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David Barnard discusses how to ease clients into private market allocations
Key Takeaways
- David Barnard, former head of private wealth at Alliance Bernstein, offers advice on how to talk to clients investing in private markets for the first time.
- Declining interest rates had been a tailwind for returns and simplified asset allocation for nearly 40 years. With that tailwind gone, private markets investments should be introduced to clients as more of a necessity than a luxury.
- Finding the asset classes that align with a client's goals, objectives, and tolerances around capital appreciation, income or diversification can be fun, though discussing the fees and liquidity associated with private markets can be challenging.
Transcript
My name is David Barnard. I recently retired from Alliance Bernstein, where I was for nearly 25 years, the last eight of which were running the private wealth group there. Now I'm focused on spending my time between philanthropic work and advising new businesses at the intersection of technology and capital markets.
Speaking with clients about private markets for the first time, I think the first thing that needs to be discussed is the need for them at this moment in time. There's an opportunity, I think, after that to talk about the benefits and the trade-offs, but the need itself really works backward from this generational shift that's happening in terms of asset allocation, all driven by where we are in the interest rate cycle.
Over the course of the last 40 years, there's been an extraordinary tailwind associated with declining interest rates that while it didn't seem that way at the time, and there certainly were times of stress along the way, but asset allocation was generally pretty straightforward. That's all changed given where we are with rock bottom interest rates and whether they go up meaningfully from here is really not the question. The fact is that that tailwind is no longer in place. And so private market investments is something that really needs to be introduced to clients as something that's more of a necessity than a luxury.
But when you start talking about them and can open up a much broader discussion in terms of asset classes, even within things like private equity, there are many different ways to get exposure to private markets. And in finding the right array of those things that align with a client's goals, objectives, and tolerances around capital appreciation, income or diversification can actually be a lot of fun.
And of course, when you're introducing private markets, there are some challenges associated with the asset class, at least things that are unfamiliar to folks that have not invested there before, and not the least of which would be, I think, liquidity and fees. But when you consider what generally speaking, will be a private markets allocation that still has around it quite a bit in the way of assets in public markets, the overall impact to the portfolio in terms of access to liquidity and overall fee impact will be manageable. But again, in terms of the moment in time when this conversation is actually happening, this is really about a need to improve the overall composition of a portfolio. It's really not a luxury.
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