Private Investments

Alternative investments utilize investment strategies and tools that are typically unavailable through traditional investment vehicles, examples include, but are not limited to, applying leverage and investing in illiquid assets. Alternative investments usually have the following characteristics: longer time horizons, limited liquidity, less transparency and regulation, unique legal and tax considerations, and higher fees. By including alternative investments in a portfolio, an investor could improve diversification, provide increased income, or increased return potential.

As a result of the illiquid nature and risks typically associated with alternative investments, SYM considers many different areas when deciding if an allocation to alternative investments is appropriate for a client. While not an exhaustive list, the SYM team evaluates the following characteristics: investor’s risk tolerance, time horizon, percentage of total wealth in illiquid assets, tax complexity, portfolio size, portfolio income requirements, and prior experience with alternative investments.

SYM’s investment team has constructed a private investment model portfolio that incorporates alternative investments into the high risk / capital appreciation bucket and the low risk / capital preservation bucket. The capital appreciation bucket includes a mix of public and alternative investments with the following target weights: 80% public equity investments and 20% private equity. The capital preservation bucket has a similar mix with the following target weights: 80% public fixed income and 20% private debt. SYM has a list of vetted alternative managers that provide exposure to hedge funds, real estate, and other liquid alternative strategies delivering a more customized portfolio to meet specific objectives.

At SYM, we want to remain investors and not speculators. Manager selection is critical when choosing alternative investments as there is a wide dispersion between the top quartile and bottom quartile managers. Furthermore, industry studies show that bottom quartile managers have historically underperformed the respective broad public benchmark. Aligning with the right managers makes all the difference between enhancing portfolio returns and simply being in the asset class. Clients should be even more selective in choosing private investments, as opposed to “throwing some money at an opportunity.”

While allocations to a private equity fund should assume a 15-year fund life, investors can expect to receive distributions, or cash back, from the investment as early as year three of investing in a fund. For planning purposes, SYM assumes a cash flow profile in which investors receive annual distributions that outpace capital calls in year five. Furthermore, SYM assumes that cumulative distributions exceed cumulative capital calls around the seventh year of investing in a fund.

SYM’s preferred private credit investment does not make capital calls and provides investors the ability to obtain a full allocation to the fund daily. The private credit fund is structured as an interval fund which has a daily net asset value (NAV) and provides a monthly income distribution to investors. The fund also offers liquidity on a quarterly basis up to a 5% total fund cap.

At SYM, we write puts when the pay is high and pause when the pay is low (when options are cheap). Within the put writing strategy, an investor acts like the insurance company by providing insurance to other investors against market crashes. SYM generally recommends allocating 25% of the portfolio for the notional principal used in put writing. Depending on personal circumstances, the actual allocation to put writing may be higher or lower.

Put writing should generate frequent, small wins along with infrequent, large losses. For those who participate in the put writing strategy over many years, SYM would expect an occasional “large loss” event as a result of an option being exercised against them. Furthermore, the “large loss” event may occur before the ability to generate a substantial amount of cumulative premium has occurred. At times when the total equity portfolio is down, we recommend investors stay committed to the strategy during volatile times when the large loss events may occur.

Private Equity: The most common vehicle used to invest in the private equity fund is as a “Natural Person” or through a trust. Investors will receive a K-1 tax statement which is usually delayed until the 3rd Quarter of the calendar year which will annually require tax filing extensions.

Private Credit: The private credit fund provides a taxable yield distribution; however, the private credit interval fund can be placed in both non-qualified and qualified accounts. Investors will receive a 1099 tax statement at year end through the custodian.

Put Writing: Put writing must occur in a taxable account containing a margin feature. The premium received from the put option is taxed at short-term capital gains rates.

An investment team member joins your SYM team to provide in-depth details regarding the private investments within the portfolio on a yearly basis.

• SYM utilizes the bucket approach to determine your asset allocation, integrating more asset classes in both high and low risk buckets. And we incorporate your liquidity profile and asset class preferences.
• While all clients receive SYM’s best thinking in their portfolio, the actual results may differ for clients with similar risk and return profiles due to many private investment strategies only being offered during certain time periods.
• SYM will continue to pursue a net of tax and net of fee result, although clients should expect more expensive and complex tax preparation fees due to some of the alternative asset classes.
• SYM is a fee-only fiduciary, with the core values of service, integrity, teamwork, and results. SYM does not charge any additional fees for the alternative investment model or the subsequent investment strategies.