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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Comprehensive guide to the private market, covering allocating capital, portfolio construction, product evolution, and more
Written in accessible language, Private Markets: Building Better Portfolios with Private Equity, Private Credit, and Private Real Estate addresses the challenges and opportunities with investing in the private markets, including understanding the merits of the asset classes—private equity, private credit, and private real estate—product evolution, and the structural tradeoffs, and how to incorporate these versatile and valuable tools in client portfolios.
This book leverages Tony Davidow's 40 years of experience working directly with advisors and high-net-worth families/ ultra-high-net-worth families. Davidow is an award-winning author and has also been recognized for building Franklin Templeton's alternative education program (2023 recipient of the “Wealthie”). Topics discussed in this book include:
- How private markets can be used to increase the likelihood of achieving client goals?
- Examining the historical risk and return characteristics of the private markets relative to their public market equivalents.
- Exploring the benefits of private markets including the potential for higher returns, an alternative source of income, diversification, and hedging against the impact of inflation.
Now that private markets are available to a broader group of investors outside of institutions and family offices, Private Markets: Building Better Portfolios with Private Equity, Private Credit, and Private Real Estate is an essential resource for all financial advisors and individual investors who are considering allocating capital to these once elusive investments.
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Seitenzahl: 320
Veröffentlichungsjahr: 2025
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Table of Contents
Cover
Table of Contents
Title Page
Copyright
Foreword
Acknowledgments
Introduction
Chapter 1: Defining the Private Markets – Why Now?
MOVING BEYOND THE 60/40 PORTFOLIO
WHY IS NOW A GOOD TIME TO CONSIDER PRIVATE MARKETS?
PRODUCT EVOLUTION
INSTITUTIONAL‐QUALITY MANAGERS
HOW ARE PRIVATE COMPANIES DIFFERENT THAN PUBLIC COMPANIES?
WHAT ROLE DO PRIVATE MARKETS PLAY IN PORTFOLIOS?
ADVISOR ADOPTION
KEY TAKEAWAYS
Notes
Chapter 2: Democratizing Private Markets
INSTITUTIONAL ALLOCATION
FAMILY OFFICES
ADVISOR ADOPTION
ADVISOR EDUCATION
THE ROLE OF PRIVATE MARKETS
CHALLENGES AND ISSUES
VIEWING PRIVATE MARKETS THROUGH A BEHAVIORAL LENS
THE CATALYSTS FOR GROWTH
Notes
Chapter 3: Exploring the Merits of Private Equity
STAGES OF PRIVATE EQUITY
THE J‐CURVE
THE APPEAL OF PRIVATE EQUITY
THE DEMOCRATIZATION OF PRIVATE EQUITY
PRODUCT EVOLUTION
RISK CONSIDERATIONS
KEY TAKEAWAYS
Notes
Chapter 4: Private Credit: The Emergence of a New Lender
WHAT IS PRIVATE CREDIT?
THE TYPES OF PRIVATE CREDIT
WHAT IS THE APPEAL OF PRIVATE CREDIT?
PRIVATE CREDIT RISKS
ACCESSING PRIVATE CREDIT
WHY IS NOW A GOOD TIME FORPRIVATE CREDIT?
REAL ESTATE DEBT
KEY TAKEAWAYS
Notes
Chapter 5: Private Real Estate –Not All Sectors Are Created Equal
WHAT IS THE APPEAL OF PRIVATE REAL ESTATE?
NOT ALL REAL ESTATE SECTORS ARE CREATED EQUAL
PRIVATE REAL ESTATE DEBT
ACCESSING PRIVATE REAL ESTATE
WHY PRIVATE REAL ESTATE – WHY NOW?
WHY REAL ESTATE DEBT?
WHAT ROLE DOES PRIVATE REAL ESTATE PLAY IN CLIENT PORTFOLIOS?
WHAT ARE THE RISKS?
KEY TAKEAWAYS
Notes
Chapter 6: Secondaries: A Vital Part of the Private Market’s Ecosystem
WHAT ARE SECONDARIES?
THE GROWTH OF THE SECONDARY MARKET
SECONDARIES PRICING
THE EVOLUTION OF FINANCIAL MARKETS
CASE STUDY
ALLOCATING TO SECONDARIES
WHAT ARE THE RISKS?
