By Kurt Nye
Once reserved for institutions and elite investors, private markets have moved into the mainstream as access expands and investors seek new sources of growth and diversification.
But even as private markets expand, not all opportunities are created equal. The qualities that make these investments enticing -- diversification and potential for higher returns -- cannot be disentangled from a long list of risks and considerations, and demand a disciplined, research-driven approach from the financial advisor before presenting them to retail clients.
Equally important is the financial advisor's ability to explain the investment clearly and succinctly to clients. Advisors should remember that they're addressing individuals, not institutions. If they can't articulate how an investment works in plain language -- an elevator pitch that makes sense without a spreadsheet -- it's unlikely to resonate.
Conversely, providing transparency around the structure and trade-offs of these investments is critical. Clients should understand upfront what it means to commit capital to a fund -- especially limitations on liquidity, tax reporting considerations, or the potential need for filing extensions or additional state returns. If those realities come as unwelcome surprises down the line, the investment likely wasn't a good fit to begin with.
Private markets tend to reward patience but can punish complacency and lack of due diligence. Limited transparency, asymmetric information, and illiquidity can distort how risks are perceived and priced. Cliff Asness of AQR Capital has coined the term "volatility laundering" to describe this phenomenon as alternatives such as private-equity holdings are typically valued on a quarterly basis and rely on models and projections. Investors need to appreciate that these aren't the same price discovery processes when compared with real-time pricing for stocks, which reflects market reactions to news and events.
But for advisors with the resources to conduct in-depth diligence, the inefficiency of niche exposures and customized structures becomes a feature, not a bug. Two investments that currently have our attention -- GP staking and triple-net leasing -- have the potential to generate recurring cash flow, minimize the J- curve effect and/or blend multiple sources of return for diversification while still seeking to capture upside.
GP staking. One of the more sophisticated and intriguing corners of private markets, GP staking involves funds that take minority equity positions in alternative asset managers, thereby gaining exposure to multiple return streams: management fees, carried interest, balance sheet investments, and equity appreciation in the underlying businesses.
Because the approach spans multiple asset classes, including private equity, real estate, infrastructure, venture capital, and credit, it can offer diversification that few single funds can match.
The strategy also reduces concentration risk and potentially smooths out returns over time. Unlike traditional fund-of-funds structures that can take years to generate positive cash flow, GP staking can deliver income as early as the next quarter through recurring management fees. That steady stream helps offset the cyclical nature of carried interest payments, while maintaining the potential for equity-like growth. In essence, GP staking allows investors to benefit from the long-term tailwind of private market growth while providing multiple layers of diversification and cash flow.
But GP staking also entails risk -- businesses can fail, valuations may prove too optimistic, and liquidity may be constrained. Therefore these funds should be viewed as a complement -- not a substitute -- to a comprehensive investment plan and investors should commit capital only if they can withstand a total loss.
Triple-net-leasing. An overlooked pocket of opportunity lies in triple-net-leasing $(NNN)$ real estate. In this arrangement, the tenant, perhaps a Fortune 500 company, covers taxes, insurance, and maintenance on a single-tenant commercial building. The landlord receives a predictable income stream with minimal management responsibility. The investor receives healthy monthly distributions and the opportunity for an attractive total return. In fact, cash flow often starts the month after investing.
A typical deal might feature a 15-year lease with a 7.5% cap rate. Compared with the same company's 15-year bond yielding around 5.5%, that is an unlevered spread of roughly 200 basis points. With moderate debt financing (about 60%), total returns can reach 12% to 14%, including current yields hovering near 8%.
Built-in rent escalators, typically around 2% to 3% on an annual basis, can add a surprising amount of cash flow growth. And because tenants shoulder operating expenses, those rent increases flow straight to equity holders. Depreciation also helps offset taxable income, making NNN real estate more tax-efficient than many traditional credit investments.
When diversified across industries, property types, and geographies, this strategy can provide consistent, real-asset-backed income minus the headaches of traditional property management. However, there are risks to consider, including tenants going out of business, costs for property upgrades or repairs, and attracting and retaining tenants.
Opportunities exist in both public and private markets, often at different times. The key lies in executing effectively in both arenas rather than choosing one over the other. Ultimately, advisors earn their role as stewards by proactively bringing well-vetted opportunities to clients or by thoughtfully evaluating ideas clients surface themselves. Keep in mind that failure to take the lead in these conversations opens the door for a competitor to do so.
Kurt Nye is managing partner and CIO at MAI Capital Management , an RIA focused on empowering clients to simplify, protect and grow their wealth.
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(END) Dow Jones Newswires
February 02, 2026 16:45 ET (21:45 GMT)
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