5 Ways Private Investment Will Work for Your Clients
Private alternative investments can provide diversification and capital preservation. Discover five private investments and how they can benefit your clients.
As an RIA, it’s your responsibility to provide investment advice and recommendations that help your client preserve and grow their wealth. Oftentimes, this can require exploring investment opportunities that aren’t traded on public markets. Including private alternative investments in your client’s portfolios can help you diversify across industries and assets, as well as customize their holdings to their unique needs and goals. Keep reading to learn more about different private investments and how they can help your client achieve their financial goals.
What Are Private Market Investments?
So what are private investments? Private market investing involves investing capital into private companies not listed on public exchanges. Examples of private investments include private equity, private debt, and real assets, such as real estate.
These investments are also often referred to as “alternative” investments. Alternatives are a larger category, encompassing any non-traditional asset. This could include private investments but also refers to assets like art, precious metals, cryptocurrency, options, and more.
The Benefits of Private Alternative Investments
Private markets often behave differently than public markets, which can help diversify your client’s portfolio and mitigate risk. Many RIAs see this as a great opportunity to preserve their client’s wealth by safeguarding a portion of it from the volatility of the public market. Some private alternative investments also provide passive income via regular returns from interest or rent payments. These regular, stable returns can help grow your client's portfolio to achieve their financial goals, whether it’s retirement planning, creating generational wealth, or saving for their children’s college.
5 Private Investment Options and Their Value
Every private investment has unique advantages, risks, and rewards. Check out these five private investment vehicles and discover how they might benefit your clients.
Private Real Estate Debt Fund
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A real estate debt fund raises capital that is lent to real estate investors to support a real estate project, such as the development of a new property or a remodel of an existing one. Essentially, investors earn returns as borrowers make payments toward their mortgages.
An investment company sets up the fund and then pools capital from several investors to create the loan. The borrower repays the loan plus interest over a set term, resulting in returns for the investors. This is a great way to get real estate exposure in your client’s portfolio. If you’re looking for a real estate debt fund to add to your client’s holding, ensure you choose a transparent company and stable investment.
Capstone Capital Partners Growth Fund is a private real estate debt fund that pools capital to be lent to Texas real estate companies. This is a reliable investment, asset-backed loan with strict lending criteria to keep your client’s capital protected. The underlying real estate assets must have a 70% LTV rating and will undergo third-party inspections. The Growth fund is an opportunity to invest in a real, tangible asset with 10% target returns. Transparency is a top priority, so our investors know exactly what property and area their capital is invested in.
Private Debt Funds
Not all private debt investments are linked to real estate. But what are private debt investments and what other borrowers do they serve? Like private real estate debt, investors can invest capital into a fund that is lent to a borrower. Unlike private real estate debt, the borrowers are not real estate investors. There are various types of private debt funds, and borrowers could range from startups that need venture capital to mature companies with growth plans to companies experiencing financial distress. The type of fund and borrower will determine the level of risk, return structure, and investment horizon.
Private debt’s passive income could grow your client’s portfolio. When lent to trustworthy borrowers, they can be a fairly stable investment. However, there is always the risk that the borrower can’t make their payments, which could negatively impact investors.
Growth Equity
Growth equity is a type of private equity to grow mature companies. And what are private equity investments? Private equity companies pool money from investors and then use that capital to buy private companies or real estate. In a growth equity investment, private equity firms acquire mature companies and then advise them on major re-organizations or expansion plans to help that company grow and become more profitable.
At the end of the investment horizon, the goal is for investors to receive their initial investment plus profit. This investment strategy can result in high returns, though they can be unreliable. If you choose to invest in a growth equity fund, ensure you trust the expertise of the private equity company you partner with.
Private Equity Real Estate
Private equity real estate (PERE) is another form of alternative private equity investments solely focused on acquiring real estate. With the capital pooled from investors, PERE companies will invest that money into a property. This could be a distressed property to renovate and sell or involve partnering with a developer to fund a new build. This is another way to get exposure to a real, tangible asset and grow your client’s wealth through steady returns.
Precious Metals
Precious metals are another alternative investment that can help safeguard your client’s wealth. They are tangible assets with intrinsic value due to their use in global currency, industrial processes, and jewelry. Precious metals can also serve as an inflation hedge. As inflation rises, the stock market’s performance may suffer. As a result, investors turn to precious metals to protect their wealth, which raises their value. They are also fairly liquid, which can be important to maintain in a portfolio.
Diversify Your Client Portfolios and Preserve Their Wealth
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Private alternative investments give your clients valuable exposure to assets like real estate while being untethered from the stock market. As you consider private investments, however, trust in the firms you partner with is key.
Capstone Capital Partners is a family-owned real estate investment firm in Texas. We’re trusted by RIAs and family office managers to preserve their clients’ wealth through asset-based investments. Your clients can see and understand exactly what they’re investing in. They can meet us in person and by phone. It’s a more personal and trustworthy way of preserving generational wealth.
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