Rethinking Liquidity: Why Private Equity Is No Longer Optional
Challenging the Conventional Approach to Investing
Last week, I had a conversation with a client that left a lasting impact. She is facing terminal health challenges and living on a disability pension. On top of this, she has been advised that she will soon experience hereditary cognitive impairment, leading her to grant power of attorney to her daughter. As she prepares for long-term care—at a relatively young age—she needed to ensure her financial security.
A large portion of her wealth was entrusted to a traditional broker. From the beginning of 2020 to the end of 2022, the total return on that portfolio was just 1.2%. Hearing this made me sick to my stomach—and I told her so.
This is a prime example of how investors become victims of conventional investment thinking. We are told to ride out market volatility, stay the course, and prioritize liquidity. But here’s the truth: the average Waverley investorearned solid, secured, double-digit returns over that same period.
How Much Liquidity Do You Actually Need?
It’s a paradox: we feel the greatest need for liquidity when markets are most volatile. When prices shift rapidly, we want the flexibility to reallocate investments. Yet, when markets unexpectedly decline, the common advice is to stay the course and hold for the long term.
Ironically, when assets appreciate slowly—or even remain stable—investors tend to feel more comfortable holding a larger share of their portfolio with less emphasis on short-term liquidity. However, liquidity comes at a cost. Investors often pay a premium for liquid assets and accept lower returns in exchange.
So, how do we improve returns? By incorporating quality, non-publicly traded assets into a well-diversified portfolio. That’s where private equity comes in.
Following the Smartest Investors in the World
At Waverley, we analyze the strategies of the world’s most successful investors. One key resource is the Tiger 21 Asset Allocation Report, which provides insight into the portfolios of high-net-worth investors.
In Q1 2023, private investments—both private equity and private real estate—accounted for 55% of Tiger 21 members’ portfolios, marking the largest allocation to date. Similarly, the largest, most professionally managed pension plans now allocate nearly half of their portfolios to private assets.
So, if the wealthiest individuals and institutions are thriving in private equity, why do many investment advisors and portfolio managers struggle to introduce this asset class to their clients?
Breaking Away from Traditional Investment Barriers
Many traditional investment firms—especially those within deposit-taking institutions—have difficulty providing clients with access to alternative assets. The opportunities may be too niche or too small for them to participate, leaving investors trapped in conventional strategies with suboptimal returns.
Meanwhile, demand for traditional assets is at an all-time high, creating undervalued opportunities in private and direct investments.
This is where Waverley comes in. While we weren’t the first in this market, our strategic timing has allowed us to grow alongside the expanding private equity landscape.
We believe we’ve reached a pivotal moment—one where allocating to alternative assets is no longer optional but essential.
— Don McDonald, 2023
