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3 Reasons Why Private Funds are Useful During a Downturn

Updated: Nov 14, 2022

Investing in a private fund is one of the best ways to diversify and reduce your risk, especially when economic conditions are less than favorable.

If you’re concerned about your portfolio’s performance over the coming months, you’re certainly not alone.


When the economy slows down, many people take it as a sign that they should stop investing in new opportunities. But in fact, there’s no better time to take a look at your existing portfolio and make strategic adjustments that will help you weather the storms on the horizon.


Private funds are a particularly strong investment opportunity in today’s climate, especially if you’re heavily invested in the stock market. In this article, we’ll cover three key reasons why private funds are uniquely positioned to perform well in a downturn.

1. Alternative Investments are Not Correlated to the Stock Market

If the bulk of your investment portfolio or retirement account is made up of stocks, mutual funds and ETFs, then its performance will be entirely correlated to the broader stock market, which is volatile and often unpredictable. Most people understand this, but many still don’t explore alternative investment strategies because they don't know where to start.


Private funds, like the ones on the Avestor platform, are one of the simplest ways to access alternative investment opportunities, including debt financing and recession-resistant real estate classes such as multifamily and self-storage. With over 25 funds to select from, investors have an opportunity to find a fund manager that aligns with their investment goals.


The performance of these funds is not correlated to the fluctuations of the stock market, and so they can add a level of stability to your portfolio that is otherwise difficult to achieve.


2. Diversifying Your Portfolio Can Reduce Your Risk

Most investors understand that diversification is a valuable way to reduce your risk. But for many, the high investment minimums for traditional private investments such as real estate and angel investments make it difficult to put that principle into practice. So instead, they take the easy route, keeping all their capital in the stock market.


Avestor has solved this problem with a first-of-its-kind solution combining the best attributes of a fund and a deal-by-deal investment. When you invest in a private fund on the Avestor platform, every deal is fractionalized, allowing you to invest smaller amounts in multiple deals.


As a result, you have the option to diversify your portfolio across different markets, asset classes, investment strategies, and even time horizons.


3. Knowing Who You Invest with Provides Peace of Mind

When you invest in a private fund, you know exactly who you’re giving your money to. You have an opportunity to build a relationship with the fund manager, understand their plans and then decide if they align to your goals. In addition, private funds are smaller than many other investment groups — most of the funds on Avestor’s platform are capped at 99 investors to comply with SEC regulations — so it’s much easier for an investor to build a personal relationship with the fund manager.


Having a direct relationship with the fund manager will give you greater peace of mind, especially when economic conditions are poor. You can call, email, or text your fund manager, using them as a resource for getting questions answered and discovering new investment opportunities you would not find out about otherwise.


If you’re interested in learning more about the private funds on Avestor and the way they can help you prepare for the coming months, please visit our fund marketplace. Here you’ll find an overview of each fund on our platform, and a chance to get in touch with the fund manager directly.

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