Our Thinking

High net worth individuals and small-to-mid sized institutions find that liquidity needs may trump remaining in an illiquid alternative asset for the long haul.

 

Liquidity When It’s Needed.

High net worth (HNW) individuals often have greater liquidity needs because they may not have predictable income streams. Unlike institutions, people experience life events. They may need funds for their children’s college education, they may be retiring, or there might be a divorce or a death in the family. Given today’s uncertain financial markets, some may want to change their investment objectives. For those reasons and more, these individuals may opt to exit their alternative assets before the final harvest.

 

Liquidity When It’s Wanted.

With early access to liquidity, wealth managers could create more estate planning strategies for HNW individuals and family offices. Cerulli Associates estimates nearly 45 million U.S. households will transfer a total of $68.4 trillion in wealth to heirs over the course of the next 25 years. Generational wealth transfers can trigger heavy administration expenses and tax liabilities. Selling an alternative asset can offset those costs. Additionally, for investors who have alternative assets in self-directed individual retirement accounts, government regulations have required minimum distributions from those accounts after a certain age, and taxes must be paid on those distributions. Holders may want to sell early to both receive distributions and pay taxes.

 

Liquidity When It Makes Financial Sense.

If small-to-mid-sized institutions could tap liquidity more easily, it would give these organizations greater balance sheet flexibility. They would have more opportunities to pursue different strategies, more easily rebalance portfolios, or react more quickly to a change in business focus. Additionally, 60% of HNW individuals own a business and often need to free up cash flow. Selling an alternative asset early can help meet this need.

To learn more, download the complete white paper, “Tapping the Liquidity Locked in Alternative Assets,” by Brad K. Heppner, Founder and CEO, Ben.