The Other Side of Alternatives: What Boomers MUST Know About Private Debt’s Liquidity & Costs.
While alternative investments like private debt offer potential benefits for diversification and income, they differ significantly from traditional stocks and bonds. It’s crucial for Baby Boomers considering these options to understand the inherent trade-offs involved.
A primary characteristic of most alternatives, including private debt funds, is lower liquidity. Unlike public securities you can sell daily, accessing your capital in a private debt fund is typically restricted, often involving lock-up periods that can last several years. This illiquidity is a key reason these investments may offer higher potential returns (an “illiquidity premium”) but requires a long-term commitment.
Costs are also generally higher, often including annual management fees and performance fees (a share of profits). Furthermore, these investments can have complex structures and less public transparency than traditional mutual funds or ETFs.
At Investor Underwriting, we believe in transparency regarding these factors. While our ABL strategy aims for stability and income, we emphasize that it involves the trade-offs common to private investments. Our funds are structured for accredited investors who understand and can tolerate the reduced liquidity and have a long-term investment horizon. We provide detailed documentation (like the Private Placement Memorandum) outlining the fund structure, fees, risks, and liquidity terms.
We encourage thorough due diligence and discussion to ensure alignment with investors’ overall financial situation and liquidity needs. It’s essential to weigh the potential benefits against the inherent characteristics like lower liquidity and different fee structures when considering alternatives.
Have questions about the specifics of investing in private debt? Let’s discuss the details. Contact Investor Underwriting.