The following was referenced today on Citywire. Don't believe that it has been previously linked. Apologize if dup.
https://www.independentvanguardadviser.com/do-you-really-need-private-investments/SUMMARYPrivate markets are being pitched as the next frontier for everyday investors—with Vanguard now joining the push. But don’t believe the hype. Alternative investment funds are expensive, opaque and illiquid. Their risk-reducing qualities are oversold. And unless you have access to the best managers, private investments are more likely to add complexity to your portfolio than improve performance.
Comments
one has better reward:risk in the equity of the 'best' managers ; kkr,bam,apollo...
but IAV does not advocate for individual stocks either.
The speed at which Wall Street is rushing to jam private investments into retirement plans, etc. these days is more than a little concerning and reeks (to me) of a blatant money-grab ... er raid ... on the captive piles of money held by "the little people" who often are referred to as "dumb money" while the proverbial getting's (really) good.
Glad my 403b is not under the influence of such people sitting on our state investment committee!
(bribes of course, not the rolling on the grass clutching his shins)
would be very interested in how well the american tourist economy for foreigner visitors fares against the love for world cup soccer. seems a sure thing matches in canada and mexico will do very well.
That was easy.
Investing in private equity through a 401(k) plan is a relatively new and evolving concept that has generated discussion among investors and industry professionals.
Here's what to know:
Potential Benefits:
Higher Returns: Private equity has historically shown the potential for higher returns compared to public markets, according to SmartAsset. Private equity funds have delivered an average annual return of 13.1% over the previous 25 years, compared to the S&P 500's average return of 8.6% during the same period. This outperformance is often attributed to private equity's focus on undervalued companies, real estate, and infrastructure, which may be less exposed to market volatility.
Diversification: Adding private equity to a 401(k) can provide diversification beyond traditional stocks and bonds, potentially mitigating risk and offering exposure to assets less correlated with public markets.
Access to previously inaccessible assets: For individual investors, private equity investments have traditionally been limited to institutional and high-net-worth investors due to high entry barriers and complexity. Expanding 401(k) options could provide access to these alternative investment vehicles.
Potential Risks:
Illiquidity: Private equity investments are illiquid, meaning they are difficult to sell quickly or easily, often requiring capital lock-ups for several years. This can be a concern for individuals needing quick access to their retirement savings.
High Fees: Private equity funds typically charge higher fees compared to traditional mutual funds and ETFs. These fees can erode returns, especially over the long term. Private equity funds often charge a management fee (around 2%) plus a share of the profits (around 20%).
Complexity and Lack of Transparency: Private equity involves complex investment strategies and less regulatory oversight and transparency compared to publicly traded assets, making it harder to assess and value these investments.
Volatility: While long-term returns may be higher, short-term fluctuations in private equity valuations can be significant.
Regulatory Landscape and Future Outlook:
The Department of Labor (DOL) has issued guidance regarding private equity investments in 401(k) plans, allowing their inclusion within professionally managed funds like target-date funds.
However, the DOL also emphasizes the need for fiduciaries to carefully consider the risks and ensure appropriate safeguards, including disclosure, valuations, and addressing liquidity concerns.
Recent reports suggest potential further loosening of regulations, potentially allowing more direct access to private equity within 401(k)s. This has generated debate about the appropriate balance between expanding access to potentially higher returns and protecting retirement savers from undue risks.
Some major investment firms, including BlackRock and Empower, are already planning to offer private equity options within target-date funds or other professionally managed 401(k) options in the near future. BlackRock estimates that adding private assets could boost returns by approximately 50 basis points per year and increase the total value of a 401(k) by 15% over 40 years.
Important Considerations for Investors:
Consult a Financial Advisor: It is crucial to seek advice from a qualified financial advisor to understand the complexities and risks involved before considering private equity investments in your 401(k).
Risk Tolerance and Time Horizon: Private equity is generally suited for younger investors with a longer time horizon and a higher risk tolerance, as it involves greater volatility and illiquidity.
Fees and Liquidity: Carefully evaluate the fee structure and liquidity terms of any private equity fund before investing.
Diversification and Allocation: Consider a limited, strategic allocation to private equity within a diversified retirement portfolio, as advised by financial professionals. Some experts suggest limiting private market exposure to 5-10% for most investors.
AI responses may include mistakes. For financial advice, consult a professional.
I am confident that there is in fact a need.
I am equally confident that there really won't be much of that.
"Thoughts and Prayers".
Sure.
This is what I feel about financial advisors. See (link).
Investment firms with private investments consider 401(k) plans to be a lucrative opportunity.
Their primary goal is to increase AUM whether or not it will ultimately benefit 401(k) participants.
"Private equity has historically shown the potential for higher returns compared to public markets,
according to SmartAsset. Private equity funds have delivered an average annual return of 13.1%
over the previous 25 years, compared to the S&P 500's average return of 8.6% during the same period."
There is wide performance dispersion between the top decile/quintile managers
and average managers according to multiple sources.
Many of the best managers are inaccessible to the vast majority of investors.
Private funds tend to be expensive, opaque, and illiquid as stated previously.
Broadly speaking, I don't believe allowing private investments within 401(k)
plans (either stand-alone or within TDFs) would benefit plan participants¹.
¹ Fidelity and T. Rowe Price, for example, include private companies in some of their mutual funds.
Mutual funds like this could benefit investors assuming the plan sponsor conducts proper due diligence.
Quite a leap of faith on that one.
But it's not much different from when plan sponsors select mutual funds/CITs
with no private investments for inclusion in the plan.