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Portfolio > Alternative Investments > Private Equity

Ric Edelman: Advisors Shouldn't Ignore Bitcoin, Blockchain

By Bernice Napach By Janet Levaux

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Most financial advisors are “fairly oblivious to blockchain” and “hesitant to invest client money in Bitcoin,” but they shouldn’t be, says Ric Edelman, founder of Edelman Financial Engines and the RIA Digital Assets Council.

The open-source decentralized database, or ledger, is “the most important innovation since the introduction of the magnetic strip” used in credit card technology, Edelman said. The data is accessible and once verified cannot be changed, explained Edelman, who spoke at the Inside ETFs conference.

“Imagine a spreadsheet that anyone has access to and then everyone else verifies the data and once verified the data is frozen,” he said.

With verification, blockchain data can be trusted, which eliminates the need for intermediaries like title insurance companies, speeds up transactions and lowers costs, said Edelman. He expects blockchain will eliminate the “trust industry,” ending the need for real estate agents, ticket resellers, etc., replacing it with an “authentication economy.”

Blockchain was invented to serve as the public transaction ledger of Bitcoin, which Edelman also expects to grow.

He also mentioned that some states are accepting Bitcoin for business tax payments, but Ohio, the first and only state to do so, ended its pilot program late last year due to a competitive bidding problem. The New Hampshire legislature recently killed a bill that would have allowed its state treasurer to develop a mechanism for Bitcoin tax payments.

Bitcoin is a favored asset among millennials, according to Edelman, who cited a Schwab report about self-directed retirement investors. The Grayscale Bitcoin Trust was the fifth largest holding for millennial investors in the Schwab Personal Choice Retirement program, accounting for almost 2% of assets.

“Bitcoin is worthy of consideration in your portfolios,” said Edelman, noting that a lot of financial advisors hesitate to invest client funds in Bitcoin for fear of volatility and zero gains. “What is the likelihood of sustained volatility in the future for Bitcoin? That’s what we have to ask ourselves.”

Vanguard Moves Into PE

Vanguard’s Institutional Advisory Services unit will join up with HarbourVest to provide private equity strategies to pensions, endowments and foundations.

“While this strategy will be initially available to institutional advised clients, we aim to expand access to investors in additional channels over time,” according to Vanguard CEO Tim Buckley. “For individual investors in particular, this partnership will present an incredible opportunity — access and terms they could not get on their own.”

While Vanguard works with some $6.2 trillion in assets, HarbourVest manages about $68 billion in assets held in primary fund investments, secondary investments and co-investments in separately managed accounts or commingled funds.

Many institutions often find it “challenging to access leading private equity managers and invest with discipline and skill,” said Chris Philips, head of Vanguard Institutional Advisory Services, in a statement.

The tie-up combines Vanguard’s capabilities and “HarbourVest’s private market expertise, to the ultimate benefit of our clients.”

According to the CFA Institute, the private equity industry grew more than 500% from 2000 to 2019 and is valued at over $3 trillion.

Private equity funds are typically open only to accredited investors, which the Securities and Exchange Commission defines as those who have more than $200,000 in yearly earned income (or $300,000 together with a spouse) over the past two years and expects to have this income in the current year, or has a net worth that is over $1 million, either alone or with a spouse (excluding the value of the primary residence).

Trusts with more than $5 million in assets also are considered accredited investors. The SEC, though, is proposing to amend this definition to add new categories of qualifying individuals and entities

ThinkAdvisor.com Senior Writer Bernice Napach can be reached at [email protected]. Janet Levaux is editor-in-chief of Investment Advisor. She can be reached at [email protected].

Bernice Napach

@Think_Napach

Janet Levaux

@Think_JanetL

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