencies, and long-term value creation to generate strong performance.
Which Investors Benefit from Private Investments?
Private investments can be particularly beneficial for investors with specific asset allocation needs, a higher tolerance for illiquidity, and a long-term investment horizon—and today they are more accessible than ever. Technological advances have simplified due diligence and investment execution, increased accessibility and have reduced some costs. However, these opportunities come with unique challenges that must be carefully considered.
Private equity investments, for example, often require high capital commitments, extended lock-up periods, and limited liquidity. Conducting thorough due diligence is critical to identifying high-quality opportunities and mitigating risks. In some cases, traditional private equity funds may take 10 to 12 years to fully distribute returns.
Additionally, private investments often involve higher fees than other investment options. While Truepoint does not increase its fees for managing such assets, private investment vehicles themselves typically impose substantial costs. Furthermore, many private investments do not provide tax reporting by the standard April 15 deadline, requiring investors to file tax extensions. These factors make private investments more suitable for certain investors than others.
The Power of Private Investments at Truepoint
At Truepoint, our private investment allocations primarily focus on real estate, private equity, multi-strategy funds, and private credit opportunities. Each investment is carefully selected to fulfill a specific objective within the total portfolio.
For example, we may use private credit or real estate income funds to enhance yield in the fixed-income portion of a portfolio. Meanwhile, multi-strategy funds and private equity investments can increase diversification and potentially improve absolute returns, while real estate equity investments can generate both income and capital appreciation.
Given the inherent lack of transparency in private markets, our dedicated team sources, vets, and monitors private investments to ensure quality and strategic alignment. Clients who invest in private opportunities through Truepoint also benefit from the advantages of aggregate investing. By pooling capital, we gain access to a broader range of investment opportunities and achieve enhanced diversification beyond what an individual investor could accomplish alone.
Finally, as with all investment decisions, our team collaborates across disciplines to assess the full impact of private investments on a client’s financial plan. Our investment team works closely with our tax, estate, and financial planning professionals to ensure that investments are structured for maximum tax efficiency, liquidity, and estate planning benefits.
Private investments offer unique opportunities for portfolio diversification, particularly for investors with specific financial objectives. If you are unsure whether these investments are appropriate for your portfolio, we can help assess their potential fit. Backed by empirical research and decades of experience, our approach is designed to identify private investment opportunities that align with our clients’ long-term goals.
