How Can You Build Your Private Capital Portfolio To Grow Wealth for Generations?

This article is featured in our Private Capital Guide. ‍

How can you build your private capital portfolio to grow wealth for generations?

Your custom portfolio will be grounded in time-tested, data-driven strategies.

Now that you understand the power private capital can help unlock, you’re probably wondering: 

• How do I decide how much private capital to have in my portfolio?
• How can I choose the right opportunities?
• In a world of over 8,000 private capital funds, how many funds should I have?
• How can I achieve the right balance of funds to preserve and grow my wealth for generations? 

We aim to provide our clients with a full-service private capital offering, drawing on our expertise so you don’t have to get caught up in the details. On a strategic level, we continually evaluate the market landscape and select private capital opportunities based on asset classes we believe are poised to outperform. Then, we partner with specific managers to access funds within each asset class. These partnerships enable us to provide a boutique, exclusive experience for you. We cater directly to your needs, utilizing our expertise to curate a custom portfolio balancing your liquidity needs, portfolio size, and time horizon.

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How do we select your private capital investments?

Your investments will be chosen thoughtfully in partnership with managers who meet rigorous criteria.

Selecting specific investments for your custom private capital portfolio is like carefully curating a wine cellar. Just like you want a balance of different wines to match any occasion, you want a balance of private capital investments in your portfolio. When we’re selecting investments, we first identify our desired asset class. Then, we evaluate its ability to outperform, including its connection to an intergenerational theme. Finally, we vet and select specific managers within the asset class. Read more about our three-step process below: 

Step 1: Identify Asset Class

Your portfolio will be comprised of asset classes we believe are poised to outperform public markets.

You can think of asset classes as the wine varieties of the investment world. Asset classes represent different types of investments: stocks, bonds, commodities, cash, real estate, or currencies. When constructing a private capital portfolio, it’s best practice to seek assets that are deep and established with structural, sustainable advantages over public markets. 

Assets that are deep and established: Some asset classes have a long history of achieving excess return on investment, increasing our confidence in allocating to them — in contrast to fad asset classes that come and go every few years. The core asset class holdings in our portfolios today are private equity, private real assets, and private debt. 

Assets with structural, sustainable advantages over public markets: 

• ‍Private Equity is advantageous because it is not beholden to a quarterly earnings cycle, and investors can make active, meaningful decisions that impact the investment. In public markets, investors are mostly passive shareholders.‍
• Private Real Assets are advantageous because investors can make targeted investments based on type, region, and ownership. In public markets, investors access broad-based and diversified investments.‍
• Private Debt refers to bonds issued to companies by private market lenders rather than banks or public markets. Investors in these bonds benefit from higher rates and stricter covenants than they would from bonds issued in public markets. 

Taking an Opportunistic Approach: Across these core asset classes, we aim to be opportunistic, looking for investments that are advantageous based on market circumstances. 

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Case Study: Avoiding Hype

Providing expertise on client investment portfolios means that, in addition to pointing to asset classes we believe are poised for success, we also try to steer away from asset classes where the data is unclear. 

Cryptocurrency became a hot topic in the investing world in 2017 — and according to Pitchbook, $922 million was raised in the private markets for cryptocurrency and blockchain funds that year. That number ballooned to nearly $22 billion in 2022, over 20x in just five years. Our data-driven approach led us to be skeptical of the cryptocurrency markets, and we passed on a number of household names that were high-fliers at the time. This proved to be a good approach as these business models returned to earth. 

We simply need more data to determine whether cryptocurrency is worth investing in. Time may prove cryptocurrency is a deep and established asset class, and we’re willing to be fashionably late to a party to ensure we show up at the right one. 

We have conviction that often the biggest impact is in the private deals you avoid. 

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Step 2: Select Qualities or Themes

Many of your investments will have qualities we believe could further amplify their performance over the long term.

We believe some investments have qualities that could make them more attractive in portfolios, similar to selecting a wine to match the meal or occasion. These qualities relate to broader, long-term trends impacting markets and livelihoods over decades — which we call intergenerational themes. 

