NEPC’s Sarah Samuels was recently quoted in Barron’s, exploring the growing push to open private markets to individual investors through semiliquid and evergreen funds. Visit Barron’s to read the full piece and hear Sarah’s perspective on the opportunities — and risks — for private-wealth investors in this evolving space, or read the excerpts below.
As pension funds, sovereign-wealth funds, endowments, and other institutional investors pare private-equity stakes to generate cash and rebalance their portfolios, Wall Street has gone looking for new buyers: retail investors who have long been shut out of private markets.
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The fact individual investors haven’t widely participated in private markets means they are “getting increasingly concentrated portfolios in the public markets,” says Sarah Samuels, partner and head of investment manager research at investment consultant NEPC.
Investing in private markets through evergreen structures allows individuals to get access to more diverse opportunities, Samuels says. But she also cautions that investors need to tread carefully. Even semiliquid funds aren’t as liquid as public funds, and the fees on these vehicles are much higher—generally around 1%, she says, versus an average expense ratio of about 0.34% last year for all U.S. mutual funds and ETFs, according to a recent analysis by Morningstar.
The success of private market strategies also heavily depends on the quality of the fund manager, Samuels says. The difference in outcomes between the best manager of a large-cap stock strategy and the worst is about 5%, compared with more than a 45% spread between the best and worst private-market funds in certain strategies, she says.
She suggests private-wealth investors limit their allocations to private markets to a “target range that’s meaningful enough to move the portfolio, but low enough that there isn’t going to be a liquidity issue.”