KEY TAKEAWAYS
Notes
Chapter 7: Real Assets – Infrastructure and Natural Resources
WHAT IS INFRASTRUCTURE?
CATEGORIZING INFRASTRUCTURE
HOW INFRASTRUCTURE WORKS
THE GROWTH OF INFRASTRUCTURE
INVESTING IN INFRASTRUCTURE
WHAT ARE THE INVESTMENT MERITS OF INFRASTRUCTURE?
WHAT ARE THE RISKS?
WHAT ARE NATURAL RESOURCES?
KEY TAKEAWAYS
Notes
Chapter 8: Asset Allocation and Portfolio Construction
INCORPORATING PRIVATE MARKETS
HOW MUCH SHOULD ADVISORS ALLOCATE TO ILLIQUID INVESTMENTS?
WHAT ROLE DO PRIVATE MARKETS PLAY IN A PORTFOLIO?
DUE DILIGENCE AND RISK CONSIDERATIONS
PORTFOLIO CONSTRUCTION
CASE STUDIES
KEY TAKEAWAYS
Note
Chapter 9: Total Portfolio Approach
WHAT IS TOTAL PORTFOLIO APPROACH?
THE FOUR DIMENSIONS OF TPA
ADOPTING A TOTAL PORTFOLIO APPROACH
WHAT DOES THE RESEARCH SHOW?
KEY TAKEAWAYS
Note
Chapter 10: The Future of Wealth Management
ADVISOR ADOPTION
PRODUCT EVOLUTION
PRIVATE MARKETS GROWTH
ASSET MANAGEMENT
THE IMPORTANCE OF INTERMEDIARIES
INVESTOR DEMAND
ACCESS TO DATA
RETIREMENT PLANS
RETIREMENT PLANNING
KEY TAKEAWAYS
Notes
Chapter 11: Macro‐Outlook for Private Markets
PRIVATE MARKETS OUTLOOK
PRIVATE CREDIT
COMMERCIAL REAL ESTATE DEBT
PRIVATE EQUITY
PRIVATE REAL ESTATE
INFRASTRUCTURE
GLOBAL OPPORTUNITIES
KEY TAKEAWAYS
Notes
Chapter 12: Private Markets Come to Main Street
THE SHIFTING ADVISOR VALUE PROPOSITION
THE CATALYSTS FOR GROWTH
THE TIPPING POINT
MAIN STREET ADOPTION
KEY TAKEAWAYS
Note
Appendix
Glossary of Key Terms
Third Party Content Providers and Disclosures
About the Author
Index
End User License Agreement
List of Tables
Chapter 1
Exhibit 1.2 Structural tradeoffs.
Chapter 3
Exhibit 3.5 Structural tradeoffs.
Chapter 4
Exhibit 4.6 Structural tradeoffs.
Chapter 5
Exhibit 5.8 Structural tradeoffs.
Chapter 6
Exhibit 6.4 Structural tradeoffs.
Chapter 8
Exhibit 8.5 Morgan family balance sheet.
Exhibit 8.6 Personal allocation – accumulating wealth.
Exhibit 8.7 Retirement account – generate income.
Exhibit 8.8 Merrill family balance sheet.
Exhibit 8.9 Personal account – accumulate wealth.
Exhibit 8.10 Retirement accounts – growth and income.
Exhibit 8.11 Trust accounts – capital appreciation.
Chapter 9
Exhibit 9.1 Comparing strategic asset allocation to total portfolio approach...
Chapter 10
Exhibit 10.1 Cerulli wealth tiers.
Exhibit 10.2 Advisor‐reported use of alternative investments, 2024....
Exhibit 10.3 Advisors usage of alternative investments.
List of Illustrations
Chapter 1
Exhibit 1.1 Why invest in private markets?
Chapter 2
Exhibit 2.1 Institutional allocations to alternatives.
Exhibit 2.2 Dispersion of returns.
Exhibit 2.3 Global family office allocations.
Exhibit 2.4 Changes in family office allocations.
Exhibit 2.5 The growth of registered funds.
Exhibit 2.6 Types of education and thought leadership that advisors want....
