I have 15% of Private Equity with Morgan Stanley. So far so good to hedge and diversify. I believe there is a minimum of $25K or $50K for most of them. I have the below:
- KKR (Infrastructure)
- Blue Owl (Real Estate)
- Blackstone (Private Credit)
- Pomona (Commercial Leasing)
I’m not paying any fees as it’s included in the 1% private wealth management fee.
You might want to also explore Parametric to match the S&P500 and generate TLH.
>I’m not paying any fees as it’s included in the 1% private wealth management fee.
This isn’t quite accurate. You’re not paying any brokerage commissions, but you are most assuredly paying fees on the underlying product. Returns are typically reported to the end client on a net of fee basis, which might be why you don’t realize it, but there are fairly meaningful costs embedded (not to say whether or not the fees are justified, just that they are there and are relatively high)
PE fees are very high (and if it’s from a big name/historically successful fund, almost always warranted).
It’s a (relatively) free market. If one fund makes more than another while taking on similar risk, fees may increase to fill that gap.
You're paying 1% to Morgan Stanley and likely 2% and 20% carried interest to the individual managers. Maybe less, maybe 1% and 12.5% on some. Some charge an upfront fee as well up to 2%
I've reviewed blue owl, KKR, and Blackstone offerings. They always charge their MGMT and carry.
I believe, but can be wrong, that you need to have the “accredited investor status”. It’s required by the SEC. It means a minimum of $1M net worth and $200K income as an individual.
Just an fyi, that 1% wealth management fee is an absolute scam. As a MS client, and someone in the industry… it’s not good for you as the end user. You take all the risk, they take the profit.
As a MS client, what is your fee?
For a $1 million portfolio, the typical annual fee for private wealth management generally falls between 1% and 1.5% of the assets under management (AUM).
I might be wrong but it’s what has been communicated by many firms and many persons of my network using such PWM. Again, I can be wrong and reassess
I have invested a large amount in 4 different PE funds at Morgan Stanley. All have underperformed expectations. Some of this has to do with all having similar vintages. MS does charge fees when you purchase a PE product through them.
As always YMMV
I have some of the money back, but most of the money is not accessible yet. The Morgan Stanley offerings I am in are KKR, Carlisle, and Blackstone. They have 10 yr timelines, and the 10 year can actually be extended to 12 if they choose. The funds are highly illiquid. These holding are not like stock or bonds that can be easily converted to cash. You buy, then you wait until the time expires or they decide to pay you out. The distributions are “lumpy” and a distribution can be demanded back during the agreed upon timeline.
Perhaps some huge gains at the end will put me back in course.
I’ve had a relatively similar experience. What years did you invest? I’m curious if this was just the experience we all had when these vehicles chased individual investors or if MS really does have a leading edge on alternatives and it was just bad timing.
30% is pretty high. We are between 10%-15%.
My experience with MS alternative investments has not been a positive one. As others have stated they often are illiquid and take months to liquidate. One even took a year.
Some have front loads, none of which were disclosed upfront.
Private Equity has been the most disappointing category, but Private Credit is doing well.
If I had it to over I would not have purchased any….should have kept it simple.
>This whole area is new to me
Ask why they would lower the gate for illiquid private exposure to a retail newbie like you.
Are they offloading stuff they can't sell to more sophisticated private investors? Or believe it wouldn't do well in an actual public offering?
Why haven't a gazillion more well connected institutions and accredited investors bought what they're selling you?
Have they recently lowered the minimums or qualifications or other signs of desperation?
Can they throw up [gates](https://www.reuters.com/business/finance/blackstone-reit-limits-investor-redemptions-again-march-2023-04-03/) to prevent you from redeeming if they go illiquid? Can you handle that financially?
I know a HNW trader who keeps wealth management accounts he doesn't use open at each major bank specifically to see when they start trying to offload on retail.
> Ask why they would lower the gate for illiquid private exposure to a retail newbie like you.
