Asset Classes for Sale: Secondary Market Assets

As an investment advisor or agent, you have a responsibility to grow your clients’ portfolios and help them achieve financial stability up through and following retirement. Diversification across different asset classes is the key to minimizing risk and increasing the chance of an overall healthy return on investment. The secondary market is one such asset class you may be interested in exploring for your clients.

SMA Hub is a leading wholesale distributor of secondary market assets, especially secondary market annuities. Our company was founded in 2013 by financial industry veterans hoping to provide premier advisors with exclusive access to SMAs.

The wholesale business model of only working with agents and advisors—not retail clients—prevents us from being in direct competition with our distribution channels. In this way, our services provide certainty to advisors. We also thoroughly process any secondary market assets we acquire before putting them up for sale, ensuring quick closing and optimal protection for the end purchaser. The streamlined purchase process also provides proven payment streams and high returns.

Secondary Market Assets

The private equity secondary market is where investors buy and sell pre-existing investment products. The private equity asset class is illiquid, making it ideal for buy-and-hold investors who are prepared to tie up funds in a long-term investment.

The private equity secondary market was once a niche area of secondaries, known for being a hunting ground for bottom feeders seeking distressed assets. However, the market has evolved in the past decade into a vibrant, continuous marketplace that now outpaces the rest of the private equity industry.

Why has this market grown so considerably? Time and acclimatization appear to be the main factors. The uncertainty that existed toward secondary markets in the 1980s has diminished as investors have come to see the benefits of buying and selling secondaries. A tremendous amount of capital is now pouring into the secondary market, giving investors an excellent opportunity to diversify and build portfolios that include valuable private investments.

Buyers may find the secondary market appealing for numerous reasons:

  • The duration of investments may be shorter than investing in similar primary market assets.
  • Payment streams are often available at a lower price than their primary market equivalents.
  • Secondary market assets tend to offer higher returns than other private equity strategies, delivering a highly attractive risk/return profile.
  • It’s possible to evaluate a fund’s holdings before deciding to purchase it, giving the buyer more data on which to base their investment decisions.

Likewise, sellers may turn to the secondary market for a variety of reasons:

  • There’s a need for capital immediately, even if it means accepting cash today for less than the face value of the contract.
  • The seller wants to avoid future capital calls.
  • The seller is looking to reallocate funds to a different asset class or improve the liquidity of their portfolio.
  • Regulatory issues require a seller to put their investment in the secondary market.

SMA Hub helps investors tap into the maturity and stability of the secondary market by offering In-Stock, Off-the-Shelf, and Pre-Order secondary market assets. Not only do we thoroughly review each payment stream before making it available for sale, but we also utilize the professional payment services of GoldStar Trust Company to ensure purchaser anonymity, ease of account servicing, and increased transferability.

Asset Classes

An asset class is a category of similar investments. Today, there are four main asset classes: equities (stocks), bonds (fixed income), cash equivalents, and alternative investments (real estate, commodities, hedge funds, private equity, valuable inventory, cryptocurrencies, etc.).

In general, each asset class reflects a certain amount of risk and return, with varying cash flows associated with them. Each one also performs differently depending on the current market environment. Here’s more information about each main asset class:

  • Equities: Also called stocks or shares, equities are traded on the stock market. When you purchase a stock, you are buying a share in a publicly traded company, becoming a shareholder in the process. Equities generate a return on investment either by increasing in share price or generating dividends. The risk is that the value of the share can drop below the level at which you invested.
  • Bonds: Investing in a bond or debt security pays a return in the form of interest. Bonds are considered stable investments with low risk, but the returns are also low. The value of bond investments also hinges on changing interest rates.
  • Cash equivalents: A cash fund aims to achieve higher interest rates than regular bank accounts. This low-risk option can be a useful tool for risk-averse investors. It’s also suitable for housing money temporarily in between long-term investment decisions. Money held in cash form also has high liquidity with the ability to access and withdraw funds at any time.
  • Alternative investments: All other assets are grouped together as “alternative investments.” This class has the potential to deliver some of the highest returns, but it tends to require more in-depth knowledge of securities. That’s why many high net worth individuals seeking long-term capital growth often turn to financial advisors for help.

Advisors aim to diversify their clients’ portfolios so they include investments from different asset classes. By not “putting all their eggs in one basket,” they lower their overall risk, even as the market changes; thus, the probability of seeing overall portfolio growth increases.

Deciding how to invest depends on the client’s risk tolerance and overall investment goals. Risk-averse individuals may choose to stick with bonds, equities, or cash, which are historically known for having the lowest risk. On the other hand, investors with a high-risk tolerance may seek out the highest potential profits based on current market conditions, even if the uncertainty is relatively high.

Choosing between different asset classes also depends on an investor’s desire for liquidity or willingness to put funds in long-term illiquid investments. Again, opting for a combination of the two tends to deliver the best overall returns.

SMA Hub sells a range of asset classes, but we’re best known for our secondary market annuities. Contact us today for more information about adding private equity secondary market investments to your clients’ portfolios.

Secondary Market Annuities & Other Secondary Market Assets from SMA Hub

SMA Hub was created to give advisors exclusive access to thoroughly examined secondary market annuities that are ready for immediate purchase. Following our extensive legal review and painstaking vetting process, we verify that our In-Stock cases are free of any liens and attachments.

Our process is unique because we don’t circumvent the agent by selling directly to retail clients. Instead, we remain a genuine wholesaler by only working with advisors and agents. Our ability to customize each secondary market asset to suit your clients’ needs means our investment products are suitable for every type of investor, from introductory net worth individuals to accredited investors.

To gain access to our inventory of In-Stock SMAs, simply register on our website. Contact us today for help with this process.

Read More +
  • What Are SMAs?

  • The Benefits of SMAs

  • SMA Hub Difference

Annuities are financial products that pay out a fixed stream of income to individuals, usually retirees. The money comes from a substantial lump sum or monthly payments put into the annuity during the accumulation phase. Once payments commence at a specified date, the contract enters the annuitization phase.

Secondary market annuities originate from existing annuities that become available for purchase. They offer fixed-term payment streams, up to several decades long, from top-quality insurance carriers.

SMAs could be the right fit for your client’s profile if he or she is looking for above-average returns with relatively low risk. Investors must also have enough resources to tie up funds in this illiquid investment.

SMAs offer many of the same benefits as primary market annuities—including payment certainty and a guaranteed yield—without all the restrictions associated with insurance contracts. While insurance products often translate to low returns for the investor, SMAs routinely provide yields 1-4% higher than comparable original issue annuities at a lower cost and without introducing a high level of risk.

SMA Hub is far from merely a “middleman” in the process of transferring structured settlement cash flows. We acquire original issue annuities in their entirety using an independent business trust. Then, our experienced, on-staff attorney navigates the complexities of transitioning the financial product into a secondary market annuity.

Only once the review process is complete and the sale of the payment stream has been court-approved do we list SMAs in our inventory. This adds additional layers of protection to your practice and ultimately your clients. By the time you see SMAs for sale on our website, all due diligence has been performed. Therefore, you can expect to close your client’s case within 24 to 48 hours, pending liquidity of funds.