New report demonstrates the power that higher private investment
allocations can play in generating greater returns across generations
BOSTON–(BUSINESS WIRE)–A new report, “Private
Investing for Private Investors,” released today by global
investment firm Cambridge
Associates, reveals that top-decile institutional investors had a
median allocation of 40 percent or more in private investments.
Moreover, the report states that private investors and families with
substantial wealth may be particularly well positioned to reap the
rewards of a higher allocation to private investments.
The report draws on Cambridge Associates’ historical institutional
investor data which showed that institutions that had a 20-year average
allocation of 15% or greater to private investments, produced a median
annualized return of 8.1 percent. This was 160 basis points higher than
peers with less than five percent allocation in private investments.
Focusing on the institutions with highest (top decile) performance,
Cambridge Associates reported that the average investor who allocated
north of 40% fared even better. This new report contends that such
allocation amounts may be especially appropriate for families with
institutional-scale asset levels.
While families have long pursued private investments, Cambridge
Associates points to a trend by top decile performers who have been
increasing their allocations in private investments over the last two
decades. These investors continued to benefit from higher returns over
10-, 15-, and 20- year time periods. Private investors have the
additional ability to leverage the tax-advantaged nature of private
investments and invest with a long-term mindset.
The long-term nature of private investments offers tax advantages both
in the near term and as part of a wealth transfer strategy. For the most
part, private investment returns are taxed as capital gains rather than
as ordinary income. Their value can also often be discounted for gift,
estate, or inheritance tax purposes.
“Multi-generational families of significant wealth are often
well-aligned for considerable private investment allocations,” said
Maureen Austin, Managing Director in the private client practice at
Cambridge Associates and co-author of the report. “The precise balance
between the need for wealth accumulation for future generations and
typically minimal liquidity requirements puts these investors in a
unique position where a well-executed private investment allocation can
significantly support and extend their legacy. Higher returns,
compounded over time in a more tax-advantaged manner, make a sizable
allocation to private investments quite compelling.”
Andrea Auerbach, Head of Global Private Investments at Cambridge
Associates, added, “The very nature of private investing results in an
average dispersion of returns of 16.5% between the median and the 5th
percentile, which will be captured by the investor who is informed,
prepared, and able to manage the illiquidity these strategies require to
generate the target returns.”
Cambridge Associates’ robust private investments team comprises more
than 60 specialists and portfolio managers, building upon the firm’s
45-year track record of thorough manager due diligence and expert
selection. The private investments team manages and executes
co-investments, sector-specific fund strategies, direct investments,
real estate and private credit allocations, and more, providing access
for clients across the firm.
Private investments often play a prominent role in the customized
portfolios the firm builds and manages on behalf of its private clients,
comprising families and single-family offices around the globe.
“The long-term time horizon that comes with private investing aligns
well with the time horizon for multi-generational families and is often
central to our investment strategy with each family. However, to be
maximally effective, a private investment program must be minutely
suited and built from the bottom up to align with the specific needs and
interests of each investor,” explains Mary Pang, Global Head of the
Private Client practice at Cambridge Associates. “Constructing such a
bespoke portfolio that aligns with a family’s goals, interests, and
generational concerns is a key focus for us.”
To read the full report, co-authored by private investment and private
client specialists Austin, David Thurston, and William Prout, click here.
To learn more about Cambridge Associates’ private client practice, click here.
About Cambridge Associates
Cambridge Associates is a leading global investment firm. We aim to help
endowments & foundations, pension plans, and private clients implement
and manage custom investment portfolios that generate outperformance so
they can maximize their impact on the world. Working alongside its early
clients, among them leading university endowments, the firm pioneered
the strategy of high-equity orientation and broad diversification, which
since the 1980s has been a primary driver of performance for
institutional investors. Cambridge Associates delivers a range of
services, including outsourced CIO, non-discretionary portfolio
management, and investment advisory services.
Cambridge Associates maintains offices in Boston; Arlington, VA;
Beijing; Dallas; London; Menlo Park, CA; New York; San Francisco;
Singapore; and Sydney. Cambridge Associates consists of five global
investment affiliates that are all under common ownership and control.
For more information, please visit www.cambridgeassociates.com.