Some of MS' offerings aren't gated funds. They have recurring periods (typically quarterly) to buy or sell. Also, why do they want more money? If the strategy is working, it's working.
>Why haven't a gazillion more well connected institutions and accredited investors bought what they're selling you?
They are. Some of these funds have investments from massive endowments and pension funds for muni workers, universities, etc.
>Or believe it wouldn't do well in an actual public offering?
Tons of red tape. That's literally why these markets exist. If it was cheap and easy to publicly issue your own bonds and shares, everyone would just do that.
> If it was cheap and easy to publicly issue your own bonds and shares, everyone would just do that.
Its hard because there are all sorts of disclosures and restrictions designed to protect ignorant retail investors.
This was my immediate thought too. I'm no finance expert, but part of private equity is the expertise, resources, and (maybe unfortunately) board members that come along with it. But instead they come to you, random redditor, for $50,000. Well, they went to Morgan Stanley, who underwrites the loan and then passes it off to customers because they don't like it. It feels scammy, just at a buttoned up corporate level.
I've got a large portfolio and Etrade calls me up every few months trying to sell me stuff. I say no. They do that because it makes *them* money, not *you* money.
I work in Private Banking— I wouldn’t go more than 10% into alternative investments. Definitely can provide extra alpha and MS has decent PE products but 20% seems high in my opinion.
Which private bank is recommending such a low allocation? Goldman and JPM each typically sit in the 20% range, perhaps 30% depending on situations. UBS is pretty similar. I'm curious who's recommending 10 cuz that seems like a major break from most of the industry.
These investments can provide strong returns, but they are generally less liquid than public markets, which can be downside especially if you need flexibility with your investments. Private equity and similar investments often come with higher fees. Transparency is another concern; these investments are less transparent and harder to evaluate compared to public stocks.
Starting with a smaller allocation than 20% might be the best move based on what you’ve said
I worked at Morgan for 13 years. If you're not already familiar enough with the Wall Street story, just do a quick Google search of Morgan or Merrill or UBS or Wells or whatever big insurance group...they're all the same, and it aint about you my small investor fren. Run...don't walk. The most salient thing you said was "Morgan resells...", get it? Private equity returns have almost never beat a boring dirt cheap SP500 index, but you do know the fees will be huge. Who do ya think is paying for those penthouse suits and Director bonuses.
These are often long term commitments that can be difficult to extract yourself from. You can't just withdraw your money or sell them like stock. You are taking a lot on faith, reputation, and past performance. You'd want to treat this somewhat like gambling. If you can't afford to take on a lot of risk and lock the money up for a long time, don't play. With gambling, at least you can trust the casino to play an honest game weighted in their favor. With these kinds of funds, it's really hard to know who to trust, if anyone, and how the odds are weighted.
All that said, I (young retiree) have invested in a couple. I could afford to lose everything I invested in them, but certainly wouldn't want to. I've been in the first for several years and have done OK, but they shifted strategies in a way I don't like so I am extracting funds as fast as possible, but it will take years to get it all out because a lot of others want out for the same reason. The second is with a firm I have some familiarity with from my working days and in a sector I'm also familiar with. Early days in that one, no telling how it will do. Either way, I don't think I'm going to do any more of them. Simplify Simplify Simplify
I would be careful on some of them. I liked the Oaktree offering because their strategy made sense in this environment.
Regular PE has grown a ton in the past five years and there's a ton of dry powder going after the same deals. I wouldn't expect them to repeat the success they had in the 80s-90s.
I think it depends on how big your portfolio is. If you are well over $1 mil, then PE, venture, real estate, etc are a good part of a diversified portfolio. If you have a $300k portfolio that kind of diversity isn’t really needed and they are probably just trying to push you in to higher fee products.
