Why Private Investments Have Become So Popular

Question / By

Over the last twenty years we have seen interest rates on the decline and have now seen them very low for over a decade.  This has made it nearly impossible for pension funds to achieve the returns they need to provide the full benefits to their pensioners with a heavy weighting in government and corporate bonds. 

Low interest rates have effected bond yields so the interest they are paying out is much lower and this has forced pension funds to move up the risk scale to meet their desired return.  This has forced them to decrease their holdings in bonds as the low interest rates they pay are not enough to provide the necessary income to pay their pensioners.  Pension funds have had to look outside of these traditional channels to provide this additional income and private investments are where they have found it.

Investing in alternative assets like private real estate, private debt and private equity have helped pension funds not only generate the income they require, but also lower the overall volatility in their portfolios and helped boost overall performance.  Private investments do not trade on the stock exchange, so you do not typically see them rise or drop as quickly as the stock market.  Think back to the care home fund example, you would not see the price of a care home having dramatic swings in its value in a short period of time like you might with a stock market crash.  Care homes cannot be bought or sold very quickly like a stock can and this is the main reason the price does not change as quickly.

Pension Funds along with university endowment funds have dramatically increased their exposure to private investments to the point where it is common to see a mix of around half of their investments being public (stock & bonds) and the other half being private.  This strategy has worked very well for these institutional investors and that has led to wealth management firms looking to use this strategy as well to smooth out volatility in client portfolios.  Now retail investors are also looking to replicate this approach in their own personal portfolio and the exempt market channel allows them to do this.

For more details on how much different institutional investor have invested privately please look at some of their website with their links provided below…

Over the last twenty years we have seen interest rates on the decline and have now seen them very low for over a decade.  This has made it impossible for pension funds to achieve the returns required to provide the full benefits to their pensioners with a heavy weighting in government and corporate bonds. 

The lower interest rates bonds have been paying has forced pension funds to move up the risk scale to meet their desired return.  This has led them to decrease their holdings in bonds as the low interest rates they pay are not enough to provide the necessary income to pay their pensioners.  Pension funds have had to look else where to provide this additional income and private investments is where they have found it.

Investing in things like private real estate, private debt and private equity have helped pension funds not only generate the income they require, but lower the overall volatility in their portfolios, all while also boosting performance.  Private investments do not trade on the stock exchange, so you do not typically see them rise or drop as quickly as the stock market.  If you think about a privately owned apartment building or assisted living home, you would not see the price of them having dramatic swings in their value in a short period of time like you might with a stock market crash.  Private businesses or real estate are not bought or sold very quickly like a stock can be and this is one of the main reasons the price fluctuates less frequency.

Pension Funds along with university endowment funds have dramatically increased their exposure to private investments to the point where it is common to see a mix of around half of their investments being public (stock & bonds) and the other half being private investment.  This strategy has worked very well for these institutional investors and that has led to wealth management firms looking to use this strategy as well to smooth out volatility in client portfolios.  Now retail investors are also looking to replicate this approach in their own personal portfolio and the Exempt Market allows them to do this through licensed exempt market dealers.

For more details on how much institutional investors have invested privately, we have provided some website links below…