0122_Finance Digital Edition - Page 4

“ Working with a wealth advisor can help you decide if private equity is a good option for you . ... Investors should know that you ’ re in it for the long term .”
FINANCE & INVESTING
Private equity investments — whether it ’ s as seed money in a startup company or backing a friend or family member who wants to start a local business — is not for those faint of heart or short on funds .
The opportunity to invest in angel funds that supply capital to early-stage companies are typically reserved for accredited investors , which requires a net worth of over $ 1 million and an annual income higher than $ 200,000 in each of the last two years , says Karen Bothe , a financial advisor at WGG Wealth Partners in Roseville .
“ Working with a wealth advisor can help you decide if private equity is a good option for you ,” she says , noting that while private equity can offer diversification and longterm growth outside of what is available in public markets such as mutual funds , it ’ s not without risks . “ Investors should know that you ’ re in it for the long term .”
Kelly Brothers , a financial advisor at CAPTRUST ( which recently acquired Sacramento ’ s Genovese Burford & Brothers , where Brothers was a partner ), agrees . “ The one downside that every private investor has to understand is the lack of liquidity . You can ’ t get your money out — period , end of story .”
Financial advisors can help determine whether your portfolio has money that you aren ’ t relying on for retirement or operational expenses — “ fun money ,” as Brothers calls it — that can be used for investment . They may also have connections to the local investment community , but they are limited by industry regulations to public market investments such as stocks , mutual funds , bonds and annuities .
“ We can ’ t make unsolicited recommendations on investments that clients do not hold with us ,” says Nathan Torinus , a financial advisor and former CEO of Van Hulzen Financial Advisors in El Dorado Hills . “ But if a client asks us , ‘ Hey , I ’ m interested in this ( private equity ) space , how do you help me think about it ,’ then we can give them some guidance .”
Torinus has made some personal private equity investments through Sacramento Angels , which pools funds to provide venture capital to startups . Even
“ Working with a wealth advisor can help you decide if private equity is a good option for you . ... Investors should know that you ’ re in it for the long term .”
Karen Bothe Financial Advisor , WGG Wealth Partners
though investors must be accredited , he says the investment amount can be as low as $ 5,000 . The goal is to build a portfolio of as many as 20 different investments because the likelihood is that 18 of those are going to flare out . The hope is that there ’ s one “ rocket ” that will take off and cover whatever might be lost .
“ The risk-reward relationship is pretty substantially different than most of what ’ s available for public market consumption ,” Torinus says . “ These private equity and venture capital companies are , in many cases , many years away from the success that they ’ re aiming at . So there ’ s a long road of things that have to go right in order for them to realize that success in terms of revenue growth , profit growth and potentially selling themselves or going public .” Bothe notes that most private equity money comes from institutional investors such as pension funds , sovereign wealth funds , endowments and insurance companies . “ Working with a knowledgeable wealth advisor can provide individual investors with access to these types of strategies ,” she says . “ An advisor who knows your personal financial situation can recommend appropriate private equity investment options to help form a proper , diversified portfolio allocation tailored to your specific situation .” While Bothe faces the same restrictions about making unsolicited offers to clients , she says Ameriprise Financial , WGG ’ s parent , does have private equity opportunities it can utilize with appropriate clients .
Bothe says that because of their speculative nature , private equity investments are usually only for clients “ with a moderate-aggressive to aggressive risk tolerance and a long-term horizon .” Investors also need to be aware , she adds , that private equity funds collect management and performance fees , typically 2 % for management and 20 % for performance .
76 comstocksmag . com | January 2022