Liquidity for Illiquid Direct Investments – FINRA Registered Secondary Market Firms
A common rebuttal to the idea of investing in a non-traded REIT, BDC or other limited partnership is the lack of liquidity. Being able to sell your investment, even for accredited or qualified investors, is sometimes important.
A recent Franklin Square Capital Corporation / Cogent Research survey of financial advisors indicated that 38% of advisors polled rate liquidity as an important feature when it comes to alternative investments.
When one invests in non-traded REITs, BDCs, or other private placements it’s with the expectation of holding the investment through its existence, but sometimes life gets in the way forcing a need or desire to liquidate the asset.
Dan Breen of Pacific Partnership Group, a secondary market matching service, calls this the “Four D’s; Death, Divorce, Debt & Done Waiting.” Breen says these investors typically “want their money yesterday.”
The problem for these investors is the lack of a public, secondary exchange. This fact is made clear during the pre-investment discussions with financial advisors and wholesalers.
In some cases, non-traded REITs do offer repurchase options, but these are typically for certain time periods and may be closed anytime at the discretion of the sponsor. Other private placements, such as oil & gas or equipment leasing partnerships typically do not offer any repurchase options.
There are liquidity options for investors in non-traded REITs and other direct investments.
Unfortunately, most do not know that there are FINRA registered firms that offer liquidity for those experiencing one of the Four D’s. It’s understandable for investors to be unaware, but advisors should know these options exist.
A Raymond James advisor, Chad Davis, replied to a question in his column “Ask the Advisor” from an investor seeking liquidity for a non-traded REIT investment, “Unfortunately there is not much you can do.” The DI Wire reached out to Chad wondering if he is aware that there are FINRA registered firms offering liquidity options for investors, but at the time of publishing this article, have not received a reply.
