Fundraising? Be Sure Self-Directed IRAs Are On Your Radar
When raising cash for new ventures, many fundraisers I speak with feel as if they’ve left no stone unturned. They’ve reached out to friends, families, colleagues and industry groups to raise capital, and entrepreneurs have done everything from applying for business loans to taking out cash advances to fund operations.
But there’s one source of funds that investment sponsors, private fund managers and entrepreneurs -- for the sake of this blog, I'll use the catch-all phrase “asset sponsors” – often overlook and that is retirement funds.
According to the Investment Company Institute, Americans had more than $7.6 trillion invested in retirement savings accounts as of the first quarter, and new research from Cerulli Associates predicts that aging baby boomers will push growth in retirement assets to $12 trillion by 2020.
Many of these retirement dollars are invested in traditional exchange-traded assets like stocks, bonds and mutual funds. However, I’ve found that there is one segment of retirement savings accounts that asset sponsors are typically not familiar with, but it allows account holders to invest beyond the stock market. That segment is self-directed IRAs.
Self-directed IRAs represent an estimated $152 billion of retirement assets, and they are growing nearly twice as fast as the overall market, with annual growth estimated at 21 percent. In addition to investing in stocks and bonds, self-directed IRAs can invest in hedge funds, real estate, private equity and other alternative assets. Retiring baby boomers want this flexibility, which allows them to diversify their investment portfolios and add high return assets.
Self-directed IRAs also have characteristics that can make them especially attractive to alternative asset sponsors:
- Retirement accounts generally have a long-term investment horizon, making them a good match for less liquid assets such as real estate and private equity.
- IRAs can provide a recurring source of funding since account earnings must be reinvested to avoid early withdrawal penalties.
- Clients who have already invested with you through a taxable account can also invest with you through a tax-deferred IRA account.
To assist fundraisers in accessing self-directed dollars, we recently introduced a new deal funding technology called PENSCO Alt-Nav™. Time-saving features such as e-signature capabilities and drag/drop functionality for uploading documents have been introduced to streamline the investment process.
Paperwork that previously required a week to process can be done in one day. PENSCO Alt-Nav supports private equity investments, and we plan to soon introduce versions of the technology that can support investments in precious metals and real estate.
Self-directed IRA accounts represent a considerable fundraising opportunity for asset sponsors. If you want to learn more, download our guide on how to expand your capital-raising through self-directed IRAs:
This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.
PENSCO Trust Company performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. Other than the Opus Affiliates, PENSCO is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.