Key topics:
- SWAN highlights challenges in global equities and the need for diversification.
- US multifamily real estate offers strong demand and long-term investment appeal.
- SWAN’s strategy targets high-growth cities with local developer partnerships.
Understanding the case for diversification into private assets
This content is brought to you by Swan Wealth Management
Authored by Steven Nathan and Dave Murray
Global equity returns face return challenges
For the past two decades, global equities—specifically US equities—have delivered exceptional returns. The S&P 500, driven by technology giants and strong corporate earnings, has given investors above-average gains. However, SWAN Wealth Management (SWAN) believes these extraordinary returns will unlikely be sustained in the coming years due to valuation pressures and evolving macroeconomic challenges.
A key indicator supporting this view is current valuation levels. The S&P 500 trades at a price-to-earnings (P/E) multiple of c.28 times, significantly higher than its long-term average of around 15 times. Elevated valuations have, in previous cycles, preceded periods of lower returns. Corporate profit margins have also experienced record highs, fuelled by technology sector advances and inflation-driven price adjustments. High earnings growth expectations run the risk of uncertain future margin trends, given rising labour cost pressure, geopolitical risks and fast-evolving regulations, competition and trade policies (tariffs).
Given these factors, investors must evaluate diversified asset classes beyond traditional public markets to mitigate risks and enhance long-term wealth preservation. Private assets, including real estate, have historically provided low-correlated returns vs traditional equity and bond portfolios, offering risk-adjusted return benefits, particularly during periods of public market underperformance.
Selecting the right private asset class
As investors increasingly seek alternatives, the private asset market has gained momentum, particularly among institutional investors such as family offices and endowments and individuals in the high-net-worth (HNW) segment. This trend has been underpinned by investors favouring private assets for their relative resilience, long-term value retention, and structural investment focus advantages. Data shows that high-net-worth individuals, family offices, and institutional investors like endowments have allocated a larger portion of their portfolios to private investments in recent years. Against a backdrop of evolving socio-politics and Moore’s Law trends of increasing rates of technological change, investments in real assets offering yield and capital appreciation opportunities present powerful portfolio diversification opportunities.
However, investing in private assets requires a careful approach. Private asset investments often offer lower liquidity, longer investment horizons, and incorporate additional due diligence requirements. Unlike publicly traded securities, private asset markets are highly fragmented, making it difficult for investors to access high-quality opportunities. Additionally, private asset investments often come with high fees and complex structures. Investors must work with experienced asset managers to navigate these complexities effectively.
Selecting the right sector and an efficient investment structure is crucial for those considering private assets. Due to strong demand fundamentals and relatively stable income-generating potential, SWAN identifies US multi-family real estate (rental apartment developments) as an attractive private asset class.
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Select private US real estate investment opportunities
SWAN Wealth Management is a registered Financial Services Provider (FSP 53253). However, this investment opportunity is not classified as a Collective Investment Scheme (CIS) under CISCA, and investors should seek independent financial and tax advice before making any investment decisions. This article is for informational purposes only and does not constitute financial advice or an investment offer. Past performance does not indicate future results, and investments in private real estate carry risks, including potential loss of capital.
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