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PENSCO Press Release


Press Release

Beginning 2016, new rules under Title III of the JOBS Act could pave the way for more crowdfunding opportunities involving IRA dollars

SAN FRANCISCO, NOVEMBER 17, 2015 – In response to market volatility, retirement investors are seeking to increase diversification in their portfolios by buying more non-traded alternative assets, according to a study by PENSCO, the leading alternative asset custodian for self-directed IRA investors which this year celebrates its 25th anniversary.

This is the second year that PENSCO has surveyed investors on their attitudes and behaviors related to non-traded alternative assets for retirement accounts. Almost 1,000 clients responded, and close to two thirds (62%) say they have already increased their allocation to non-traded alternatives or plan to as a result of the market volatility. Meanwhile, a quarter (25%) say they intend to increase their allocation to non-traded alternatives in the next five years.

“Our survey found that compared to last year, investors now experience fewer hurdles to investing in non-traded alternatives, and they possess a better understanding of how to use an IRA to invest in various alternative asset classes,” said Kelly Rodriques, chief executive officer of PENSCO.  “As the market continues showing signs of volatility and as individuals increasingly understand the potential benefits of adding alternative assets to their portfolios, we anticipate that self-directed IRA investors will continue pursuing non-traded alternatives that have different risk and return profiles from traditional stocks and bonds.”

The most popular reason for seeking out non-traded alternatives for an IRA portfolio, cited by 27% of respondents, is to improve diversification and risk-return characteristics.  Another advantage, cited by 26% of participants, is the opportunity to invest in businesses, sectors, and industries about which they have personal knowledge or expertise. Others (16%) think the most significant benefit is the potential to generate income for their retirement portfolio.

The most widely sought after asset classes for self-directed IRA investors are real estate and private equity. Over half of respondents (52%) say they are likely to increase their retirement portfolio allocation to real estate (ranging from single family investment property to non-traded REITs) and a quarter (25%) are likely to increase their allocation to private equity (such as investment in a startup or a fund). Interest in these two categories is also reflected in PENSCO’s new account activity. In fact, 35% of new accounts at PENSCO in the first three quarters of this year have invested in private equity, while 32% bought real estate.

“Real estate is popular among self-directed IRA clients because of its potential for income generation and hedging against inflation, while private equity offers investors with long investment horizons the potential for growth,” said Rodriques.

Additionally, a recent U.S. Securities and Exchange Commission vote in favor of Title III of the JOBS Act, which will allow private companies to openly solicit individuals and non-accredited investors[1], paves the way for everyday investors to get access to private placements through online portals.  Many PENSCO investors surveyed are already exploring these opportunities. The survey found that close to 30% of investors already have some level of understanding of how to invest in private equity through a crowdfunding platform.  

“Starting next year, the general public will be able to buy shares of private companies that are issued on securities crowdfunding platforms, which means that the need for investor education on the topic is greater than ever before. We expect capital raisers to tap self-directed IRA investors for funding through crowdfunding vehicles. We also anticipate increased interest from individuals looking to use retirement funds to invest in equity crowdfunding opportunities, leading to the overall growth of the self-directed IRA market,” said Rodriques.

[1] Press Release: "SEC Adopts Rules to Permit Crowdfunding," October 30, 2015