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

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

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

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.

GET IN TOUCH

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.

Important Information:

This material is for informational purposes only and is neither an offer to sell nor a solicitation to purchase any related securities. Investing in private markets investments involves a high degree of risk including, but not limited to:

Risk of substantial loss of principal - direct Investments in private companies and investments, involve a high degree of business and financial risk that can result in substantial losses
Illiquidity risk - investments are not listed on any securities exchange and may not be readily liquidated, therefore it may be impossible to get your money back
Valuation risks - the risk that the securities are valued at prices the seller is unable to obtain upon sale due to factors such as incomplete data, market instability, human error, or no readily available market quotations, and other factors
Risk related to private companies – these companies are generally not subject to SEC reporting requirements, are not required to maintain accounting records in accordance with generally accepted accounting principles and are not required to maintain effective internal controls over financial reporting. As a result, there is the risk that investors may invest based on incomplete or inaccurate information, which can adversely affect performance. Private companies may also have limited financial resources, shorter operating histories, more asset concentration risk, narrower product lines and smaller market shares that can make such private companies more vulnerable to competitors’ actions and market conditions

Financial advisors must carefully consider the risks and other suitability details in determining appropriate investments for their individual clients’ portfolios.

Disclosures:

These materials may contain “forward-looking” information that is not purely historical in nature, and such information may include, among other things, projections, forecasts or estimates of cash flows, yields or returns, scenario analyses and proposed or expected portfolio composition. The forward-looking information contained herein is based upon certain assumptions about future events or conditions and is intended only to illustrate hypothetical results under those assumptions (not all of which will be specified herein). Not all relevant events or conditions may have been considered in developing such assumptions.The success or achievement of various results and objectives is dependent upon a multitude of factors, many of which are beyond the control of Ares. No representations are made as to the accuracy of such estimates or projections or that such projections will be realized. Actual events or conditions are unlikely to be consistent with, and may differ materially from, those assumed. Prospective investors should not view the past performance of Ares as indicative of future results. Ares does not undertake any obligation to publicly update or review any forward-looking information, whether as a result of new information, future developments or otherwise.

This may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s. Reproduction and distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. THIRD PARTY CONTENT PROVIDERS GIVE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. THIRD PARTY CONTENT PROVIDERS SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, EXEMPLARY, COMPENSATORY, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES, COSTS,EXPENSES, LEGAL FEES, OR LOSSES (INCLUDING LOST INCOME OR PROFITS AND OPPORTUNITY COSTS OR LOSSES CAUSED BY NEGLIGENCE) IN CONNECTION WITH ANY USE OF THEIR CONTENT, INCLUDING RATINGS. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice.

REF:AM-02346

Contact Us

Connect with our Wealth Management Solutions team that works with Financial Advisors and Private Wealth Managers to provide alternative solutions. For investors based in EMEA and APAC, please visit our Non-U.S. Investors Contact section.

Individual Investors

Reach out to your Financial Advisor.

Financial Advisor Inquiries

[email protected] (866) 324-7348

Actionable Advisor Ideas