You’ve probably heard that it’s risky to put all your eggs in one basket. Actually, the legendary industrialist Andrew Carnegie thought it might be okay, but if you did you should be sure to guard the basket, just to be safe. Jason Maas, Managing Director and Senior Portfolio Manager with The Burish Group at UBS, has a more practical idea: Increase the number of baskets, hire a qualified advisor, then relax and take the afternoon off.
“Alternative asset classes, like private equity, private loans, and private real estate have had an attractive risk-return profile over long periods,” Maas said. “We’re also finding exciting new opportunities in private infrastructure assets, like telecommunications, transportation, and regulated utilities that power the network for artificial intelligence. Qualified investors might consider placing a portion of their portfolio into private markets, which could help to reduce volatility while potentially boosting returns as well.”
According to Maas, broader access to innovation, enhanced diversification, and favorable risk-adjusted returns are three important reasons why investment capital is flowing into private markets — and why individual investors should take a fresh look at this fast-growing asset class. He notes that private assets under management worldwide has soared to over $14 trillion, with about two-thirds of that amount in equity, roughly one quarter in real assets, and the remainder in loans. Yet even at that amount, the total value of private markets still lags well behind the group’s public counterparts, despite providing access to a far greater number of investment opportunities.
“There are powerful secular forces at work in the global economy that are driving investment capital into private markets and are likely to continue doing so for many years to come,” said Maas, who cited digitalization, decarbonization, and deglobalization as particularly fertile areas for investment. Within the private equity space, Maas sees opportunities for longer-term growth in sectors that fund improvements in health-related outcomes, software development, and arresting climate change. Similarly, returns still appear attractive within the private loan market, as well as in the logistic, data center, and residential segments of private real estate. As always, Maas emphasized that selectivity is important, but given the sheer volume of investment opportunities in non-public markets, a value-oriented approach to private assets has the potential to yield compelling risk-adjusted returns over time, in addition to boosting diversification.
For investors who’ve accumulated a fair number of financial eggs in recent years, the traditional mix of asset baskets — public markets for stocks, bonds, real estate, and cash — might no longer be enough. Just within the U.S. equity market, the number of publicly traded businesses has fallen by more than half since the mid-1990s, from over 8,000 to under 4,000. Meanwhile, opportunities to invest in areas of the U.S. and global economy that aren’t traded on public exchanges has grown significantly, seeding a broad asset class known as alternative investments.
Chief among that alternative group are the private markets that Maas considers a potentially valuable addition to a portfolio. He notes that companies choose to remain private — or to go private after having been public — for a variety of reasons, including less burdensome regulation, reduced legal fees, and having the freedom to execute a longer-term plan without needing to satisfy shareholders on a daily basis. Founders of upstart businesses also cite the high cost of an initial public offering, or IPO, as yet another reason to begin corporate life as a private enterprise.
“Innovation is essential if the U.S. economy is going to enjoy solid growth with minimal inflation,” Maas said. “And for that to happen, we need entrepreneurs who can bring fresh ideas and products to consumers in a way that makes financial sense. Private markets can serve as a cost-effective conduit to the capital these upstarts need to grow at all stages of their development.”
Maas and The Burish Group have decades of experience in managing investments in private markets. And given the unusually uncertain outlook for domestic fiscal policy and the gathering storm clouds on the geopolitical horizon, spreading wealth to include those markets may never have been more timely.