Exhibit 2.7 The role of various asset classes.
Chapter 3
Exhibit 3.1 Stages of private equity: risk‐return tradeoffs.
Exhibit 3.2 The J‐curve.
Exhibit 3.3 Illiquidity premium: private equity vs. public market equivalent...
Exhibit 3.4 Risk‐adjusted returns.
Chapter 4
Exhibit 4.1 Global private credit growth since the GFC.
Exhibit 4.2 Sub‐investment grade debt market.
Exhibit 4.3 Capital structure hierarchy.
Exhibit 4.4 Private credit has historically delivered an illiquidity premium...
Exhibit 4.5 Alternative source of income.
Exhibit 4.7 Wall of debt for commercial real estate.
Chapter 5
Exhibit 5.1 Private real estate risk–return over time.
Exhibit 5.2 Private real estate income relative to traditional investments....
Exhibit 5.3 Private assets’ correlation to traditional investments....
Exhibit 5.4 Real estate sector performance.
Exhibit 5.5 Changing sector composition over time.Sources: Clarion Partners ...
Exhibit 5.6 Risk‐return characteristics of private real estate and tradition...
Exhibit 5.7 Correlation to traditional investments.
Chapter 6
Exhibit 6.1 US private equity fundraising activity.
Exhibit 6.2 Secondary market transaction volume (in US$ Billions): GP led vs...
Exhibit 6.3Exhibit 6.3 Secondary discounts.
Chapter 7
Exhibit 7.1 Investment in inland transport infrastructure, 2020.
Exhibit 7.2 Risk‐adjusted returns.
Chapter 8
Exhibit 8.1 Efficient frontier analysis.
Exhibit 8.2 Goals‐based investing process.
Exhibit 8.3 Sample asset allocation.
Exhibit 8.4 Historical results of diversified portfolio.
Chapter 9
Exhibit 9.2 Sample total portfolio approach process.
Chapter 10
Exhibit 10.4 What would lead to increased adoption?As of 2024
Chapter 11
Exhibit 11.1 Private markets across regimes.
Exhibit 11.2 Select asset class returns.
Exhibit 11.3 Select credit returns.
Exhibit 11.4 US private equity exit activity.
Exhibit 11.5 Annualized sector returns.
Exhibit 11.6 Infrastructure investments.
Exhibit 11.7 Global private capital raised by region.
Exhibit 11.8 Private capital raised by asset class.
Guide
Cover
Title Page
Copyright
Dedication
Foreword
Acknowledgments
Introduction
Table of Contents
Begin Reading
Appendix
Glossary of Key Terms
About the Author
Index
End User License Agreement
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“The increased access to private markets has been fueled by product innovation and a willingness of institutional managers to bring products to the wealth channel. It is a daunting task for advisors as they learn how to use these versatile and valuable tools. Tony Davidow has provided an excellent roadmap for advisors and investors with PRIVATE MARKETS, describing the merits of the asset classes, the structural tradeoffs, and how to incorporate them in client portfolios.”
—Jenny Johnson, President & CEO, Franklin Templeton
“The roles of the public and private markets are changing with private capital now financing a larger part of the broader economy. This is a sea change from just two decades ago when the public markets greeted the best and brightest of the corporate universe. Today, those companies are more likely to seek private capital. Tony has worked at the intersection of the wealth channel and the private markets throughout this evolution and has been on a mission to educate advisors and affluent investors who want to better understand the various asset types and structures available to them. This book is a valuable resource that reflects his deep knowledge and passion for the subject”.
—Nick Veronis, Co‐Founder & Managing Partner, iCapital
“Tony Davidow's Private Markets offers a deep exploration of the intricate world of private investments, rooted in decades of firsthand experience. As an instructor in our Certified Investment Management Analyst® program and drawing from his extensive background working with family offices and institutional and individual investors, Davidow masterfully demystifies the opportunities and risks of private markets, guiding financial advisory professionals through the complex landscape with clarity and expertise.”
—Sean R. Walters, CEO, Investments & Wealth Institute
“Once again, Tony Davidow has leveraged his distinct ability to triangulate academic content with practical application, using thoughtful decision‐making in his latest book, Private Markets. Tony shares his knowledge and wisdom, cultivated by his decades of working with advisors and investors. With this new book, Tony describes the tectonic shift that is underway, with the convergence of institutional capabilities being brought to the wealth channel. As advisors evolve their practices and investment acumen, Tony has provided them with an accelerator on how to build better portfolios with private markets.”
—Craig Pfeiffer, President and CEO, Money Management Institute
“I've known Tony Davidow for 20‐plus years through our mutual involvement in the Investments & Wealth Institute and our passion for writing and speaking about investing. As the chief investment officer of a multifamily office specializing in providing unique access to private market investments to our high‐net‐worth and ultra‐high‐net‐worth families, I can attest to the importance of this book for advisors and wealthy families. It covers all of the essential topics and does so in an accessible style that will be useful to newcomers and veterans alike. Tony – as always – has delivered an excellent reference book, and I highly recommend it.”
—Scott Welch, CIMA, Partner and Chief Investment Officer, Certuity
“This is a must‐read for advisors at a pivotal point in the private markets industry. The adoption of private markets in the wealth management channel is changing rapidly, and its role will quickly move to a core consideration in client portfolios over the next decade. For those interested in gaining further context behind the industry's evolution, how to view the role of private markets in a portfolio, and how to begin the integration process, this book is a great place to start. Tony's writing is approachable and practical, making for an easy but important read.”
—Aaron Filbeck, CFA, CAIA, CFP, CIPM, FDP; Managing Director, Head of UniFi, at CAIA Association
“Tony Davidow's Private Markets: Building Better Portfolios with Private Equity, Private Credit, and Private Real Estate is a must‐read for any financial advisor or investor looking to navigate the evolving landscape of private markets. Drawing on decades of experience allocating private capital and educating founders and advisors, Davidow offers objective insights into the merits of private markets and their role in portfolio construction. This book is not just a guide; it's a comprehensive resource that demystifies complex concepts, making them accessible and actionable. Whether you're new to private markets or a seasoned professional, this book will arm you with the knowledge to better assess and allocate with confidence.”
—Christine Gaze, Founder and Managing Partner, Purpose Consulting Group, and Chair of the Board, Investments & Wealth Institute
“Tony Davidow leverages his decades of experience working with high‐net‐worth families and private markets to deliver a must‐read for advisors and investors. Private Markets explores the democratization of private markets, provides a deep dive into the various asset classes, and peers into the future. Davidow provides a practical guide for using private markets to provide better client outcomes.”
—Stephen Dover, Executive Vice President, Chief Market Strategist, and Head of Franklin Templeton Institute
“As more companies choose to remain private, affluent investors are understanding the impact of private capital on our economy. I first got to know Tony as I was eager to tap into his knowledge of working with high‐net‐worth families, drawn to how he made complex problems understandable. Tony's thoughtful and pragmatic approach makes him well suited to explain the intricacies of alternative investments. This book will be a valuable resource for advisors and any asset management industry participant seeking to understand this important and potentially transformative trend.”
—Bing Waldert, Managing Director, Cerulli Associates
Private Markets
Building Better Portfolios with Private Equity, Private Credit, and Private Real Estate
Tony Davidow
Copyright © 2025 by Anthony Davidow. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per‐copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750‐8400, fax (978) 750‐4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748‐6011, fax (201) 748‐6008, or online at http://www.wiley.com/go/permission.
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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
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Cover Design: WileyCover Image: © Vladimir Zakharov/Getty ImagesAuthor Photo: Courtesy of the author
This book is dedicated to the families impacted by 9/11. We should never forget what happened on that fateful day and the heroes who paid the ultimate price. If not for a last‐minute change of venue, I would have been in my office at 2 WTC on the 74th Floor when the planes hit the Towers. In the immediate aftermath of 9/11, we were reminded of what unites us, not what divides us – an important lesson today.
Foreword
John L. Bowman, CFA
CEO, CAIA Association
Upon publishing of this timely book, CAIA Association calculates that nearly $US 17T of global assets under management are allocated to private markets1 – private equity, private credit, real estate, infrastructure, natural resources, etc. Historically, this has been the arena of the most sophisticated investors in the world – sovereign wealth funds, pensions, university endowments, and foundations – hunting for outsized alpha and uncorrelated return streams. But the times, they are a‐changin'…
In the coming decades, what will be the composition of the inevitable march toward $30T of private capital? I would suggest that due to a variety of tectonic economic, social, and regulatory forces, a disproportional amount of that incremental $13T of capital formation will be sourced from wealthy individuals. Assuming the average high‐net‐worth (HNW) individual currently only allocates around 3% to alternative asset classes,2 even a modest increase to high single digits results in a jaw‐dropping multitrillion dollar infusion into the value chain. Additionally, if a broader subset of the $150T of global household wealth is converted to financial assets, that would act as a multiplying lever on this already overwhelming redistribution torrent.
But leaving aside the foregone mathematical conclusion, the more important question we must answer as an industry is whether this is a good thing for the client. Sadly, industry trade groups, the popular press, and various market “pundits” have reduced this complex topic to a self‐serving reliance on divisiveness and rancor to polarize this debate.
My answer, on the other hand, is a resounding yes with a weighty caveat.
The aforementioned institutions that have exploited the benefits of private capital have delivered superior returns to their beneficiaries for decades and across multiple economic regimes. Why? Most importantly, private investments are unmoored from the short‐term machinations of public markets, allowing leadership and general partners to focus on sustainable enterprise value creation rather than the distracting gyrations of moment‐by‐moment marks. This environmental and emotional ballast mitigates agency risk, providing much more alignment of interests amongst the various stakeholders. Additionally, it liberates investors to take advantage of market dislocations, information asymmetry, and out‐of‐favor opportunities outside the siren melody of Mr. Market's whispers.
The more important narrative, however, is that private markets increasingly represent an important beta play to ensure long‐term diversified exposure to risk premia across the global economy. For example, nearly 90% of US companies with greater than $100 million of revenue are private.3 Furthermore, that overwhelming majority is staying private longer or forever as the marketplace now has sufficient capital and maturity to meet most of a growing organization's needs. This is especially true for the new economy such as enterprise software, artificial intelligence, blockchain innovation, space exploration, biotech, and renewable energy. As such, the economy's engine of creativity, job creation, and middle‐class wealth has rapidly shifted private.
Every long‐term investor, especially the two‐legged variation, would be short‐sighted to assume they can access a diversified set of economic drivers and cash flows through only public market access. The advisor and investor deserves and needs a much broader toolset to deliver upon the retirement promise and a dignified deaccumulation stage of life.
But the story cannot end here and hence my weighty, multifaceted caveat. These pauses are important pillars in CAIA's mission to strengthen the profession. Most prominently, today's average advisor, and certainly investor, is not equipped to source, evaluate, and structure portfolio allocations to private asset classes. There is a dearth of effective education and acumen beyond elementary sound bites to ensure the fiduciary can properly consider the suitability of investment options and carefully evaluate its fit with the client's investment goals.
Second, despite my earlier framing as a beta play, there is no easy button for the typical investor to gain passive access to a broad set of managers and thus what has been called the illiquidity premium. In fact, relative to public market fund manager selection, due diligence approaches existential significance in private markets. Dispersion of returns between the median and top decile of performers can range from 20% to 30% or more in real estate, private equity, private credit, and venture capital.4 The dramatic differences in performance underscore that these are not homogenous asset classes and sadly limit success only to those partnered with most competent and experienced general partners (GPs). Otherwise, an argument can be made as to “why bother?”
Thirdly, product proliferation has exploded onto the scene with a variety of semiliquid vehicles such as interval funds, tender offer funds, nontraded real estate investment trusts (REITs), and (in the United States) business development companies. Further, there have been several enablers to make the process much easier and scalable, including feeder funds and technology solutions. These are well‐meaning evolutions, but I fear our “fetish with liquidity,” to quote John Maynard Keynes, in these wrapper structures may be stripping private markets of their primary virtue, which is that they are private. After all, alpha is always found in undiscovered, complex, and idiosyncratic ZIP codes. Further work is needed in product development to balance protecting the essence of what distinguishes these asset classes and yet mitigates the elitism and sometimes rigged nature of access.
This leads me to the last facet of my caveat: regulatory advancements. The accredited investor regime that governs eligibility to these types of asset classes is largely a relic of the 1933 Act. We are no longer living in a world where the exemptions for private markets imagined and written 90 years ago can in good faith be deemed the right guardrails for today's marketplace. We are long overdue for a necessary extension of regulations based upon the market evolution we have described. This is not to say that it will be easy, especially with today's politically charged Securities and Exchange Commission and Department of Labor, but for the sake of the investor, the investing public, and the greater good, a comprehensive new rulebook is sorely needed to allow broader access with proper safeguards.
And it's precisely at the intersection of that tension of opportunity, social equity, and investor protection that this book speaks and thrives. Tony Davidow has served the wealth management profession as a practitioner, teacher, writer, and now podcaster for over 35 years. He is one of the world's foremost authorities in modern asset allocation and portfolio strategy, having exercised his wisdom at asset managers, professional associations, thought leadership organizations, and educational firms. It is hard to argue that anyone is more uniquely qualified to navigate and illuminate this generationally thorny dilemma.
Davidow persuasively argues the case for broader diversification for all investors while carefully and empathetically addressing the risks of too much bravado in the process. And in his typical fashion, he judiciously outlines an “intelligent” path forward with intellectual honesty and grace. I have had the blessing of being a pupil, friend, and partner of Tony for years. He is a strong ally to CAIA's mission, a tireless advocate for the client, and an honorable gift to the profession. I am thus delighted to share that experience with all of you by enthusiastically commending this wonderful work.
Notes
1
Innovation Unleashed: The Rise of the Total Portfolio Approach (2024). CAIA Association. Global Investible Market as of December 31, 2022. Sources: Preqin (Private Equity, Infrastructure, Natural Resources/Commodities, and Private Debt), HFR and Morningstar Direct (Hedge Funds and Liquid Alternatives), and Grand View Research (Real Estate).
2
Low‐end estimate of HNW individual allocations to alternative investments by Cerulli Associates.
3
Source: Hamilton Lane, Capital IQ. 2022.
4
As measured by internal rate of return (IRR).
Acknowledgments
“A successful man is one who can lay a firm foundation with the bricks others have thrown at him.”
—David Brinkley
As I reflect on my career and the lessons that I've learned, I acknowledge that I have used the “bricks” provided by professors, peers, and practitioners. I have researched and read extensively, never afraid to challenge conventional wisdom. My views, the investing landscape, and the industry overall have evolved significantly over the last 40 years, and I have welcomed these changes that have led to my evolution and enlightenment.
As I share my insights and observations about the evolving world of private markets, I want to acknowledge those who helped me along my journey of enlightenment. My early mentors Hans Jepsen and Charlie Schulman provided my foundation and values; my brilliant colleagues Byron Wien, Barton Biggs, David Darst, and Liz Ann Sonders taught me to challenge conventional wisdom; and I have been fortunate to meet many of the pioneers who shaped the industry, including Harry Markowitz, Bill Sharpe, Roger Ibbotson, Eugene Fama, Myron Scholes, Richard Thaler, Daniel Kahneman, Meir Statman, Dick Marston, Jeremy Siegel, and Burton Malkiel, to name a few. They provided the building blocks essential for writing this book.
I am forever grateful to my friend John Bowman for writing such an eloquent foreword. John has laid out the challenges and opportunities for the broader adoption of private markets in the wealth channel. I was fortunate to work with John in building an alternative education program, and I saw first‐hand his passion and advocacy for doing things the right way. As we will cover throughout this book, private markets are valuable and versatile tools, and if used appropriately, they can help achieve various client goals – but like all sharp instruments, there should be caution and skills applied.
I am thankful to my boss, Stephen Dover, for his unwavering support of this book and his generous endorsement. I am truly touched by the kind words and endorsements provided by Jenny Johnson, Sean Walters, Craig Pfeiffer, Aaron Filbeck, Bing Waldert, Scott Welch, Nick Veronis, and Christine Gaze; and appreciative of industry experts Aaron Filbeck, Daniil Shapiro, Patrick McGowan, Scott Welch, Rick Schaupp, Taylor Robinson, and Rich Byrne for reading drafts of my manuscript and providing valuable feedback.
My appreciation for the role and value of advisors comes from my decades of working closely with some of the best in the industry, including Alex Williams, Peter Rukeyser, Rob Sechan, Jim Schlueter, Mike Appleton, Kevin Sanchez, Noel Pacarro Brown, Roxanne Corla, Brian Ullsperger, Bruce Stewart, and Moe Allain, to name a few. I want to acknowledge my friends Alan Reid, Peter Gorman, Halvard Kvaale, John Nersesian, Bob Worthington, Luke Collins, Libet Anderson, Bill Duffy, Bob Powell, Becky Bowler, Laura McDowell, Natalia Cervantes, Debbie Nochlin, and Avi Sharon, who inspire and challenge me constantly, including the daunting task of writing another book; and my new Punta Cana friends for their patience as this book has kept me busy over the last year.
I am thankful to Barry Kruse for hiring me to build Franklin Templeton's alternative education program and to Howard Margolis and Jen Ball for convincing me to join the firm on a full‐time basis and for creating a role that aligned with my skills and passions. I am honored to work with such brilliant and talented colleagues in the Institute, including Stephen Dover, Chris Galipeau, Rick Polsinello, Kim Catechis, Christy Tan, Taylor Topousis, Emily Timmerman, Larry Hatheway, Priya Thakur, Lukasz Kalwak, Lukasz Labedski, Karolina Kosinska, Kristina Meyer, Samir Sinha, and Breda Bahlert. Special thanks to Emily, Priya, and Kristina for helping with this book.
I am inspired daily by my colleagues across the organizations, including Jeff Masom, Dave Donahoo, Matt Brancato, Steve Uhen, Jonathan Kingery, Mike Cochrane, Ronice Barlowe, Mark Lavan, Dave Fisher, Maggie Doherty, Rodney Allain, Tyler Porterfield, Julia Giordano, Jeaneen Terrio, Selene Oh, Stacy Fontana, Ivana Wendling, Mandy Yazdan, Jenn Louth, Amy Osbourne, Stacy Snyder, George Szemere, Denis Tumbuelt, George Stephan, Katrina Dudley, Felix Touchard, Jason Austin, Chrissy Southard, Brandon Davis, Ali Winrow, Brent Jenkins, Magda Podolej, Jared Siegel, Michelle Gunderson, and so many more.
I want to thank the various data providers for allowing me to use their data – PitchBook, Cliffwater, the National Council of Real Estate Investment Fiduciaries (NCREIF), Morningstar, Bloomberg, S&P Indexes, MSCI Private Capital Solutions, and LSE Group (FTSE). This is a big part of the story that we are sharing in this book. Unfortunately, private market data is not readily available to the wealth management channel, and advisors struggle to find reliable data to conduct research regarding allocating to the private markets. Unlike traditional indexes like the Dow Jones Industrial Average (DJIA) and the S&P 500, which track the returns of a basket of securities, private markets data tracks a universe of managers – actual fund results. This is a time‐consuming exercise and part of the reason that private markets data is delayed.
This book would have only been a dream without the unbelievable support and guidance of my agent, Leah Spiro. My editor, Judith Newlin, believed in this book and the need in the marketplace. Judith and her team, including Richard Samson, Jean‐Karl Martin, and Delainey Henson, helped bring my words to life with their artful editing and expert coaching. Leah and Judith took a chance on an unproven author for my first book, Goals‐Based Investing: A Visionary Framework, and I want to make them proud with my second book, Private Markets: Building Better Portfolios with Private Equity, Private Credit, and Private Real Estate.
It is hard to put into words how important my loving wife, Sovy, and our two incredible daughters, Stephanie and Megan, have been in encouraging and tolerating me. Sovy sacrificed a lot with my constant travels over the years as I met with clients and spoke at conferences. She was always my biggest supporter. She also helped me beat cancer, serving as my nurse, nutritionist, and wife.
Megan and Stephanie were my constant motivation, the reason that I worked so hard, and my proudest accomplishment. They have grown into caring and compassionate young ladies, teaching the next generation valuable lessons and serving as role models.
My girls have been my biggest supporters in good times and bad. Even when I was hundreds of miles away, they were always in my heart and on my mind – I hope this book makes them proud!
Introduction
Private Markets: Building Better Portfolios with Private Equity, Private Credit, and Private Real Estate.
“If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest.”
—Benjamin Franklin
I began my career working for a New York–based family office. It was an incredible learning experience and shaped the way that I think about investing. Working with internal and external advisors, we allocated capital for the various family members, charitable foundations, and trusts set up for the children and grandchildren. The family made significant investments in private equity and private real estate – although terms like family offices and private equity had not been defined yet.
We invested in startup companies (private equity) in the hopes that their innovative technology, product, or service would become wildly successful, and the family would reap the benefits when the company went public or was acquired by a larger competitor. We understood that not all the investments would pan out, but the winners would more than offset the losers. And we understood that the returns would likely be much higher than those achieved in the stock market.
We were also big investors in real estate. We recognized the long‐term value of owning office buildings, industrial warehouses, hotels, and other commercial properties. The family knew that we could achieve significant growth and income from these investments over time. Real estate represented a big part of the family's portfolio.
The family also had significant art, ownership in a horse‐racing stable, and other long‐term investments. We were truly patient investors, willing to allocate capital for a decade or more if we believed that we would be compensated for our patience.
Later in my career, I moved to Morgan Stanley, where I built and managed the firm's Institutional Consulting business, helping pension plans, public funds, endowments, and foundations in allocating capital. These institutions were focused on achieving goals and outcomes – meeting pension liabilities, funding charities, and making grants. They knew that private markets could help them in generating higher returns, providing an alternative source of income and dampening portfolio volatility.
I was later charged with building and integrating a multifamily office that the firm had recently acquired with an expertise in alternative investments (Graystone) into our Private Wealth Management (PWM) division. Graystone's primary differentiation was conducting due diligence and providing access to third‐party alternative investments, thus the acquisition provided the “open architecture” our clients demanded. PWM was focused on ultra‐high‐net‐worth (UHNW) families ($20 million or more in investable assets), and those clients expected to get access to private markets. Many of the families that I worked directly with had $100 million or more in investable capital; several had $1 billion or more.
PWM clients were often entrepreneurs who recently sold their business or were handsomely rewarded by bringing their company public via an initial public offering (IPO). They understood the value of taking risks and often had 30–50% allocations to alternative investments. Part of the reason they selected Morgan Stanley was our expertise and depth in alternatives.
While at PWM, I was also a member of the firm's Client Strategy Group, a group of elite resources designed to help the firm's largest clients, many of whom were investment banking clients. I was the Asset Allocation and Alternative Investment Strategist and worked directly with dozens of founders and senior executives in allocating capital.
Since many of the founders made their wealth from private companies, they were very comfortable in allocating to private equity and understood the value and freedom of not having to answer to shareholders and meet quarterly demands. They could manage their companies and focus on achieving long‐term goals. Many of these successful founders would go on to start other private companies.
My last role at Morgan Stanley was running sales and training for the Consulting Services Group, supporting the institutional, private wealth, and retail investor channels. At that point in time, the retail investor had no direct access to private markets due to the accredited investor standards and high minimums. The first generation of private markets products were structured as limited partnerships and were only available to qualified purchasers ($5 million or more of investable assets excluding their home) at high minimums (typically $5 million).
Based on my experience working with UHNW families, I was charged with teaching advisors about the nuances of working with wealthy families and leveraging firm resources to solve their needs. However, there were big differences between the client segments, including the depth and breadth of resources, the menu of investment options, and some of the unique complexities of wealth (taxes, trust and estate issues, charitable giving, dealing with concentrated positions, etc.).
Inspired by my time working with founders and feeling that entrepreneurial bug, I left Morgan Stanley to join a startup firm in 2008. I learned very quickly that the success and failure of many startups is as much about the people as the product. You need partners with a singular focus and an alignment of values and vision.
The startup had private equity backing, with a seat on the board and active participation in making introductions, leveraging their network, and scrutinizing our results. They had a vested interest in our success and wanted to see a return on their investment. The company was eventually sold to a large asset manager, providing a healthy return for the founders, private equity firm, and its investors – a couple of whom I brought in.
