Alternative investments
Alternative investments
Podcast
30.7.2024
Wealthy investors are constantly on the lookout for new ways to diversify their portfolio and achieve sustainable returns. The current risk of recession in the USA reinforces the question of alternative investment opportunities when the capital market does not offer promising forecasts.
One particularly attractive option is private equity - investing in company developments outside the stock market. This market has scored points for many years with its higher performance compared to shares, especially in times of crisis. This strength is based, among other things, on the illiquidity of the funds, which, together with the staggered capital call, places special demands on cash flow planning and strategic asset allocation. Developing an effective strategy, maintaining sufficient liquidity in total assets and at the same time avoiding mistakes is a task whose scale is often underestimated.
To understand the sources of error in private equity, let's take a look at how the asset class works. We will focus below on individual funds, which account for a large proportion of subscriptions and can be considered a standard asset. A crucial point for planning is not only their closed, illiquid nature, but above all the staggered drawdown of the subscribed capital over a period of up to five years.
The reason for this is that at the time of allocation by investors, it is not yet clear which companies will be included in the portfolio. The manager searches for and examines these companies in the first half of the fund term. The capital is only called up when a purchase is made - usually with a notice period of around one week.
For example, if an investor invests EUR 500,000 in a fund, they do not pay in this amount immediately, but spread the payments over several years. This means that they must take into account in their overall wealth planning that the promised capital is available at the various payment dates. If he also wants to diversify his portfolio across managers, regions, company phases and years of issue, it quickly becomes complicated to keep track of the various private equity investments.
Simply subscribing is not enough. If you want to be successful in private equity, you need a solid strategy for your overall assets that ensures sufficient liquidity for payments and reserves for the investor. This is where the services of a family office come into play.
A fundamental characteristic of the Family Office is its comprehensive view of the overall assets. The creation and implementation of an overarching portfolio strategy is a key focus of these services. The so-called SAA (Strategic Asset Allocation) not only allocates the wealth to various asset classes, but also determines their percentage weighting. This means for you:
You already know how much of your capital you can invest in private equity before the first subscription without risking liquidity bottlenecks.
Once the question of "how much" has been answered, the question of "how" follows. Experts create the clarity needed for further planning by drawing up a detailed structure plan that combines all the data on funds, managers, investment years and subscription amounts. Although individual payments cannot be predicted precisely, guidelines and empirical values provide a good overview of what drawdowns can be expected in the coming years.
At the same time, this data can be used to invest capital that is not needed for the time being elsewhere and make it available again at the right time. This multi-period optimization is a process that requires both expertise and the right timing.
The family office thus not only provides the necessary clarity, but also makes capital that has not yet been called up available for use in the meantime.
Finally, the question remains as to which funds are suitable for the investor's personal needs. In this area, the family office's network offers great advantages. As an independent service provider, it thoroughly checks offers for quality and added value for its clients and is in direct contact with managers of all kinds. Through this communication channel, it is constantly informed about the current status, often receives announcements about upcoming capital calls earlier and can pass these on to investors.
The network of a family office opens up new opportunities for you to diversify and improve your forecast data.
Comprehensive controlling is essential in order to maintain an overview in the future and is therefore an integral part of family office services. If funds are subscribed via the FINVIA Investment Platform, for example, the user automatically receives a clear overview of capital calls, returns, actuals and forecasts for their private equity investments. If they are a client of our family office, this data is extended to their entire portfolio and across all asset classes.
A well-structured controlling system is your most important means of making a well-founded assessment of current investments and planning future investments in a targeted manner without taking unnecessary risks.
As in many areas of wealth management, the right balance and a solid strategy are also important in private equity. Whether you use the expertise of a family office or prefer to do your planning on your own is entirely up to you. Nevertheless, we would like to conclude by giving you a few useful tips on how to successfully enter the private markets sector:
Want to learn more? In our whitepaper you can find out everything about the four ways to invest in private equity with FINVIA. You can download it here.
