By Adam Ponder, co-founder and CEO of Alta Trust.
We researched everyone on the 2021 Forbes 400 Wealthiest Americans. What we found is a HUGE sign of how important the private market is to generating wealth in the United States.
The folks on the list are involved in some really high-profile companies: Microsoft, Walmart, Warner, sports team ownership, etc. There’s one big common denominator amongst these ultra-rich.
They built their wealth through investments in private companies.
Many are now public, but when these founders got started, they were investing in private equity; they were taking a chance on, what was then, a small, private opportunity.
Outside of those who inherited their fortune (90 individuals), the remainder of America’s wealthiest citizens made their fortunes in private investments and real estate.
Here’s the exact breakdown on where the Forbes 400 made their wealth:
- 286 private investments (71.5%)
- 90 inherited (22.5%)
- 23 real estate (5%)
- 0 public investments (0%)
Now, let’s cut out the inherited portion and see how it shakes out:
- 286 private investments (92%)
- 23 real estate (7%)
- 0 public investments (0%)
This data reveals just how much potential there is in private markets to build wealth — 100% of these impressive businessmen and women made their fortunes in real estate and other private investments. AND, if advisers look at their top 10 wealthiest clients, they’ll most likely find a similar story as to where those clients made their money.
The irony in these stats is how few RIAs, asset managers and other professionals actually offer such private investments and make them accessible to their clients. In fact, as of 2021, less than 2% of independent RIAs managed a private fund. Running or simply recommending private investments makes professionals stand out among clients and potential clients.
So why don’t more investment professionals work with private funds?
For starters, the barrier to entry for private investments can be higher than for stocks and bonds. But for professionals whose clients have the necessary assets, private investments such as real estate, hedge funds, private equity and venture capital are more than worth it. Because, as our Fortune 400 folks have demonstrated, the best opportunities to build wealth are in real estate and private investments.
And yes, venturing into a new type of investment takes time and money. But, with diligent research and the right partners, RIAs, asset managers and the like can find ways to best provide access to the right private investments for their clientele. Resources such as this book, Private Funds for Investment Advisers, provide a great starting point for advisers who want to take the leap.
Stocks and bonds are still great, important investments — no one needs to stop investing in them. But let’s face it; the traditional 60/40 stocks and bonds model is not how the wealthiest Americans are building their wealth.
Private investments have the capability to greatly diversify and increase returns on portfolios resulting in a win for professionals and their clients.
About the Author:
Adam Ponder is co-founder and CEO of Alta Trust. Prior to Alta Trust, he co-founded and successfully exited RIA and TPA firms. Now, he is recognized as a leader in the financial services industry who brings innovative ideas to the investment community. His dynamic scope of experience allows him to provide strong strategic guidance to investment advisors. Adam is passionate about helping investment advisors do the right thing for their clients and themselves. Adam craves win-win deals where everyone walks away smiling. Adam, his wife, Nicole and their four kids live in Colorado, where they enjoy hiking in the Rocky Mountains.
Alta Trust Company is a South Dakota chartered trust company with over a decade of success in the industry. They provide innovative, turn-key solutions for establishing private funds. The company also offers collective investment trusts (CITs) and personal trust formation and administration services.
Learn more at TrustAlta.com.