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Wayne Yi explains what he finds exciting about investing in private markets
Key Takeaways
- Private markets strategies can add differentiated opportunities that have the potential to generate higher risk-adjusted returns in a portfolio, while public securities offer liquidity and market-like returns.
- From investing in small start-ups to turning around good companies with bad balance sheets, private investing offers unique opportunities and different return streams.
- Private investing allows managers to be actively engaged in the underlying businesses - and growing them over time - as opposed to just trying to call markets and pricing.
Transcript
My name is Wayne Yi. I'm the Chief Investment Officer at Simon Quick Advisors.
So, why do we like private investing? It enhances a client's portfolio by increasing the return potential while also mitigating some of the risks. One thing we always emphasize with our clients is the diversification of portfolios. This involves a balance of public and private investing. We do not approach a client portfolio with the idea that the only thing they need is private assets.
Rather, we believe in a mix of liquid securities that offer market-like returns with a lot of liquidity. The real enhancement and the ability to find differentiated opportunities come through alternative investments, notably within private equity.
In the private equity investing mindset, you have a much more tangible understanding of the businesses you own. The sponsors are working more actively and are engaged in these underlying businesses rather than just trying to call the market and the pricing. These are differentiated avenues of return that can lead to a more robust portfolio on a year-by-year basis versus if it was highly related purely to liquid markets and market sentiment.
Something that I personally find really exciting about investing in private markets is that you can be very nuanced and live through the investment experience. What do I mean by that? You can buy a building that is under-occupied in the suburbs. How do you fix that? You can buy at a good price and optimize it by putting some renovations into it and finding the right tenants.
Obviously, in this environment with higher rates, it becomes much more complicated in terms of financing. However, that adds to the story of maximizing returns for assets that others might not find attractive. The same goes for small businesses and startups. These are early-stage, smaller businesses that aren't listed on any exchange. Finding those unique products, opportunities, or businesses, being able to invest alongside them, and watching them grow is really interesting and exciting in its own regard.
The same thing applies to distressed investing. Distressed investing in public markets is challenging because of the illiquidity challenges. However, if you're able to buy a business in bankruptcy, work through a restructuring, and then optimize, you can achieve the same kind of value-creation opportunities that a typical private equity sponsor may look for. These drive really compelling returns via distressed private investing. Because there are so many different ways to look at and tackle private markets, it's really engaging and thought-provoking in terms of the ideas and opportunities you can consider.
Important disclosures
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