As an owner of a family business, you already have direct ownership and intimate knowledge of a private investment — that is, an investment not traded on a public exchange. Beyond equity in the business, you may also own company-related real estate or have non-traditional financing arrangements.

All these holdings are considered private investments and put you as a family business owner in a unique position when evaluating how you invest the capital that doesn’t get reinvested into the family enterprise.

Why Does Private Investing Matter?

Over the past 25 years, the numbe of publicly traded companies has declined from around 7,000 in 2000 to approximately 4,000 today. At the same time, private fund investments have increased from just under $1 billion in assets to about $15 trillion.

Several factors are driving companies to stay private longer:

• Regulatory costs
• Mergers and acquisitions
• Reduced reliance on public markets to finance growth
• Pressure to deliver short-term results to shareholders

The evolution of the private markets and widening availability of these investment opportunities to a broader pool of investors also suggest future return opportunities may be meaningfully different than what has been recognized in the past.

Understanding Your Family’s Exposure to Private Assets

As a family business owner, you’re already an investor in private markets, often in a highly concentrated way. It’s important to understand what that means for your broader financial picture.

Because these holdings are typically illiquid and concentrated, it’s important to consider how they affect the rest of your portfolio. Private investments outside the business may offer diversification and growth, but they can also add complexity and risk.

The key is understanding how all your private assets work together and where additional exposure may help or hurt your overall financial goals.

Understanding how your private assets align with your long-term financial goals can help you make more informed decisions.

The Historical Case for Private Investments

Private equity, private real estate, and private credit are three core asset classes within private markets. Each asset class carries an idiosyncratic history of risk and return. You can gain exposure through vehicles such as interval funds, private partnerships, and secondary markets.

Historically, adding exposure to private asset classes has been shown to improve the risk/return characteristics of some portfolios. However, results vary depending on each investor’s overall financial picture and tolerance for illiquidity and complexity.

Key Risks Associated with Private Investments

Every type of private investment carries its own set of complex factors to consider. Aside from the pure investment risk associated with each opportunity, investors need to consider the potential for illiquidity, higher fees, limited transparency, and complicated income tax and estate planning.

For example, as tempting as an 8% preferred return in a private placement may be, it could come with hidden burdens, such as:

• The need to file tax returns in multiple states
• Pay for additional compliance services
• Deal with the likely illiquidity when managing your estate planning considerations

The opportunity may still be worthwhile, but it's important to evaluate the full scope of potential trade-offs before investing.

Another interesting factor largely unique to private investments is the timing of valuations. Public market investments are valued every day the market is open. Private investments are not.

Does the lack of daily pricing mean the value of the asset is not changing? It may seem so, but in reality, the price a willing buyer and seller may agree to is likely to change much more frequently.

Key Takeaways

A thoughtfully sized allocation to private investments has the potential to support long-term portfolio goals, though results depend on many individual factors. Even though the expanding access to private markets may reduce future returns, it’s still wise to evaluate your options.

Professional due diligence is important, especially given the variations in how private investment managers advertise risk and return information differently.

At Aspiriant, we often remind the families we serve that a well-aligned investment strategy can help you navigate those complexities.

Here are a few key questions to consider when thinking about private investment opportunities:

• How does this private investment add value to my current portfolio?
• What are the liquidity constraints or lock-ups?
• Do I have the patience and long-term investment horizon to see it through?
• Am I comfortable with a private investment that isn’t priced regularly?
• What is my exit path and what could go wrong?
• What are the total fees associated with the opportunity?
• How is my advisor compensated for this recommendation?
• How will this impact my annual tax filing requirements?

Investing involves more than just return targets. Your preference around illiquidity, tax complexity, and portfolio balance should guide your decisions.

As private markets continue to evolve, be sure to keep these questions and preferences top of mind to put yourself and your resources precisely where you want them to be.

If you’re evaluating how private investments fit into your overall financial picture, considerworking with a firm that understands the unique complexities of family business ownership. At Aspiriant, we help business owners build thoughtful, long-term strategies that balance opportunity, liquidity, and legacy.