In recent years, there has been an explosion of interest in alternative investments among individual investors. In fact, 81% of investors expect their allocation to alternatives to increase by 2025.
The mainstreamification of alternatives has been driven in large part by the rise of private market investing. Thanks to the JOBS Act, which lifted many of the restrictions on private investments, more individuals than ever before have been able to access these opportunities. Further, alternative investment on-ramps like Gridline have made it easier than ever to get started with investing in private companies.
Moreover, a low rate environment has made alternative investments more attractive to yield-seeking investors, especially in a time when private markets are growing at a much faster pace than public markets. Amidst a period of consistently high inflation and concerns about traditional investment vehicles like stocks and bonds, it’s no wonder that individuals are looking for alternatives that can provide them with the potential for higher returns.
In spite of this rising interest, however, individual investors still face a number of challenges when it comes to accessing and profiting from private market alpha.
Lack of Access
The first challenge is simply one of access. Unlike public markets, which are accessible to practically anyone with an Internet connection, private markets are still largely the domain of institutional investors. The high minimums and lack of transparency associated with private investments have long been a barrier to entry for individual investors.
This lack of access is compounded by the fact that private market investing is often seen as too complicated and risky for individuals. The truth is, however, that with the right approach, private market investing can be just as simple and safe as investing in public markets.
Diversification Challenges
Another challenge facing individual investors is the difficulty of achieving diversification with private investments. Private markets are generally much less liquid than public markets, making it difficult to sell investments when needed. This lack of liquidity can also make it difficult to rebalance a portfolio, meaning that investors may inadvertently end up concentrated in a single asset class or sector.
Achieving proper diversification is critical to successful investing, and it’s one of the main reasons that many individuals have traditionally shied away from private market investing. However, with a little bit of planning and forethought, it is possible to construct a well-diversified portfolio of private investments.
High Fees
Finally, another challenge that individual investors face when it comes to private market alpha is the issue of high fees. Many traditional providers of alternative investments charge high fees that can eat into returns. This problem is compounded by the fact that many alternative investment vehicles are not registered with the SEC, meaning that there is little to no regulatory oversight of fees.
Fortunately, there are a growing number of fee-friendly alternative investment options available to individual investors. With a little bit of shopping around, it is possible to find investment vehicles that offer competitive fees and a high degree of transparency.
Private markets are one of the most promising areas of investment for individual investors today. By understanding the challenges and opportunities associated with private market investing, individuals can position themselves to successfully navigate this increasingly important asset class.
Gridline makes it effortless for investors to tap into the best performing fund managers around the world and provides a simple way to achieve diversification. With our low fee structure, individuals can keep more of the returns in their own pockets.