Don't underestimate the value of liquidity

I have a client, John, who has been with me for 16 years. In that time, I have worked in three different companies and John has always moved his business with me. Over the years, his pension has had a few fund managers and went from a pension to an ARF. Through all those moves, there is one constant, his private equity investment.

Now don't get me wrong, it's not a bad investment. It has done alright over the many, many years that he's been invested but it is still there. Luckily this investment only forms a small part of his ARF, so it is nothing more than an inconvenience. But this should act as a warning to people who get blinded by the potential returns of these types of investing. You lose complete control over your money.

Private Equity

Private equity companies are seeing funding opportunities in the retail space. Private equity investments are usually only available to the wealthy i.e. those who can afford to lock up a portion of their money for a prolonged period of time.

When ordinary investors make their pension or regular investment contribution to an insurance company, it is pooled i.e. unit linked. While your €500 contribution isn't enough for a private equity company, if there's thousands paying €500 a month, it is now more attractive. You now have the opportunity to buy into investment opportunities that are not available on the stock market.

But with this is increased risk. You may get the opportunity to buy into a company like Stripe or you may buy into a company that ends up being a dud and you lose all your money. Not all of them are exciting as a tech unicorn company, many of these deals are for mundane investment opportunities that do alright or may lose some of your money. But even if you do get an exciting investment like Stripe, there is no telling when you will get your money back. The first talk of a Stripe IPO was in 2021 and here we are five years later with no indication that they will. That is five years with limited opportunity to sell your holding in the company.

These opportunities come with a price. The typical management fee of a private equity company is 2% with a 20% performance fee (PRSAs cannot hold investments with performance fees) and this is on top of the charges that you are paying your product provider.

Property

Commercial property funds is another asset class where you may find yourself with an inability to access your money. Commercial property funds hold a lot of cash but if there are a flood of withdrawals, the cash reserves become depleted. They obviously don't want to have to sell buildings to fund withdrawals so they put six to 12 month delays in getting your money from the time you put in the request.

If you own an investment property yourself or through a pension, you know how illiquid this is too. You can't sell a room if you need some cash, it's either sell the whole building or nothing. The selling process in Ireland is extremely inefficient too. After going sale agreed, you then need to go through conveyancy, a process that takes months and it notorious for delays. Expect a minimum of three months for the process to be completed.

Structured products

I am not a fan of structured products. One of the many reasons why I dislike them is their illiquid nature. The investment is for a fixed term, usually four to five years. No matter how well the markets do in that period, you cannot cash in your investment. Some structured products do have a facility for early redemption but this is at the promoters discretion, not yours. These are really complex products and there is no ability to sell your investment on the market.

Equities and bonds

If you invest in equities or bonds you can sell out overnight. If you want your money, once the trade has settled, your money can be paid out. With an efficient provider, the money will be in your bank account within a week.

Don't underestimate the ability to access your money quickly.

Steven Barrett

10 March 2025