What Your Financial Advisor Isn't Telling You About Private Investments

Your advisor calls with an opportunity:

"We have access to an exclusive private equity fund. Minimum investment is $100,000. It's only available to accredited investors, and the allocation is limited. Interested?"

It sounds sophisticated. Exclusive. The kind of opportunity that separates you from retail investors.

But here's the question most investors never ask:

Why is your advisor recommending this specific fund?

Is it because it's genuinely the best fit for your portfolio, risk tolerance, and goals?

Or is it because your advisor gets paid more to sell it?

Welcome to the uncomfortable truth about private investments: the industry is riddled with conflicts of interest, opaque fee structures, and recommendations driven more by compensation than client outcomes.

This isn't about demonizing advisors. Many are well-intentioned. But the incentive structures in wealth management often reward product sales over fiduciary advice—and private investments are where those conflicts are most pronounced.

Let's talk about what your advisor might not be telling you.

The Private Investment Landscape: What You're Actually Buying

First, let's clarify what we mean by "private investments."

Private investments include:

• Private equity: Ownership stakes in private companies, typically held for 7–12 years

• Private credit: Loans to private companies, typically held for 3–7 years

• Hedge funds: Pooled investment funds using diverse strategies (long/short equity, global macro, event-driven, etc.)

• Real estate funds: Pooled investments in commercial or residential real estate

• Qualified Opportunity Zones (QOZs): Tax-advantaged investments in designated economically distressed areas

• 1031 DSTs (Delaware Statutory Trusts): Real estate investments used for tax-deferred exchanges

These can be valuable portfolio components. They offer:

• Diversification beyond public markets

• Access to strategies and asset classes unavailable in mutual funds or ETFs

• Potential for higher returns (with commensurately higher risk)

• Tax advantages in some cases

But they also come with:

• Illiquidity (your money is locked up for years)

• Complexity (difficult to understand and evaluate)

• High fees (often layered and opaque)

• Significant conflicts of interest in how they're sold

That last point is what we need to unpack.

The Conflicts of Interest Your Advisor May Not Disclose

Here's the uncomfortable reality: many advisors are incentivized to recommend certain private investments over others—not because they're better for you, but because they're more profitable for the advisor or their firm.

1. Commission-Based Compensation

Many private investments pay upfront commissions to the advisor who sells them.

Typical commission structures:

• Private equity/credit funds: 1–3% upfront

• Hedge funds: 0–2% upfront (less common, but exists)

• Real estate funds, QOZs, 1031 DSTs: 5–7% upfront

Let's do the math:

If you invest $500,000 in a private equity fund with a 2% commission, your advisor earns $10,000 upfront.

If you invest $500,000 in a 1031 DST with a 6% commission, your advisor earns $30,000 upfront.

Which one do you think gets recommended more often?

The problem:

Commission-based compensation creates a direct financial incentive to recommend higher-commission products, regardless of whether they're the best fit for your portfolio.

2. Revenue Sharing and Shelf Space Fees

Even if your advisor doesn't receive a direct commission, their firm might.

Many private investment sponsors pay revenue sharing or shelf space fees to advisory firms in exchange for access to their clients.

Translation: the investment sponsor is paying your advisor's firm to get in front of you.

How it works:

• Sponsor pays the advisory firm a percentage of assets raised (often 0.25–1% annually)

• The firm puts the sponsor's funds on their "approved list" or "platform"

• Advisors are encouraged (or required) to recommend funds from the approved list

The problem:

Your advisor's recommendations may be limited to funds that pay their firm, not the full universe of available options.

You're not getting unbiased advice—you're getting a curated menu designed to maximize the firm's revenue.

3. Proprietary Products

Some advisory firms create their own private investment funds and then push their advisors to sell them to clients.

Why this is problematic:

• The firm profits twice: once from advisory fees, again from fund management fees

• Advisors face internal pressure to recommend proprietary products over third-party alternatives

• Clients rarely know they're being sold the firm's own product (it's often buried in disclosures)

The problem:

You're not getting independent advice. You're getting a sales pitch for the firm's own product, dressed up as financial planning.

4. Soft Dollar Arrangements and Perks

Some sponsors offer advisors non-cash incentives to recommend their funds:

• Conferences at luxury resorts

• Tickets to sporting events or concerts

• "Educational" trips (that happen to be in desirable vacation destinations)

• Preferred access to future fund offerings

These perks create subtle (or not-so-subtle) biases in favor of certain sponsors.

The problem:

Your advisor's recommendation may be influenced by the golf trip the sponsor paid for, not the quality of the investment.

The Fee Layers You're Not Seeing

Private investments are expensive. But the true cost is often hidden in layers of fees that aren't clearly disclosed.

Layer 1: Advisor Fees

You're paying your advisor an annual fee (typically 1–1.5% of assets under management).

This applies to your private investments just like your public investments.

