Actionable Advisor Ideas

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Using Private Markets Investments to Meet Client Needs

Expanding the tool kit to help your clients build diversified portfolios

Whether they are looking to invest for retirement, generate income or grow their wealth, most individual investors need to invest with an eye on appreciation while managing risk.

Private markets investments—such as private equity, private credit and private real assets—can supplement traditional public market holdings and provide three key benefits that can help your clients achieve their goals:

Long-term growth prospects with private equity

Private equity potentially offers investors access to a large universe of high-quality, high-performing privately held businesses. Relative to public equity, private equity potentially can deliver better returns for less risk. These investments offer a source of appreciation that is less sensitive to short-term variables such as quarterly earnings and investor sentiment.

Over the past 20 years, private equity has offered enhanced diversification and reduced correlation, which has resulted in historically superior returns. This is true on both on an absolute and risk-adjusted basis, and with a dramatic reduction in realized volatility.

Comparing $100,000 invested in private and public equity

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Area graph showing growth of equity from 1992 to 2021

Source: Bloomberg, Burgiss, Ares.

Past performance is no guarantee of future results. Risk of investing in public or private equity securities includes potential loss of all or part of an investment.

Higher yield potential with lower rate and default risk by utilizing private credit

Private credit represents loans made directly to private companies by non-bank lenders. This asset class offers the potential for positive real yields that are less sensitive to changes in interest rates or economic conditions. Importantly, the majority of private credit is in the form of floating rate debt, which has the effect of lowering duration, or sensitivity to changes in interest rates.

Private credit lending also tends to be highly negotiated, and private lenders tend to undertake robust due diligence as part of the underwriting process. The result of this approach has historically generated a yield premium over public market equivalents, as well as lower default rates.

Comparing $100,000 invested in private credit versus public credit over the past 18 years

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Area graph comparing returns of private and public credit from 2004 to 2022

Source: Fitch US Leveraged Loan Default Index. Refinitiv LPC. Bloomberg.

Past performance is no guarantee of future results. Risk of investing in public or private credit securities includes potential loss of all or part of an investment.

Enhanced risk management by incorporating private real assets

Private real assets, such as real estate and infrastructure, provide direct ownership of properties and other assets whose long-term values have historically been less vulnerable to changing economic conditions. Exposure to a portfolio of real assets can potentially help investors hedge against public market

volatility while participating in the long-term growth potential provided by these investments.

In fact, private real estate markets have historically experienced less frequent and shallower drawdowns than the public real estate markets.

Maximum annual drawdowns of public and private real assets investments

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Line graph comparing drawdowns of private and public real assets form 2002 to 2021

Source: NCREIF, U.S. Bureau of Labor Statistics.

Past performance is no guarantee of future results. Risk of investing in public or private real estate investments includes potential loss of all or part of an investment.

Clients need a smoother ride to their long-term goals

The most compelling aspect of private markets is the alignment of the investment experience with client objectives. Private markets investments are priced at predetermined intervals based on underlying valuations—unlike the public markets, which move daily and often trade based on market sentiment.

The less frequent pricing of private markets investments, paired with historically lower volatility, can reduce the temptation to panic-sell and encourage a long-term focus. The perceived smoother ride of private markets may also make it easier for clients to remain invested, potentially increasing their opportunity for long-term success.

Ready to learn more?

AccessAres is your resource for education and information about the private markets. Talk to us to learn more about these important asset classes.

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AccessAres is the thought-leadership and educational division of Ares Wealth Management Solutions. The materials distributed by AccessAres are for informational purposes only and do not constitute investment advice or a recommendation to buy, sell or hold any security, investment strategy or market sector. Ares Wealth Management Solutions is a global brand of Ares Management Corporation.

You are now entering the AccessAres website

AccessAres is the thought-leadership and educational division of Ares Wealth Management Solutions. The materials distributed by AccessAres are for informational purposes only and do not constitute investment advice or a recommendation to buy, sell or hold any security, investment strategy or market sector. Ares Wealth Management Solutions is a global brand of Ares Management Corporation.

You are now leaving the AccessAres website

AccessAres is the thought-leadership and educational division of Ares Wealth Management Solutions. The materials distributed by AccessAres are for informational purposes only and do not constitute investment advice or a recommendation to buy, sell or hold any security, investment strategy or market sector. Ares Wealth Management Solutions is a global brand of Ares Management Corporation.