Some deals are not for everyone. High-net-worth investors may prefer to have some of their money in private placements--offerings exempt from registration under the federal securities laws. The lure, of course, is potentially superior returns but seeking those returns means taking on some risks.
“We’re very concerned about illiquidity, which is common in private placements,” says Paul Jacobs, Atlanta-based chief investment officer for Palisades Hudson Financial Group, headquartered in Scarsdale, N.Y. “During the 2008 financial crisis, even some very wealthy investors were clobbered by a lack of liquidity.” Jacobs says that his firm typically keeps private placements to no more than 10% of an HNW client’s portfolio, because of liquidity risk, although that allocation might go as high as 20% or 30% for clients with substantial means and a willingness to bear that risk.
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