Private Equity Platforms in Today’s World

Private equity platforms and other alternative investments are becoming critical in a world where interest rates remain low. As previously shown in our content piece, Investing in Alternatives Continues to Gain Momentum: A Case Study on Pension Funds, individuals generally have a lower allocation to alternatives than larger pools of capital. This does not need to be the case for advisors with high-net-worth investors.

Percentage of Assets in Alternatives

Private Equity has long been a hard-to-access asset class for individual investors. As the industry has grown, it has evolved from an ownership structure where the senior executives of the firm owned all of the firm to its current structure where many of the largest firms are publicly traded companies.

As a result, these firms are incentivized to grow their assets under management (“AUM”) in order to grow earnings. While the incentives to grow AUM exist for privately held funds as well, they are magnified by public investors who prefer the stability of management fees to volatile performance-based fees.

This can be problematic due to the law of diminishing returns. Many of these firms specialize in certain types of investments, whether that be distressed credit, growth equity, or buying more mature firms.

Some industries are capacity constrained and cannot take any more investment without returns being further compressed. Industries being fully invested already presents an issue; if more capital cannot move into a space, then forward returns are lower.

S&P stated, “The top concern for LPs heading into 2021 is private equity firms' ability to deploy raised capital.”

However, many publicly traded firms also need to raise capital continuously to satisfy their investors’ demand for earnings growth. So private equity firms might move into newer business lines in markets where they have potentially less experience.

Powered by the owners of Crystal’s own investment needs, we are building a selective private equity platform for advisors that can choose funds from institutional firms based on merit and preference.

When firms expand into new industries or sectors, Crystal typically invests in the products in which these firms previously established their expertise. Crystal may invest in newer business lines but will evaluate the executives’ prior experience and firms before doing so.

Crystal is building a private equity platform curated across a diversified set of institutional quality funds in areas where Crystal’s owners feel comfortable investing their own money.

With diversified firms, strategies, fund sizes, and vintages, RIAs are able to leverage the access and research that Crystal provides for their clients’ assets.

Critically, Crystal enables smaller checks to be written. Even if your clients want sizable allocations to private equity, the allocations can be diversified across numerous investments instead of concentrating your alternatives allocation and putting ‘all your eggs in one basket’.

Crystal enables advisors to provide access to the same type of investments as the largest institutions in the world.

In today’s political climate, investments are expected to have a positive impact on the world beyond simply providing returns. And funds have flowed to the burgeoning theme.

“They captured $51.1 billion of net new money from investors in 2020 — the fifth consecutive annual record, according to Morningstar. In 2019, investors funneled roughly $21 billion into funds that apply environmental, social and governance principles.”

That’s more than a doubling of fund flows in one year! As private equity firms continue to raise more capital, it is critical for them to ensure that they have the ‘know-how’ in this space.

As private equity platforms try to get in on the action, Crystal has aimed to take a measured approach. For example, while Crystal has opted to make ESG type of investments available on its platform for advisors, Crystal has not allowed the popularity of ESG investments to upend its long-held investment process.

While Pension Fund employees may have their performance reviewed according to how many ESG investments they get across the finish line, Crystal can evaluate these strategies without such pressures, which helps ensure that the Risk/Reward profiles are held to the same rigorous standards as any other fund on our private equity platform.

Publicly traded firms are building private equity platforms to meet their public stock investors’ demands for stable earnings growth.

Crystal is building a private equity platform curated across a diversified set of institutional quality funds in their respective fields of expertise in the private equity industry.

Doing so enables the firm and advisors access to numerous firms and the funds they offer. This allows for the ability to harness different specialties and vintages.

Crystal’s goal is for Registered Investment Advisors to have the ability to be nimble and select funds vetted by Crystal’s research team where the selection is not based on financial kickbacks from managers but instead on merit and quality.

In a world of conflicts for manager selection, Crystal seeks to be the alternative for advisors.