We’ve identified four that we believe offer areas of interest and focus: 

Decarbonization: This is the process of replacing traditional carbon-based processes with non-carbon-based processes or capturing and mitigating the carbon in existing processes.‍

Investment Opportunities: renewable and clean energy, reimagined mobility, clean hydrogen and new fuels, and nuclear fusion.

Artificial Intelligence & Machine Learning: This burgeoning technology could create the next industrial revolution that will transform our economy over the next generation.‍

Investment Opportunities: investment in new companies solving old problems with artificial intelligence and real estate and infrastructure needed to support the broad adoption of artificial intelligence (servers, data centers, chip-building facilities, and enhancing the power grid).

Growth of the Sun Belt: People are moving to the Sun Belt, the southern half of the United States, in droves, and bringing spending, business, education, and ideas.‍

Investment Opportunities: fueling strong economic growth in all sectors of the economy and specific infrastructure to support the growth, such as housing units needed to support the migration.

A Medical Revolution: A new “Golden Age of Medicine” could revolutionize healthcare, pharmaceuticals, and biotech. Diseases such as cancer and Alzheimer’s are coming into the target range for solutions to transform the developed world’s life expectancy and quality of life.

Investment Opportunities: investing in medicine to cure chronic diseases and extendlife, and infrastructure to support people living longer, healthier lives (assisted living facilities, independent living, 55+ communities, doctor’s offices, hospitals, etc.). 

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Step 3: Choose Manager

To grow your investment, you’ll partner with thoughtful and experienced managers.

As the people managing your investment every day, we believe carefully selecting a manager is of the utmost importance. Once we have identified broad investment goals, we partner with managers who offer direct investment opportunities in our desired asset classes and themes. Private capital is a long game, and we seek to partner with managers with a thoughtful approach to their work in an effort to provide the best possible opportunities to our clients, like a wine maker guiding your selection. 

Here are some of the criteria we use in our vetting process: 

• ‍Strong Team: The management team has a history of working together and a clear succession plan. This shows the manager is thoughtful about who they hire and cares about the longevity of their investment.‍
• Proven Experience: The manager has managed funds through multiple cycles and market environments. We typically avoid first-time funds.‍
• Philosophy: The manager’s philosophy aligns with the current opportunity in the market. In addition, we think it’s important that they’re focused on improving the underlying company or asset and not purely on financial engineering.‍
• Process-Driven: The manager’s investment process is clear and repeatable. The manager has an apparent edge in deal sourcing, and it has implemented changes in the process over time that have led to better results.‍
• Active Management: We look for our general partners to take active roles in the companies, helping grow revenue, manage expenses, professionalize the business, and get the right people in the right positions. Unlike active public managers, much of the work begins after the investment.‍
• Alignment: The manager invests alongside our clients in the fund and makes the majority of its money through participation in profits. This increases the likelihood of success as the manager’s wealth is tied to the fund’s success.‍
• Performance: These above attributes manifest themselves in consistent first and second-quartile performance. Underperformance is explainable, and lessons learned have led to process improvements.

We believe it’s likely that someone with decades of experience at a family-owned vineyard will produce wine with better skill than someone who’s just moved to Napa to start a vineyard from the ground up. We evaluate our managers using the above criteria to ensure they have deep roots. 

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Case Study: Energy Impact Partners III

When we launched our fund Decarbonization 2022, we sought managers with expertise investing in technology focused on removing carbon from our energy system. Our search consisted of dozens of conversations and meetings, and one manager kept rising to the top of the group, Energy Impact Partners III. EIP III utilizes teams of investment professionals and energy specialists to source and underwrite deals in emerging technology. It also seeks feedback on the technology underpinning these deals from a council of potential users of new decarbonization technologies. Insights from these end users, utilities, and large corporations provide EIP III with information about whether the deals sourced by their teams are practical for the intended end user. We believed this immediate feedback loop on technologies from the intended end users, and a ready and willing customer base, gave the man advantage over other managers. 

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How Can We Help?

If you’re wondering how private capital could fit into your portfolio, are interested in learning more about opportunities within the intergenerational investment themes, or simply want to discuss the right portfolio allocations to protect and grow your wealth for generations, our team is here.