Allocating to the private markets can enhance returns, lower volatility, and achieve diversification outside of the public markets.
In the recent webcast, Inviting You Inside the Private Markets: Invest Alongside the World’s Largest Institutions, Neil Menard, President of Distribution, Conversus, explained that Conversus is a private wealth management business of StepStone Group that leverages StepStone’s deep expertise across the private markets to build innovative investment opportunities using an investor-centric approach. The senior Conversus team has extensive experience establishing vehicles that offer high net worth investors and small institutions the ability to better-diversify their portfolios by accessing high quality private market opportunities.
Bob Long, CEO, Conversus, argued that public markets may be challenged to deliver meaningful returns in the years to come. Publicly traded stocks and bonds have had periods of attractive returns and should remain an important component to any investor’s portfolio. However, current market research suggests the average annual expected return over the next 10 years for U.S. stocks and bonds to be muted. Additionally, traditional allocations, like the 60-40 stock-bond split, haven’t provided the expected diversification from the volatility.
Consequently, Long highlighted the private markets as a potential alternative to enhance returns. Much of the growth, value creation, and opportunity has been taking place in the private markets. Companies have been staying private two to three times longer, and there are currently ten times more private companies than public companies.
When examining the mix of investments, we may find that leading endowments, foundations, pension funds, and insurance companies have made the private markets a primary component of their portfolios, as many have replaced traditional publicly traded investments with a 20% average allocation in private markets for pension funds and 30% allocations for the average endowment. Long pointed out that research shows private markets have historically produced attractive returns relative to their public market equivalents over a 15-year period.
Menard noted that historically, it has been difficult for high net worth individual investors and smaller institutions to get diversified exposure to the private markets. It’s been nearly impossible for an individual to get diversified exposure to the private markets due to large minimum investments and higher suitability requirements. On the other hand, when these opportunities have been made available, it has been through single strategy funds, investing in one specific private market segment, which increases the difficulty of building a proper diversified allocation.
Alternatively, Menard highlighted the Conversus StepStone Private Markets (CPRIM).
“CPRIM’s investment strategy provides global exposure to all major private market asset classes in one product – private equity, private debt and real assets including infrastructure, real estate and other unique sub-sectors,” Menard said.
“Being an open architecture solution, CPRIM has the flexibility to select and invest across the best underlying managers by sector, strategy, geography and vintage year, while also having the opportunity to invest alongside StepStone’s top institutional clients,” he added.
Financial advisors who are interested in learning more about private markets can watch the webcast here on demand