A Breakdown of Real Assets
October 31, 2022
With market volatility becoming omnipresent for family offices, private equity has come to the forefront for families hoping to further protect their portfolios. To help families learn more about this often-confusing subject matter, we have launched a video series about how private market investments can help mitigate volatility and illiquidity.
In our first video, we discussed the significance of asset class and vintage diversification when building a private market portfolio. Then, in our next video, we dug deeper into private equity to explain the importance of being diversified amongst underlying company maturity levels. Now, WE Family Offices Senior Investment Manager Matt Farrell, CAIA, returns once again to tap into his expertise as WE’s leader in private investment research to offer insight into the world of real assets, an investment class that covers physical assets such as natural resources, infrastructure and real estate.
According to Farrell, real assets can offer several benefits when included in portfolios. They can help with portfolio diversification, hedge against inflation and have the potential to provide stable income and attractive returns. However, to gain the most out of these potential benefits, it is important to invest across different sub-strategies in a manner that considers goals, liquidity needs and risk tolerance. Farrell also explains how you should consider diversifying by property types because they can be influenced by different macro factors.
We hope that through these videos, you will understand how to invest in real assets in a manner that helps ensure that the cash flow profile is aligned with the family’s goals and needs, while also not overly exposing the portfolio to any one macro factor. If you have any questions about real assets, please do not hesitate to contact us.
This video contains our current opinions and commentary that are subject to change without notice. Our commentary is distributed for informational and educational purposes only and does not consider the specific investment objective, financial situation, or particular needs of any recipient. Information contained herein has been obtained from sources we believe to be reliable, but we do not guarantee its completeness or accuracy. The information contained herein does not constitute legal or tax advice to any person. Please consult with your tax advisor regarding any taxation implications of the information presented in this presentation.
Private market investments are very risky and should only be incorporated in a portfolio after a careful assessment of the private investment’s offering materials and other information in consultation with your investment, tax, and legal advisors. Private market investments are often less liquid than traditional investments and redemptions from such investments often involve holdbacks and other restrictions on the timing of the redemption. Private placements, limited partnerships, hedge funds, funds of funds, or other types of these investment vehicles are typically illiquid, often for long periods of time, i.e., years. The terms governing these investments generally provide for significant redemption notice periods, lock-up periods, and holdbacks upon redemption, resale restrictions, and other provisions that preclude prompt liquidation of these investments Among the primary risks are long term illiquidity, lack of transparency, lack of control of the investment vehicle and investment decisions, and in the worst case, the total loss of your investment.
A particular illiquid fund’s returns typically will vary materially over the life cycle of the fund depending on the particular strategy of the fund; returns may be higher at the beginning, middle or end of the fund’s life cycle. So, the return profile of a private equity fund over the life of the fund will be very different that the return profile of a venture capital, distressed credit, or secondary illiquid strategy.
Certain statements contained herein may constitute “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variation thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions.