It's Now Much Easier For Your Clients to Access Private Equity
Source: FA-IQ @ Investment Advisor Forum, Jan. 16, 2018
BRUCE LOVE, MANAGING EDITOR, FINANCIAL ADVISOR IQ: This is Bruce Love with Financial Advisor IQ. And I'm here at the Investment Advisor Forum talking to Bob Rice from Tangent Capital Partners. Bob, there's been some recent news that helps investors access private equity easier. What's been going on?
BOB RICE, MANAGING DIRECTOR, TANGENT CAPITAL PARTNERS: Yeah, pretty dramatic development from the SEC middle of last year put out a no-action letter that for the first time is going to allow investment funds that hold illiquid securities to be sold to accredited investors. And at the same time, have a ready trading market for those securities. So it's really the first time that you'll be able to access private equity and be able to exit it in a market that should be fairly robust. So you're not stuck with those 10 and 12 and 14 year J curves that individual investors rarely can stomach.
BRUCE LOVE: Makes it a lot easier to trade, makes it a lot easier to get in and out of?
BOB RICE: Yeah, I would say more than easier. Possible. Because it was never really genuinely possible before. So there's starting to be now some products coming to market, and you'll see several of them in this year, 2018, taking advantage of that ruling. A couple of them are now in registration of the SEC. So it should be a very interesting year for investing and private equity.
BRUCE LOVE: How do you think RAs and broker dealers should approach these sorts of products?
BOB RICE: Well, look, I think that from their perspective, there are two really big advantages. One is they can make their portfolios much more robust by adding an asset class. They haven't been able to get that before. And on which, of course, institutional investors have relied for many, many years. But bluntly, another really big advantage is, this is a perfect example of how you can start to gravitate towards more sophisticated products that cannot be "robo-tized," that are not part of model asset allocations, improve your value to clients, being able to understand these products, put them into the right products, is a real value for the FAs and the RAs of the world.
BRUCE LOVE: That's a really good point. I mean, you're not exactly going to be competing with robos in at least the near term for providing private equity.
BOB RICE: Well, no, you absolutely will not be. And I don't think you ever will be for lots of reasons that we don't have time to discuss today. So I think this is one of the things that you'll see advisors start gravitating to, again, as they're trying to fight off fee compression, the move to passive, why am I paying you what I'm paying you? The answer is, well, I can get you into these kinds of assets and these kinds of securities and make your portfolio much more robust than those cheaper solutions that you may have.
BRUCE LOVE: Private equity can be difficult even for the most qualified investors like family offices. I mean, you're really talking about deal flow and things like that. How do you see this evolving in terms of what you can actually access?
BOB RICE: Well, look, that's a spectacular question. And so, the way to think about these things is that they are a kind-- I mean, we're being approximate here -- but they're a kind of slow motion ETF for private equity. Meaning that you've got experts who are putting together the baskets of the underlying investment. So you yourself are not trying to pick between that deal and that deal and that deal. But world-class experts are putting -- assembling these portfolios of private equity. And that basket of private equity securities is tradable like an ETF is.
BRUCE LOVE: Great news for diversification of portfolios.
BOB RICE: I think it's really a pretty profound game changer.
BRUCE LOVE: Bob, thank you so much.
BOB RICE: Thank you.