Layer 2: Fund Management Fees

The private fund itself charges a management fee, typically:

• Private equity/credit: 1.5–2% annually

• Hedge funds: 1.0–2% annually

• Real estate funds: 1–2% annually

Layer 3: Performance Fees (Carried Interest)

Most private funds also charge a performance fee (often called "carried interest" or "incentive allocation"):

• Private equity/credit: 20% of profits above a hurdle rate

• Hedge funds: 20% of profits above a hurdle rate

• Real estate funds: 15–20% of profits above a hurdle rate

Layer 4: Underlying Fees (for fund-of-funds structures)

If you're investing in a fund-of-funds (a fund that invests in other funds), you're paying fees at both levels.

Layer 5: Transaction and Administrative Fees

Many funds charge additional fees for:

• Deal sourcing

• Due diligence

• Legal and administrative costs

• Fund formation and dissolution

The Total Cost

Let's add it up for a typical private equity investment:

• Advisor fee: 1.25%

• Fund management fee: 2%

• Performance fee: 20% of profits

• Administrative fees: 0.5%

Total annual cost: ~3.75% + 20% of profits

For a fund that generates 12% gross returns:

• Gross return: 12%

• Management and admin fees: -3.75%

• Performance fee (20% of remaining 8.25%): -1.65%

• Net return to you: ~6.6%

Nearly half the return went to fees.

The problem:

Most investors never see this math. They see the "12% target return" and assume that's what they'll get.

When Private Investments Make Sense (And When They Don't)

Private investments aren't inherently bad. But they're not right for everyone, and they're not right for every situation.

Private Investments Make Sense When:

1. You Have Sufficient Liquidity Elsewhere

Private investments are illiquid. Your money may be locked up for 3–12 years depending on the fund.

Rule of thumb: You should have 2–3 years of living expenses in liquid assets.

2. You're Seeking True Diversification

Private investments can provide exposure to asset classes, strategies, and return drivers that aren't available in public markets.

Key word: true diversification. If the private fund is just replicating what you can get in a public market ETF, it's not worth the fees and illiquidity.

3. You Have Access to High-Quality Managers

The dispersion of returns in private investments is massive. Top-quartile managers significantly outperform median managers.

The challenge: Getting access to top-quartile managers is difficult. They're often closed to new investors or require very high minimums.

4. The Fees Are Reasonable and Transparent

If the total fee load (advisor + fund management + performance + admin) is eating more than 2–3% annually, the investment needs to generate exceptional returns just to break even with public market alternatives.

5. The Investment Aligns with Your Goals and Risk Tolerance

This sounds obvious, but it's often overlooked. Private investments should fit within your overall financial plan, not be sold as standalone "opportunities."

Private Investments Don't Make Sense When:

1. You Need Liquidity

If there's any chance you'll need the money in the next 5–7 years, don't invest in illiquid private funds.

2. You're Chasing Returns Without Understanding the Risk

High returns come with high risk. Private credit funds promising 10–12% returns are taking credit risk, often in the form of loans to highly leveraged companies.

If you don't understand the risk, don't invest.

3. You're Being Sold Based on "Exclusivity"

Exclusivity doesn't mean quality.

4. The Fees Are Opaque or Excessive

If you can't clearly articulate the total fee structure, don't invest.

If the fees are eating more than 3% annually, the investment needs to be truly exceptional to justify the cost.

5. Your Advisor Can't Explain Why This Specific Fund

If your advisor's pitch is, "This is a great opportunity," but they can't explain:

• Why this fund vs. other similar funds

• How it fits within your overall portfolio

• What the downside scenarios look like

• How they evaluated the manager's track record

…then they're selling, not advising.

The Due Diligence Questions Most Investors Never Ask

Before you invest in any private fund, ask these questions—and demand clear, specific answers.

About the Recommendation:

• Why are you recommending this specific fund?

• What other funds did you consider, and why did you choose this one?

• How does this fit within my overall portfolio and financial plan?

• What percentage of your clients are invested in this fund?

• Are you receiving any compensation (commissions, revenue sharing, perks) for recommending this?

About the Fund:

• What is the fund's strategy, and how is it differentiated?

• What is the manager's track record (net of fees) over a full market cycle?

• What is the total fee structure (management fees, performance fees, administrative fees)?

• What is the expected hold period, and when can I expect liquidity?

• What are the downside scenarios, and how much could I lose?

About the Manager:

• How long has the manager been executing this strategy?

• What is the manager's edge or competitive advantage?

• How does the manager source deals or opportunities?

• What is the manager's alignment (how much of their own money is invested)?

• Can I speak with other investors in the fund?

About the Risks:

• What happens if the fund underperforms?

• What are the liquidity terms (can I redeem early, and at what cost)?

• What is the fund's leverage, and how does that amplify risk?

• What regulatory or tax risks should I be aware of?

If your advisor can't answer these questions clearly and specifically, that's a red flag.

How We Approach Private Investments Differently

We're not anti-private investments. We use them regularly for clients where they make sense.

But we approach them very differently than most advisors.

1. We Start with the Plan, Not the Product

Before we ever discuss a specific private investment, we ask:

• What are your goals?

• What's your risk tolerance?

• What's your liquidity need?

• How does this fit within your overall asset allocation?

If a private investment doesn't clearly advance your wealth plan, we don't recommend it—no matter how "exclusive" or "high-performing" it claims to be.

