Diversify your portfolio and beat inflation with a hybrid investment of US T-bills and pre-IPO shares
Investors are navigating many uncertainties right now. Inflation. Recession. Rate hikes. Bank runs. And as a result, many have fled to the “safety” of: cash.
Yes, the yields of some Treasuries and savings accounts are outperforming the returns of a traditional 60/40 portfolio these days. But that’s not hard to do in the current market environment, and it’s still not outpacing inflation. The reality is that investors need to be more creative in seeking equity-like returns by diversifying into alternative investments just like the super-rich do.
“Investing in the private markets appeals to non-institutional investors for the same reasons that it does to institutional ones,” confirms the McKinsey Global Private Markets Review 2023. “The potential for higher returns, lower correlation with public equity markets, and access to otherwise inaccessible markets and strategies.”
Fortune magazine echoed the appeal of private markets in their article titled Private equity will still outperform public markets in the next recession: “Data from academics and various providers analyzing PE returns historically shows that PE outperforms public markets throughout business cycles, with the internal rate of return (IRR) picking up considerably following recessions. Our analysis shows that deals from top-quartile vintages raised around the global financial crisis generated a 61% IRR. By contrast, the S&P 500’s annual return in 2008 was -38%.”
But what exactly can private markets do for spooked investors enduring inflation and ever-rising rates?
Diversification. Specifically, a discounted crossover opportunity can combine private investment securities with a structured interest rate hedge to diversify risk across two asset classes. You increase the possibility of positive return while protecting your principal investment. The MarketX Ventures Inflation Hedge Structured Product offers just that in a single investment providing one structured, risk-adjusted return.
Let’s Use an Example
Imagine you invest $2,000 in a hybrid product that allocates half to an interest rate-hedged product and the other half to shares of a pre-IPO company. You hold the product for two years.
Worst case scenario at the end of those two years: the company doesn’t IPO or get acquired. But the rate-hedge allocation increases with US Fed rates and is considered AAA rated, so your investment is worth about $1,100 — a maximum loss of 45% (assuming a 5% compound annual growth rate).
But on the upside, pre-IPO companies can return as much as 100% when triggering an exit event, potentially growing your initial $2,000 investment to $3,100 in just two years’ time — a potential 24.5% annualized return.* That’s the power of diversification.
