risk level, illiquidity, etc. are all factors that securities regulators
have purposively aimed to shield retail investor from, but have
been more open for “accredited investors”, whose risk capacity/
tolerance and sophistication is generally considered higher
and hence more suitable for private securities. Laws and the
regulatory environment in Canada however are changing, and
likely to provide increased ability for retail investors to access
private market opportunities, but may also impose a higher level
of accountability and responsibility among industry participants
(i.e. wealth management firms).
There are other reasons why the average retail client portfolio
generally does not have exposure to private market securities.
Lack of sophistication, experience and education on the asset
class, not only by the retail investor but also by his or her advisor
(i.e. among retail wealth professionals), is generally true among
private securities. This however, can be easily resolved through
education, training and greater awareness of the benefits and
risks of investing in private market securities.
Private securities as a group, often tend to be illiquid, or less
liquid than public securities, and can also have attributes that present
a higher level of individual security risk than many traditional public
assets (but certainly not all, and often this is only a generalization). That
said, the average retail investor generally has a lower risk capacity
than a UHNW investor, and may also have a shorter investment time
horizon for their investment portfolio, thereby necessitating the need
for a higher amount of portfolio liquidity.
The universal goal of maximizing portfolio return for a given
level of risk capacity/tolerance and liquidity required, remains a
constant for all investors—retail, UHNW and institutional alike. As
the industry continues to evolve and regulatory restrictions change
in favour of expanded scope for eligible investor participation in
private securities, the benefits of this asset class will be more
broadly embraced among the retail demographic.
While changing retail client portfolios from the traditional
mindset of 100% public security content, to include some
proportion in private securities may not be suitable or prudent for
all retail investors, for many there is invariably some reasonable
allocation to private securities that may be suitable and beneficial
from a longer term portfolio perspective.
Some of the most significant changes to the investment
landscape over the coming decade will likely include the evolution
of how private and alternative investments are utilized, and
the wider incorporation of this asset class by retail investors.
Organizations that look to champion this change and facilitate
greater access, education, and retail investor support for how
private securities are incorporated in portfolios, will help transform
the retail segment of the industry, and promote the broader
investment benefits that UHNW and institutional investors are
experiencing with private securities today.
For more information contact:
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