You are about to be sold to. Big money management firms want to sell you their newest high-fee story, alternative investments. After the decline of ESG (the industry’s last overhyped sales pitch), money management firms have been looking for their “next big thing.” The plan is to sell alternative investments like private equity funds to mom and pop investors. Private equity is the next big thing coming for you, and more specifically, your money.
Vanguard and Schwab are teaming up with Blackstone and Goldman Sachs (respectively) to bring alternative investment options to retail investors. In The Wall Street Journal, Jason Zweig explains some of the dangers, writing:
There’s a dark side: encouraging financial advisers and investors to believe that anyone can easily mix private funds with public assets like stocks, bonds, mutual funds and exchange-traded funds.
At their best, alternatives—which can include hedge funds, venture capital, private-equity funds, nontraded real estate, private credit, infrastructure and other assets—offer lower risk, higher income or total return, and valuable diversification into areas that are otherwise inaccessible.
But alternative funds value their holdings outside the public spotlight, and those underlying assets don’t trade in liquid markets. Financial advisers love to tell investors that alternatives have “lower volatility” than publicly traded investments. That isn’t like comparing apples and oranges; it’s like comparing apples and asteroids.
And you’re getting invited to a party that may already be winding down. Many institutional investors, glutted with private assets, are twiddling their thumbs waiting to get their money out. Private-equity firms are sitting on more than 29,000 companies, valued at $3.6 trillion, that they can’t unload. Returns for many alternatives have stagnated. Why buy what these folks are trying to dump?
Action Line: Why would retail investors want the illiquid cast-offs that the institutional industry is looking to offload? Be careful. When you want to talk about your portfolio, email me at ejsmith@yoursurvivalguy.com. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.
Read the entire series here.