2. We Have No Proprietary Products

We don't create our own funds. We don't have revenue-sharing agreements with sponsors. We don't get paid more to recommend one fund over another.

3. We Conduct Rigorous, Independent Due Diligence

We don't rely on marketing materials or sponsor presentations.

Our due diligence process includes:

• Manager evaluation: Track record, team stability, investment process, edge

• Strategy analysis: Differentiation, risk/return profile, correlation to other assets

• Fee analysis: Total cost of ownership, comparison to alternatives

• Risk assessment: Downside scenarios, leverage, liquidity terms

• Operational review: Fund structure, compliance, transparency

We've passed on dozens of funds that looked great on paper but didn't hold up under scrutiny.

4. We Negotiate on Your Behalf

For larger clients, we often try to negotiate better terms:

Most individual investors don't know this is possible. We do it routinely.

5. We Monitor and Report Transparently

Private investments are opaque by nature. Sponsors provide quarterly reports (often months after the quarter ends), and the reporting is inconsistent.

We aggregate all your private investments into a single, clear view:

• Current valuation

• Performance (net of all fees)

• Liquidity timeline

• Risk exposure

You always know where you stand.

When Traditional Private Investments Don't Fit: Our Global Macro Strategy

Here's the reality: many investors want exposure to sophisticated hedge fund strategies but don't fit the traditional private investment model.

Maybe you:

• Don't have $100,000+ to lock up for 7–10 years

• Need liquidity and can't afford to have your capital tied up

• Want hedge fund-style diversification without the 2% management fee and 20% performance fee

• Are frustrated by the opacity and complexity of traditional hedge funds

For years, hedge fund strategies were only accessible to ultra-high-net-worth investors willing to pay exorbitant fees and accept complete illiquidity.

We built something different.

Our Global Macro Hedge Fund Strategy: Democratized Access

We developed an in-house global macro strategy that removes the traditional barriers to hedge fund investing:

No 2% management fee. No 20% performance fee. No Fund Management Fees.

You pay our standard advisory fee. That's it. No layered fund fees. No performance fees eating into your returns.

Fully liquid.

Unlike traditional hedge funds with multi-year lock-ups, our strategy is implemented using liquid instruments. You have access to your capital.

Completely transparent.

You can see exactly what you own, how it's performing, and why we're positioned the way we are. No quarterly reports three months after the fact. No black box.

Accessible to all clients.

We didn't build this for ultra-high-net-worth investors only. We built it to democratize access to sophisticated hedge fund strategies for everyone.

How It Works

Our global macro strategy tracks economic growth, policies, and inflation dynamics across 50 countries to identify major macro themes and trends.

We then express those views through:

• Asset class allocation (equities, fixed income, commodities, currencies)

• Factor exposure (value, momentum, quality, defensive)

• Geographic and sector positioning

The strategy is:

• Rigorously back-tested using data from the 1980s forward

• Dynamically adjusted based on changing macro conditions

• Implemented using liquid ETFs and equities (no illiquid private funds)

• Integrated with behavioral risk management to avoid common investor pitfalls

The Result

Clients get:

• Hedge fund-style diversification and sophistication

• Without the excessive fees, illiquidity, and opacity

• With full transparency and control

This is what we mean by democratizing access. Sophisticated strategies shouldn't be reserved for the ultra-wealthy or come with predatory fee structures.

If traditional private investments don't fit your situation—whether due to liquidity needs, fee concerns, or portfolio size—our global macro strategy may be the solution.

The Bottom Line: Advice vs. Sales

Here's the fundamental question:

Is your advisor giving you advice, or are they selling you products?

If your advisor:

• Recommends private investments without a clear rationale tied to your financial plan

• Can't explain why this specific fund vs. alternatives

• Receives commissions or revenue sharing for the recommendation

• Pushes proprietary products

• Can't clearly articulate the total fee structure

…then you're being sold, not advised.

Private investments can be valuable portfolio components. But they're complex, illiquid, expensive, and riddled with conflicts of interest.

You deserve an advisor who:

• Puts your interests first (legally and actually)

• Conducts independent due diligence

• Explains the total cost and risk clearly

• Recommends investments because they fit your plan, not because they're profitable to sell

• Offers transparent, cost-effective alternatives when traditional private investments don't fit

If you're not getting that level of transparency and fiduciary care, it's time to ask harder questions—or find a different advisor.

Wondering if your current private investments are truly in your best interest—or if you're paying for someone else's vacation?

We work with high-net-worth families and entrepreneurs to evaluate private investment opportunities with rigorous, independent due diligence. No proprietary products. No hidden commissions. Just transparent, fiduciary advice.

And for clients who want sophisticated hedge fund strategies without the traditional fees, illiquidity, and opacity, we offer our in-house global macro strategy—built to democratize access to institutional-quality investing.

If you'd like a second opinion on your current private investments or want to explore transparent alternatives, we can help.

Explore our Global Macro Strategy: https://www.forecastcapitalmanagement.com/global-macro-strategy

Explore our Private Client services and request a confidential consultation: https://www.forecastcapitalmanagement.com/private-client