Red door investments refer to private investment opportunities that are not well known to the general public. As an investor looking for alpha, it pays to explore emerging private markets beyond traditional stocks and bonds. This article will uncover what lies behind the ‘red doors’ and provide insights into venturing into private markets.
Private markets outperform public markets
Research shows that over the past 10-15 years, private equity and private debt delivered returns 2-4% higher than public markets. The illiquidity premium and Superior operational value-add by private managers account for the excess returns. As an investor, private markets allow you to tap into this illiquidity premium.
Red doors lead to a world of opportunities
Behind red doors lie a world of private deals that only select investors have access to. Private equity targets earlier stage companies and distressed assets, while private debt finances enterprises and infrastructure projects. Their common appeal is the lack of short-term price volatility that haunts public markets.
Venture through the red door with care
However, private investments come with risks and liquidity constraints. Extensive due diligence and higher investment thresholds are required. The lack of mark-to-market valuations also means a bumpier ride. Overall, adding private markets to your portfolio allows for better risk-adjusted returns, if you have the patience and temperament.
Red door investments open up a new world of opportunities in private markets that could enhance portfolio returns. But they require careful selection and commitment. Venture through the red doors, but with open eyes.