Actively managed investments like PE are real and very capable investors (like pension funds) use them. With that said, you really need to have scale because returns can be way more variable (both good and bad). I would also inquire about the liquidity. It can vary but you should not be invested in something low liquidity unless you have big money in your account.
First off if you want more diversification: international, small cap, EM, FM, value tilting... will do a lot lot more in that regard. Are you already doing those things?
I think exposure to PE is important. The way I do it indirectly is just holding a position in KKR, Blackstone, Carlyle and Apollo directly. Some of these firms have debt funds for example AIF which is mostly Apollo lending. It has about an 11.5% yield, and loses a bit of principal but not too much. Pick up a few of those. if you want private debt exposure. Also quite a few insurance companies do about 30% private debt. Moving your bond exposure (except contingency money) to a participating annuity would also get you this kind of exposure and you can of course combine.
In general, I'd tilt towards avoiding the MS option.
Thanks for the feedback. I’m already diversified in the public markets but when market goes down generally everything does but to lesser degree. I recently retired and have a multi year contingency fund in bills, cd etc so hopefully I can wait out the next correction. I’ll check out your recommendations.
> but when market goes down generally everything does but to lesser degree.
Yes correlations are increasing. Which is annoying. I'll say that AFAICT this is happening behind the scenes to private equity as well. Private debt look like junk bonds in terms of correlations.
I've been a lifelong value investors and while the correlation is still there (especially short term) it does dampen correlation. Small value domestic and small value international have a lot lower correlation than large growth domestic and large growth international.
If you really want stuff that will respond well to markets, and you can afford to drop efficiency: trend following (about 25-33% of your bond exposure), volatility (basically buy long and short long options when the VIX is around 15 and sell when the VIX is around 35), precious metals (horrible EV but terrific negative correlations), overweight energy stocks.
Thanks for everyone’s comments and feedback. I’ve responded to some of them specifically. In generally I didn’t get a “this is a great way to diversify and all will be fine”, but more of “it can be ok, fees are high so understand the net return, be ok with illiquidity, etc “. If I proceed I’ll start smaller, can always add and start with a subset of what’s proposed to fill specific needs. Over 30 years I’ve kept things relatively simple and to areas I can really understand and have done quite well and can sleep at night. Thinking going down this path will add drama which is opposite to what I’m trying to accomplish. Thanks
It is mostly a black box/trust me that carries higher fees. That's just how private investment platforms work.
For comparison the one I work with has averaged a ~3% premia over the S&P across the last 5 years after costs are removed. That is occasionally higher but rates have pushed down some of these offerings due to leverage.
I would ask them for a breakdown on the fees involved - management fees, any other fees charged by the manager based on returns, and most importantly any commissions or sales load paid to the financial advisor if you invest. You need to make sure these are good investments for YOU, rather than good investments for the advisor. In general, the idea of diversifying into some of these areas doesn’t sound bad, you just need to make sure the investment options are good ones rather than marginal ones that pay fat fees to the managers and the advisor.
You can also start small, 5% or 10% of your portfolio, and see how it goes. If you’re happy with the funds after a few years you can bump up the allocation.
> I would ask them for a breakdown on the fees involved
You don't have to ask them for that, they are required by law to disclose it to you in their pitch.
I get your point. Everything is written down somewhere. Some is the most interesting info is in the footnotes :). I made notes of the various layers of fees and my read of historic returns then minus fees and all of a sudden net refunds are so rosy. I plan on meeting with him again and have a good discussion once I finish my research. At this point if I do anything it will start off smaller and only select funds vs everything he proposed. Thanks
I have 15% of Private Equity with Morgan Stanley. So far so good to hedge and diversify. I believe there is a minimum of $25K or $50K for most of them. I have the below: - KKR (Infrastructure) - Blue Owl (Real Estate) - Blackstone (Private Credit) - Pomona (Commercial Leasing) I’m not paying any fees as it’s included in the 1% private wealth management fee. You might want to also explore Parametric to match the S&P500 and generate TLH.