Alternative investments
30.7.2024
Jan Hoffmann
Those who want to protect themselves from volatile share prices use private equity to invest in company developments outside the stock market. However, the illiquid nature of the asset class and its staggered capital calls present investors with a major challenge. So how can you manage to benefit from the advantages and maintain sufficient liquidity in your overall assets?
Wealthy investors are constantly on the lookout for new ways to diversify their portfolio and achieve sustainable returns. The current risk of recession in the USA reinforces the question of alternative investment opportunities when the capital market does not offer promising forecasts.
One particularly attractive option is private equity - investing in company developments outside the stock market. This market has scored points for many years with its higher performance compared to shares, especially in times of crisis. This strength is based, among other things, on the illiquidity of the funds, which, together with the staggered capital call, places special demands on cash flow planning and strategic asset allocation. Developing an effective strategy, maintaining sufficient liquidity in total assets and at the same time avoiding mistakes is a task whose scale is often underestimated.
To understand the sources of error in private equity, let's take a look at how the asset class works. We will focus below on individual funds, which account for a large proportion of subscriptions and can be considered a standard asset. A crucial point for planning is not only their closed, illiquid nature, but above all the staggered drawdown of the subscribed capital over a period of up to five years.
The reason for this is that at the time of allocation by investors, it is not yet clear which companies will be included in the portfolio. The manager searches for and examines these companies in the first half of the fund term. The capital is only called up when a purchase is made - usually with a notice period of around one week.
For example, if an investor invests EUR 500,000 in a fund, they do not pay in this amount immediately, but spread the payments over several years. This means that they must take into account in their overall wealth planning that the promised capital is available at the various payment dates. If he also wants to diversify his portfolio across managers, regions, company phases and years of issue, it quickly becomes complicated to keep track of the various private equity investments.
Simply subscribing is not enough. If you want to be successful in private equity, you need a solid strategy for your overall assets that ensures sufficient liquidity for payments and reserves for the investor. This is where the services of a family office come into play.
A fundamental characteristic of the Family Office is its comprehensive view of the overall assets. The creation and implementation of an overarching portfolio strategy is a key focus of these services. The so-called SAA (Strategic Asset Allocation) not only allocates the wealth to various asset classes, but also determines their percentage weighting. This means for you:
You already know how much of your capital you can invest in private equity before the first subscription without risking liquidity bottlenecks.
Once the question of "how much" has been answered, the question of "how" follows. Experts create the clarity needed for further planning by drawing up a detailed structure plan that combines all the data on funds, managers, investment years and subscription amounts. Although individual payments cannot be predicted precisely, guidelines and empirical values provide a good overview of what drawdowns can be expected in the coming years.
At the same time, this data can be used to invest capital that is not needed for the time being elsewhere and make it available again at the right time. This multi-period optimization is a process that requires both expertise and the right timing.
The family office thus not only provides the necessary clarity, but also makes capital that has not yet been called up available for use in the meantime.
Finally, the question remains as to which funds are suitable for the investor's personal needs. In this area, the family office's network offers great advantages. As an independent service provider, it thoroughly checks offers for quality and added value for its clients and is in direct contact with managers of all kinds. Through this communication channel, it is constantly informed about the current status, often receives announcements about upcoming capital calls earlier and can pass these on to investors.
The network of a family office opens up new opportunities for you to diversify and improve your forecast data.
Comprehensive controlling is essential in order to maintain an overview in the future and is therefore an integral part of family office services. If funds are subscribed via the FINVIA Investment Platform, for example, the user automatically receives a clear overview of capital calls, returns, actuals and forecasts for their private equity investments. If they are a client of our family office, this data is extended to their entire portfolio and across all asset classes.
A well-structured controlling system is your most important means of making a well-founded assessment of current investments and planning future investments in a targeted manner without taking unnecessary risks.
As in many areas of wealth management, the right balance and a solid strategy are also important in private equity. Whether you use the expertise of a family office or prefer to do your planning on your own is entirely up to you. Nevertheless, we would like to conclude by giving you a few useful tips on how to successfully enter the private markets sector:
Want to learn more? In our whitepaper you can find out everything about the four ways to invest in private equity with FINVIA. You can download it here.
About the author
Jan Hoffmann
