Given the outsize performance of the U.S. stock market over the past few years, it may be tempting to cut back or omit alternative investments in portfolios.
But Tom Karsten, CFP and president of Karsten Advisors, makes sure his clients have between 5% and 7% of qualified clients’ assets in venture capital (VC) and private-equity (PE) investments.
The goals of specific alternative investments vary.
A growth-oriented VC fund managed by Raleigh, N.C.-based Hatteras Funds, for instance, has positions in roughly 20 tech companies and returns no income to investors.
In contrast, a PE investment with New York-based GPB Holdings focuses on car dealerships and has an 8% current distribution rate.
Karsten admits that the level of due diligence required to evaluate PE and VC offerings can be daunting. He addresses that by attending conferences about the industries he’s considering and by conducting in-depth research on prospective investments.