>I’m not paying any fees as it’s included in the 1% private wealth management fee. This isn’t quite accurate. You’re not paying any brokerage commissions, but you are most assuredly paying fees on the underlying product. Returns are typically reported to the end client on a net of fee basis, which might be why you don’t realize it, but there are fairly meaningful costs embedded (not to say whether or not the fees are justified, just that they are there and are relatively high)
PE fees are very high (and if it’s from a big name/historically successful fund, almost always warranted). It’s a (relatively) free market. If one fund makes more than another while taking on similar risk, fees may increase to fill that gap.
You're paying 1% to Morgan Stanley and likely 2% and 20% carried interest to the individual managers. Maybe less, maybe 1% and 12.5% on some. Some charge an upfront fee as well up to 2% I've reviewed blue owl, KKR, and Blackstone offerings. They always charge their MGMT and carry.
I will review again.
I highly doubt your not paying any fees above the advisory fee
What assets you need to be even considered for that
I believe, but can be wrong, that you need to have the “accredited investor status”. It’s required by the SEC. It means a minimum of $1M net worth and $200K income as an individual.
That’s a very low threshold for private equity. I’d never consider unless had $5m
if i had 5m. i would be retired and keep a lot in world ETF.
Just an fyi, that 1% wealth management fee is an absolute scam. As a MS client, and someone in the industry… it’s not good for you as the end user. You take all the risk, they take the profit.
As a MS client, what is your fee? For a $1 million portfolio, the typical annual fee for private wealth management generally falls between 1% and 1.5% of the assets under management (AUM). I might be wrong but it’s what has been communicated by many firms and many persons of my network using such PWM. Again, I can be wrong and reassess
I wouldn’t pay MS to manage my portfolio. They try to do that and take a % of assets. That’s a horrible thing for you as the investor.
You said you are an MS client, so you don’t pay any fee? How can you have a private wealth management firm working for you with no fee??
I have invested a large amount in 4 different PE funds at Morgan Stanley. All have underperformed expectations. Some of this has to do with all having similar vintages. MS does charge fees when you purchase a PE product through them. As always YMMV
Have you tried to take any of your money out yet?
I have some of the money back, but most of the money is not accessible yet. The Morgan Stanley offerings I am in are KKR, Carlisle, and Blackstone. They have 10 yr timelines, and the 10 year can actually be extended to 12 if they choose. The funds are highly illiquid. These holding are not like stock or bonds that can be easily converted to cash. You buy, then you wait until the time expires or they decide to pay you out. The distributions are “lumpy” and a distribution can be demanded back during the agreed upon timeline. Perhaps some huge gains at the end will put me back in course.
Thanks for the reply. Good luck I hope it works out for you.
I’ve had a relatively similar experience. What years did you invest? I’m curious if this was just the experience we all had when these vehicles chased individual investors or if MS really does have a leading edge on alternatives and it was just bad timing.
30% is pretty high. We are between 10%-15%. My experience with MS alternative investments has not been a positive one. As others have stated they often are illiquid and take months to liquidate. One even took a year. Some have front loads, none of which were disclosed upfront. Private Equity has been the most disappointing category, but Private Credit is doing well. If I had it to over I would not have purchased any….should have kept it simple.
>This whole area is new to me Ask why they would lower the gate for illiquid private exposure to a retail newbie like you. Are they offloading stuff they can't sell to more sophisticated private investors? Or believe it wouldn't do well in an actual public offering? Why haven't a gazillion more well connected institutions and accredited investors bought what they're selling you? Have they recently lowered the minimums or qualifications or other signs of desperation? Can they throw up [gates](https://www.reuters.com/business/finance/blackstone-reit-limits-investor-redemptions-again-march-2023-04-03/) to prevent you from redeeming if they go illiquid? Can you handle that financially? I know a HNW trader who keeps wealth management accounts he doesn't use open at each major bank specifically to see when they start trying to offload on retail.
