Private Market Assets and International Bonds – Putting your Clients in Control of the Opportunity

Market Trends and Growth

In July 2024, research from Carne Group highlighted continued robust growth in private markets, projecting that the total value of global private market assets will reach $21.08 trillion by 2030. This represents a significant $8 trillion (or 62%) increase from today’s figure, which is estimated at $13.01 trillion. Looking at the numbers again, this growth is particularly impressive considering that in 2005, global private market assets under management were around $1.6 trillion.

The surge in private market assets is driven by a growing investor appetite for alternative investments, which offer diversification and the potential for higher returns compared to traditionally public markets. In addition, private clients, especially wealthy individuals, are increasingly targeted by private equity funds, which up to now have only catered to institutional investors. These clients are drawn to private equity, real estate and other private market assets for their ability to generate substantial long-term gains.

Private market investing – challenges and advantages

Private markets play a significant role in the global economy, offering a myriad of opportunities for informed investors. Despite their substantial impact, they often remain less understood than their public market counterparts and do come with their own set of risks.

For example, liquidity risk. Unlike public markets where assets can be quickly bought or sold, private market investments often involve longer investment periods and can be harder to sell quickly. However, these investments often have risks that don’t move in the same direction as regular stocks or bonds. Considered carefully, private market investments could help to mitigate overall investment risk.

Understanding both the rewards and risks is crucial for making informed decisions in private market investments. Financial advisers play a pivotal role in guiding clients through this complex landscape. With wealthy clients increasingly targeted directly by eager equity companies, how can financial advisers ensure they retain their clients and become part of this lucrative and growing market?

By staying informed about the latest trends and leveraging their expertise, financial advisers can effectively position private market investments as a viable option for their clients. This involves not only understanding the market dynamics but also being able to communicate the potential benefits and risks clearly. Additionally, advisers can explore innovative strategies, such as pairing international bonds with private asset investments, to offer a balanced and diversified portfolio.

Considering an International Bond

For financial advisers managing the portfolios of wealthy clients, selecting the optimal structure to hold private market assets is crucial. An international bond stands out as a potentially efficient vehicle for several compelling reasons:

1. Tax Efficiency: No inheritance or capital gains tax on asset sales within the bond.
2. Simplified Reporting: No need to report separate assets from different jurisdictions.
3. Offsetting Losses: Capital losses can be offset against dividends, bond coupons, and capital gains.
4. No U.S. Inheritance Tax: Avoids U.S. inheritance tax issues for non-U.S. residents.
5. Withholding Tax Savings: Potential savings on withholding taxes.
6. Access to Non-EEA Funds: Greater investment opportunities outside the EEA.
7. Ease of Transfer: Simple ownership transfer without affecting underlying assets.
8. Global Portability: Ideal for clients with international lifestyles.
9. Loan Security: Can be used as security for loans.
10. Confidentiality: High degree of confidentiality.
11. Integration: Easily complements existing financial structures.
12. In Specie Transfers: Flexibility in managing assets without triggering tax events.

In conclusion, the private market asset investment sector presents a compelling opportunity for financial advisers and their clients. By understanding the intricate balance of risks and rewards, advisers can navigate this complex landscape effectively. The role of the financial adviser is crucial in helping clients make informed decisions, especially as wealthy individuals become prime targets for equity companies.