Holly Framsted, Global Head of Product for Capital Group, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss the firm’s partnership with KKR that blends exposure to public and private credit.
More than 80% of companies with over $100 million in revenue are privately held. Private markets continue to grow in size and scale and can contribute diversification to client portfolios. With just 6% of wealth portfolios today having any allocation to private investments, Framsted states that now is the time to introduce private markets into client portfolios.
What is leading to the average institutional portfolio to have a 23% allocation to alternatives, while wealth portfolios have much smaller allocations? Framsted notes a number of structural hurdles that make it difficult for individual investors to access alternatives, including investor accreditation requirements, tax reporting on a K-1 rather than on Form 1099, large minimum investments, and liquidity.
Capital Group announced a partnership with KKR to offer alternative investments in an interval fund structure, which overcomes these structural hurdles. While most interval funds offer 5% quarterly liquidity, these interval funds offer investors a quarterly option to withdraw 10% of the fund’s NAV. The funds also have lower fees and a $1,000 minimum investment.
Advisors have questions on what to sell before allocating to the fund. For investors who can hold less liquid assets in their portfolio, it can make sense to hold both private and public assets in the credit portfolio. This combination can increase diversification and, potentially, returns. Framsted envisions a future where equity and fixed income allocations both include public and private investments, and private markets are no longer considered a satellite allocation.
It is important to make sure advisors are educated before making decisions regarding private market funds. Advisors need to understand how much liquidity is truly needed by their clients, and whether funds with this liquidity profile can be suitable investments. Capital Group offers continuing education credit courses on topics including the blending of public and private investments, client acquisition, and how to grow your practice using digital marketing, retirement plans, Social Security events, and multigenerational clients.
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