US Private Equity Funds: An opportunity for investors to achieve portfolio diversification – Investing Abroad News

By Adam Greene

Many Indian investors have considered investing overseas to achieve portfolio diversification. Investing in US commercial real estate funds can be a particularly attractive option. In addition to shifting some assets to stable, US dollar-denominated assets, a portfolio of commercial real estate assets should provide less volatile returns than a single residential home or single asset commercial real estate transactions.

Benefits of Debt Investments

Investing in commercial real estate debt involves providing loans to property owners or developers. This strategy brings forth several key benefits:

Predictable Income: Debt investors typically earn consistent interest income from the loans they provide. This dependable income stream can particularly appeal to income-oriented investors, such as retirees.

Lower Risk Profile: Debt investments are considered less risky than equity investments. As a lender, you have a priority claim on the property’s income and assets, reducing exposure to market volatility.

Asset-Backed Security: Commercial real estate debt is secured by physical assets, which serve as collateral, providing an added layer of security for investors in the event of default.

Steady Cash Flow: Debt investments often have fixed interest rates and regular payment schedules, allowing investors to plan their income with greater certainty.

Benefits of Equity Investments

The Appeal of Equity Investments involves owning a stake in the property itself. Here are the notable advantages of equity investments:

Potential for Higher Returns: Equity investors benefit from the property’s appreciation in value over time. In addition to rental income, they can earn significant profits when the property is sold.

Diversification: Investing in commercial real estate equity allows investors to diversify their portfolios further as they gain exposure to physical assets that may behave differently than traditional financial assets.

Control and Decision-Making: Equity investors often have a say in property management and strategic decisions, allowing for more active involvement and influence over the asset’s performance.

Tax Benefits: Equity investors can use tax deductions, such as depreciation and interest expenses, to reduce their taxable income.

A savvy investor can further optimize their portfolio by diversifying across both debt and equity investments in commercial real estate. This hybrid approach balances stable income from debt investments with the potential for higher returns from equity investments. It is particularly appealing in times of economic uncertainty, providing a hedge against market volatility and multiple avenues for wealth generation.

Advantages of US Private Equity Funds

Private equity real estate funds in the United States provide an opportunity for investors to diversify in two ways. First, by diversifying away from ordinary, publicly-traded debt and equity securities, investors can earn returns that are uncorrelated to the broader stock market. Second, by investing in a fund with professional management, investors can earn returns that are less volatile than single-asset investing while benefiting from the expertise and experience of the management team.

When looking to invest with a fund manager, consider the track record of the fund as a whole, and the experience of the individual executives on the team. In your due diligence, understand the investment process of the manager: how do they identify, underwrite, close, and administer individual transactions? Do they have a meaningful focus based on their experience? Have they established a successful track record?

Answering these questions will get you on the path to finding a reputable fund manager motivated to protect and grow your investment. It’s not easy to invest overseas, but with the right knowledge and partner, it can be a very rewarding experience.

(Author is EVP Peachtree Group)