How to Gracefully Say “No” to Private Investment Opportunities
It seems like a couple of times per month; I’m asked by one of my lawyer clients to review a “PPM” (private placement memorandum) for a new “co-investment” opportunity. It’s extremely common for law firm partners to get asked to invest alongside their clients, especially if their practice involves any type of private equity or venture capital clients. Previously, I wrote a blog about key considerations when co-investing with clients, which you can review here. My previous post gives you some good pointers to follow when saying yes to putting your hard-earned money to work in one of these private investment opportunities with a client. However, what if you want to say no to the latest offer that has made its way into your inbox? Assuming that saying no is a viable option and won’t harm your client relationship, what are some ways that you can gracefully decline an opportunity while still being mindful of your relationship?
1. Make it about your overall portfolio
A great starting point is to focus on your existing exposure to private investments and how that fits into your overall risk profile. Private, illiquid investments might be great sources of return; however, they carry different risks than your liquid, core portfolio of stocks and bonds. Commitments to these private investments will likely last 7-10 years, with little to no liquidity available for several years. When considering whether to add (possibly another) private investment to your portfolio, think about how this impacts your mix of stocks, bonds, and alternative investments. If you’re finding that your illiquid, alternative investments are nearly on par with or in excess of your liquid portfolio, you may want to start building up your traditional portfolio before adding more to private investments.
2. Focus on building up your liquidity
Cash is king. So simple and so true. An always valid reason for declining to pony up for another private investment commitment is to fall back on the fact that you’re focusing on building up more in liquid, shorter-term holdings. I have advised a number of clients who have made many commitments to private investments to hold off on any future commitments until they get to a stronger liquidity position. One way you can frame it is to set a goal for the number of months’ worth of spending that you want to have in cash so that you sleep better at night. You might say, “I want to focus on piling up cash right now until I get to about a year’s worth of spending in cash.” Building up your cash cushion has the benefit of being sound financial discipline and an unassailable excuse for saying no.
3. Defer to your advisor
When you get approached about co-investing or committing to another private investment, a very defensible answer is to start with “let me talk to my advisor first.” Your advisor should be able to give you a good unvarnished opinion of the investment, and they will have a great sense of how this investment fits or does not fit with your existing portfolio. If, after consulting with your advisor, you and the advisor both feel that this particular opportunity is not the right fit or not the right timing, then you have a great rationale for declining.
The temptation for all of us in client service is to say yes whenever a client asks us for something. While yes may be the typical answer, hopefully, this article gives you some solid guidance on how you can say no gracefully when no is the right answer.
Justin works closely with clients to design wealth management plans that take into account the full spectrum of their career and personal concerns with a specialization in advising law firm partners. Justin earned his MBA from Northwestern University’s J.L. Kellogg School of Business.