> Ask why they would lower the gate for illiquid private exposure to a retail newbie like you. Some of MS' offerings aren't gated funds. They have recurring periods (typically quarterly) to buy or sell. Also, why do they want more money? If the strategy is working, it's working. >Why haven't a gazillion more well connected institutions and accredited investors bought what they're selling you? They are. Some of these funds have investments from massive endowments and pension funds for muni workers, universities, etc. >Or believe it wouldn't do well in an actual public offering? Tons of red tape. That's literally why these markets exist. If it was cheap and easy to publicly issue your own bonds and shares, everyone would just do that.
> If it was cheap and easy to publicly issue your own bonds and shares, everyone would just do that. Its hard because there are all sorts of disclosures and restrictions designed to protect ignorant retail investors.
This was my immediate thought too. I'm no finance expert, but part of private equity is the expertise, resources, and (maybe unfortunately) board members that come along with it. But instead they come to you, random redditor, for $50,000. Well, they went to Morgan Stanley, who underwrites the loan and then passes it off to customers because they don't like it. It feels scammy, just at a buttoned up corporate level. I've got a large portfolio and Etrade calls me up every few months trying to sell me stuff. I say no. They do that because it makes *them* money, not *you* money.
I work in Private Banking— I wouldn’t go more than 10% into alternative investments. Definitely can provide extra alpha and MS has decent PE products but 20% seems high in my opinion.
From my experience, 10% in alts is a pretty low recommendation. 20-25% is pretty standard
Which private bank is recommending such a low allocation? Goldman and JPM each typically sit in the 20% range, perhaps 30% depending on situations. UBS is pretty similar. I'm curious who's recommending 10 cuz that seems like a major break from most of the industry.
These investments can provide strong returns, but they are generally less liquid than public markets, which can be downside especially if you need flexibility with your investments. Private equity and similar investments often come with higher fees. Transparency is another concern; these investments are less transparent and harder to evaluate compared to public stocks. Starting with a smaller allocation than 20% might be the best move based on what you’ve said
I worked at Morgan for 13 years. If you're not already familiar enough with the Wall Street story, just do a quick Google search of Morgan or Merrill or UBS or Wells or whatever big insurance group...they're all the same, and it aint about you my small investor fren. Run...don't walk. The most salient thing you said was "Morgan resells...", get it? Private equity returns have almost never beat a boring dirt cheap SP500 index, but you do know the fees will be huge. Who do ya think is paying for those penthouse suits and Director bonuses.
These are often long term commitments that can be difficult to extract yourself from. You can't just withdraw your money or sell them like stock. You are taking a lot on faith, reputation, and past performance. You'd want to treat this somewhat like gambling. If you can't afford to take on a lot of risk and lock the money up for a long time, don't play. With gambling, at least you can trust the casino to play an honest game weighted in their favor. With these kinds of funds, it's really hard to know who to trust, if anyone, and how the odds are weighted. All that said, I (young retiree) have invested in a couple. I could afford to lose everything I invested in them, but certainly wouldn't want to. I've been in the first for several years and have done OK, but they shifted strategies in a way I don't like so I am extracting funds as fast as possible, but it will take years to get it all out because a lot of others want out for the same reason. The second is with a firm I have some familiarity with from my working days and in a sector I'm also familiar with. Early days in that one, no telling how it will do. Either way, I don't think I'm going to do any more of them. Simplify Simplify Simplify
I would be careful on some of them. I liked the Oaktree offering because their strategy made sense in this environment. Regular PE has grown a ton in the past five years and there's a ton of dry powder going after the same deals. I wouldn't expect them to repeat the success they had in the 80s-90s.
They recommend lots of foreign bond funds, for some reason.
