Keep It Simple

Keep It Simple

“I refuse to join any club that would have me as a member.” -Groucho Marx

I was at a dinner this summer with other portfolio managers from wealth management firms in the Denver area to talk about markets and investing. When we were asked if we invest in private markets on behalf of our clients, I was the only one that did not raise my hand!

At Peak, we believe in simplifying our clients’ financial lives. As part of that, our investment discipline is guided by the belief that a) we ought to know what we own; and b) we only trade in securities that are publicly traded.

Every day we are solicited by sales reps from “alternative investment platforms” with “exclusive” invitations to “access” an “incredible” opportunity in the private markets. A simple trick to cut through the noise and endless sales pitches is to ask yourself: If the investment opportunity is so compelling, why are so many people trying to sell it to me? Typically, the answer has to do with the fees, obfuscation, and leverage that these managers can wrap into their products. It’s less clear to me what the benefits are for the end investor (in this case, our clients).

There is nothing wrong with investing in private markets. I applaud the investors who power the engine of growth and innovation in our country by putting their capital at risk in early-stage companies, business turnarounds, complex infrastructures projects, or real estate development. These types of investments require patient capital, ideally suited for investors with deep pockets and a multi-decade (or generational) time horizon.

I had the privilege of working for a venture-backed start-up for 6 years in the hyper-competitive consumer-packaged goods industry. The fact that innovative brands can get off the ground in an industry with razor-thin margins and a fickle consumer, thanks to intrepid private market investors, is nothing short of a miracle.

While there are wonderful aspects of private market investing, the added complexity, fees, and leverage are not necessary ingredients for the vast majority of individual investors. Proponents will claim that you can achieve higher returns with lower volatility in private markets, with nonsensical charts like this flying around the internet:

But if you read the fine print, the creator of the chart “deemphasized” 2008-2009 because of extreme volatility and the wide range of performance. Huh?!

For a deeper dive into what we can affectionately call volatility laundering, I will refer you to Cliff Asness and his January 2023 column: “Why Does Private Equity Get to Play Make-Believe With Prices?”

The public stock market in the U.S. is a marvel. Every day, we can go out into the market and become partial owners in the most successful businesses in the world. It’s not easy, but at least it’s simple and transparent. There are many reasons to applaud the great work being done in private markets, but when it comes to investing on behalf of our clients, we don’t mind stepping aside from the herd and sticking to our investment discipline.


Peak Asset Management, LLC is an SEC registered investment adviser. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This content is developed from sources believed to be providing accurate information and may have been developed and produced by a third party to provide information on a topic that may be of interest. This third party is not affiliated with Peak Asset Management.  It is not our intention to state or imply in any manner that past results are an indication of future performance. Copyright © 2023 Peak Asset Management

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