I recently participated in a panel discussion at Worth magazine’s 2017 Power 100 Summit in Greenwich, Conn. titled “The New Landscape of Power,” the event was a deep dive look from the investor’s point of view at everything that has happened in the last year — from the rise of populist politics in the U.S. and Europe, to Blockchain, climate change and more.
My portion of the event was dedicated to “Investing in the Age of Trump”. While there was plenty of angst about a “market top, and how to navigate in an era of uncertain policy direction, my message for them was simple: think about venture.
Venture capital investing remains one of the highest yielding investment classes available today and a large part of that outperformance is based on the illiquidity premium, which is the higher yield that investors can find by investing in products that are not easily traded. Venture, where the typical investment lasts at least five years, is a textbook example of the illiquidity premium in action, and presents upside that is uncorrelated to the ebbs and flows of the larger stock and bond markets.
For these uncertain times, it is an attractive option for many investors, and a discussion worth having for financial advisors.
For the advisors I met at the Worth summit, I had three pieces of advice:
Get creative: Financial advisors need to understand the value of the illiquidity premium and start allocating client funds beyond the core holdings of stocks, bonds, ETFs, etc. Clients are interested in alternative investments and are open to learning about the potential for products like venture, they just don’t know what they’re missing out on yet.
Find the right clients: Particularly for those clients with 10-20 years of runway left before retirement, a portion of their portfolio should be considered for alternative and illiquid investments. They have the time to see these types of investments through and are looking longer-term than those investors who are just a few years away from retirement.
Sell the message: Venture investing is about more than just numbers on a page. When a client invests in a venture capital fund, they are also supporting the growth of private smaller companies and our economy as a whole. They are supporting job growth, innovation, and the hopes and dreams of small business owners nationwide. This can be a powerful sales message, particularly for younger investors.
This market isn’t going to get any easier to predict, and there is a good chance the uncertainty we’re seeing now is going to get worse before it gets better. But that doesn’t mean investors should get out of the market altogether. In fact, this is an excellent opportunity to tap into the uncorrelated potential of venture investing.