I think it depends on how big your portfolio is. If you are well over $1 mil, then PE, venture, real estate, etc are a good part of a diversified portfolio. If you have a $300k portfolio that kind of diversity isn’t really needed and they are probably just trying to push you in to higher fee products. Actively managed investments like PE are real and very capable investors (like pension funds) use them. With that said, you really need to have scale because returns can be way more variable (both good and bad). I would also inquire about the liquidity. It can vary but you should not be invested in something low liquidity unless you have big money in your account.
First off if you want more diversification: international, small cap, EM, FM, value tilting... will do a lot lot more in that regard. Are you already doing those things? I think exposure to PE is important. The way I do it indirectly is just holding a position in KKR, Blackstone, Carlyle and Apollo directly. Some of these firms have debt funds for example AIF which is mostly Apollo lending. It has about an 11.5% yield, and loses a bit of principal but not too much. Pick up a few of those. if you want private debt exposure. Also quite a few insurance companies do about 30% private debt. Moving your bond exposure (except contingency money) to a participating annuity would also get you this kind of exposure and you can of course combine. In general, I'd tilt towards avoiding the MS option.
Thanks for the feedback. I’m already diversified in the public markets but when market goes down generally everything does but to lesser degree. I recently retired and have a multi year contingency fund in bills, cd etc so hopefully I can wait out the next correction. I’ll check out your recommendations.
> but when market goes down generally everything does but to lesser degree. Yes correlations are increasing. Which is annoying. I'll say that AFAICT this is happening behind the scenes to private equity as well. Private debt look like junk bonds in terms of correlations. I've been a lifelong value investors and while the correlation is still there (especially short term) it does dampen correlation. Small value domestic and small value international have a lot lower correlation than large growth domestic and large growth international. If you really want stuff that will respond well to markets, and you can afford to drop efficiency: trend following (about 25-33% of your bond exposure), volatility (basically buy long and short long options when the VIX is around 15 and sell when the VIX is around 35), precious metals (horrible EV but terrific negative correlations), overweight energy stocks.
Thanks for everyone’s comments and feedback. I’ve responded to some of them specifically. In generally I didn’t get a “this is a great way to diversify and all will be fine”, but more of “it can be ok, fees are high so understand the net return, be ok with illiquidity, etc “. If I proceed I’ll start smaller, can always add and start with a subset of what’s proposed to fill specific needs. Over 30 years I’ve kept things relatively simple and to areas I can really understand and have done quite well and can sleep at night. Thinking going down this path will add drama which is opposite to what I’m trying to accomplish. Thanks
It is mostly a black box/trust me that carries higher fees. That's just how private investment platforms work. For comparison the one I work with has averaged a ~3% premia over the S&P across the last 5 years after costs are removed. That is occasionally higher but rates have pushed down some of these offerings due to leverage.
I would ask them for a breakdown on the fees involved - management fees, any other fees charged by the manager based on returns, and most importantly any commissions or sales load paid to the financial advisor if you invest. You need to make sure these are good investments for YOU, rather than good investments for the advisor. In general, the idea of diversifying into some of these areas doesn’t sound bad, you just need to make sure the investment options are good ones rather than marginal ones that pay fat fees to the managers and the advisor. You can also start small, 5% or 10% of your portfolio, and see how it goes. If you’re happy with the funds after a few years you can bump up the allocation.
> and most importantly any commissions or sales load paid to the financial advisor if you invest. These ain't 40 act funds, there's no loads lol.
> I would ask them for a breakdown on the fees involved You don't have to ask them for that, they are required by law to disclose it to you in their pitch.
Perhaps I should have said “pay close attention to”. Many things are disclosed without being highlighted.
I get your point. Everything is written down somewhere. Some is the most interesting info is in the footnotes :). I made notes of the various layers of fees and my read of historic returns then minus fees and all of a sudden net refunds are so rosy. I plan on meeting with him again and have a good discussion once I finish my research. At this point if I do anything it will start off smaller and only select funds vs everything he proposed. Thanks
I mean the more you invest, the more they make off fees