Personal Investments for Buyside folks

Based on the most helpful WSO content, your question touches on a common debate among buyside professionals regarding personal investments. Here's a breakdown of the key considerations:

1. Private Markets vs. Public Markets:

   • Private markets (e.g., property, angel investments, search funds) can offer leverage, tax efficiency, and potentially higher returns. However, they come with illiquidity, higher risk, and often require specialized knowledge or access to deal flow.
   • Public markets (e.g., SPY/index funds) are more liquid, transparent, and efficient but lack the leverage and tax benefits of private investments. They also tend to have lower expected returns compared to some private market opportunities.

2. Leverage and Tax Efficiency:

   • Real estate investments, for instance, allow for significant leverage and tax advantages (e.g., depreciation, 1031 exchanges). These can amplify returns if managed well.
   • Angel investments or private equity can also offer tax benefits, such as Qualified Small Business Stock (QSBS) exemptions, but they carry higher risk and require careful due diligence.

3. Career vs. Investments:

   • Many buyside professionals focus on excelling in their careers, as the compounding effect of bonuses and carried interest can often outpace personal investment returns.
   • However, diversifying into private markets can be a way to hedge against career risk or market downturns, especially if you have access to unique deal flow.

4. Equity Risk Premium Outlook:

   • If you anticipate a lower equity risk premium over the next 5-10 years, diversifying into private markets or alternative asset classes could make sense. However, this requires a strong understanding of the risks and potential compliance issues.

5. Compliance Considerations:

   • For buyside professionals, compliance can be a significant hurdle when investing in private markets. Ensuring that investments do not conflict with your firm's policies is critical.

6. Balanced Approach:

   • A hybrid strategy might be optimal: maintaining a core allocation to low-cost index funds for liquidity and stability while selectively investing in private markets or alternative assets where you have expertise or access to high-quality opportunities.

Ultimately, the decision depends on your risk tolerance, access to private deal flow, and long-term financial goals. Many HNWIs and buyside professionals use a mix of both strategies to balance liquidity, risk, and return potential.

Sources: Is Private Equity a Low-IQ Approach to Finance?, Is Private Equity a Low-IQ Approach to Finance?, January 2016 Data Update 1: The US Equity Markets, , Why are private markets outperforming public markets?