If Merrill Lynch’s Ariana Bhatia doesn’t come ready to talk to next-gen prospects about a fast-growing asset class that includes venture capital, private credit, and direct company investments, those wealthy investors are going to be disappointed.
“If you have that qualified next-gen client and you don’t offer them private investments, it’s like taking them to a restaurant where a lavish brunch is offered to everyone else, but you’re giving them the continental breakfast,” she tells Barron’s Advisor in the latest The Way Forward: Next Generation podcast.
Private investments are a segment of “alts”, which are quickly rising in popularity.
Assets under management in alternative investments are expected to jump to $US29.2 trillion ($43.9 trillion) by 2029, up 74 per cent from $US16.8 trillion at the end of 2023, according to research firm Preqin.
Ms Bhatia discusses strategic uses of private investing, why rich millennials manage their money differently than earlier generations, and how they see their portfolios as a “dynamic tool” that can help them achieve the lifestyle they want.
Interest in start-ups
Ms Bhatia worked in private equity and credit for a handful of years before joining The Bhatia Group, founded by her father. Today she is a partner on the 12-person team. The practice manages almost $US3bn in assets as part of Merrill Private Wealth in Chicago, and serves entrepreneurs, corporate executives, and families with multigenerational money.
Ms Bhatia says next-gen choices differ from those of their parents, who likely worked one or two jobs for decades and saw their portfolios as a rainy-day fund for emergencies and a retirement stronghold. Careers are different for their children.
“They tend to be more flexible in their lifestyles. They might change jobs, change locations, and be more entrepreneurial,” she says.
“This leads them to look at their portfolio in a different way – as a dynamic tool that they can use to help shape the lifestyle they want.”
Scenarios to suit lifestyles
Ms Bhatia helps them imagine different financial scenarios to suit their lifestyles.
For instance, she worked with a 40-something entrepreneur thinking about leaving his start-up. They explored strategies like setting up a tax-efficient IRA (individual retirement account) and shifting toward income-generating investments to support his next chapter.
She says one option involved using private credit within an IRA to avoid paying taxes on income, while also considering distribution timelines.
Dispelling certain views
Sometimes Ms Bhatia challenges what she sees as outdated views on alts.
One example: private investments used to require capital to be locked up for a decade or more. Now there are new structures such as evergreen funds that offer quarterly liquidity for many private market strategies. This development, in her view, broadens access and increases the appetite for private investments among a wider set of qualified clients.
Ms Bhatia argues that in an economy shaped by higher interest rates, opportunity exists in private markets, but portfolios may need to change.
For her clients with a lot of private equity, she might suggest moving to a marginally higher allocation of private credit.
“The return of any private deal is now being shared to a higher degree with the private credit investor or the lender than, say, only the equity investor,” she says.
“It shifts the piece of the pie that different investors are getting. You need to be mindful of that when you create an allocation.”
Source: Why rich millennials are turning to private investments, Weld Royal for The Australian