What is private equity and how does it work?

Private equity involves investing in ownership stakes in companies outside public stock markets. Fund managers pool investors' capital to acquire or finance businesses, seek to increase their value through growth or operational improvements, and eventually sell their stakes. Investors pursue long-term gains but can face potential losses, fees, and limited liquidity.

Can individual investors invest in private equity?

Yes, increasingly. Traditional private equity funds are generally limited to accredited investors or qualified purchasers and often require large minimums. Newer structures, such as interval funds, tender offer funds and some business development companies, offer private equity exposure with lower minimums and periodic liquidity. Each structure has its own fees, liquidity terms and risks, so the vehicle matters as much as the strategy.

How long is money tied up in private equity?

A traditional private equity fund typically runs about ten years, often with options to extend. Investors commit capital up front, the manager calls it over the first several years as acquisitions are identified and purchased, and distributions usually come as companies are sold in the later years. Secondary markets and evergreen funds can offer earlier exits, but investors should plan on a long commitment.

What is the J-curve in private equity?

The J-curve describes the typical pattern of private equity returns over time. In the early years, fees and the cost of new investments usually make returns look negative. As portfolio companies grow and are sold, returns tend to rise, so the line on a chart resembles the letter J. It is one reason early performance figures say little about a fund's final result.

What is a backdoor Roth IRA and can I use one?

A backdoor Roth IRA strategy involves making a nondeductible traditional IRA contribution, then converting it to a Roth IRA. It can work even when income exceeds direct Roth contribution limits, provided you meet IRA contribution requirements. Existing pretax traditional, SEP, or SIMPLE IRA balances can make the conversion partly taxable under pro-rata rules.

Is a backdoor Roth IRA legal?

Yes. A backdoor Roth combines two steps that are each allowed under the tax code: a nondeductible contribution to a traditional IRA and a conversion of that IRA to a Roth. Since 2010 there has been no income limit on Roth conversions, which is what makes the strategy work for higher earners. Congress has debated restricting it, so it is worth confirming the current rules each year.

What is the pro-rata rule?

When you convert money to a Roth IRA, the pro-rata rule treats all of your traditional IRA balances as one pool. You cannot choose to convert only your nondeductible contributions: the conversion's taxable and tax-free portions reflect the pool's mix of pretax money and after-tax contributions. The calculation uses your December 31 balances for the conversion year, along with that year's conversions and other distributions. Some investors reduce or eliminate the pretax IRA balance by rolling eligible pretax money into an employer retirement plan that accepts it before year-end.

How do you do a backdoor Roth, step by step?

First, make a nondeductible contribution to a traditional IRA. Second, convert that IRA to a Roth IRA, often soon after so little or no growth is taxed. Third, report the nondeductible contribution and the conversion on IRS Form 8606 with your tax return. Before starting, check whether you hold other pretax IRA balances, because the pro-rata rule can make part of the conversion taxable.

What is a self-directed IRA?

A self-directed IRA is a traditional or Roth retirement account that allows investments beyond typical stocks and bonds, including real estate, private funds, and private loans. A specialized custodian administers the account, while you choose investments. Standard IRA rules still apply, including restrictions on self-dealing and potential taxes on certain income.

What can you invest in with a self-directed IRA?

Beyond stocks, bonds and mutual funds, a self-directed IRA can hold private credit, private equity and real estate on a primary and secondary basis, direct and co-investments, venture investing, direct secondaries, aircraft and cargo shipping leasing, multi-alternative, general partner interests, litigation finance, energy, and other special situations. The law excludes only a few assets, such as life insurance and most collectibles. The bigger limits come from the custodian, who must agree to hold the asset, and from the rules against self-dealing.

What is UBTI in an IRA?

Unrelated business taxable income, or UBTI, is income an IRA earns from an active business or from debt-financed investments, rather than from passive sources such as interest or dividends. It can arise from some partnerships and leveraged real estate. If UBTI exceeds $1,000 in a year, the IRA itself may owe tax and must file IRS Form 990-T, even though IRAs are otherwise tax-deferred.

What are prohibited transactions in a self-directed IRA?

You cannot use the IRA to benefit yourself or certain close relatives now. That means you cannot buy property from your own IRA, live in a house it owns, lend it money, or have it lend to your children or parents. Breaking these rules can disqualify the entire IRA, making its full value taxable as if it had been withdrawn.

What is a charitable remainder trust and when should I consider using one?

A charitable remainder trust is an irrevocable trust that pays you or other beneficiaries income for life or a specified term, then distributes remaining assets to charity or a family foundation. Consider one when you have charitable goals, appreciated assets, a need for income, deferring immediate taxation upon sale and receiving a partial charitable deduction.

How does a charitable remainder trust work?

You transfer assets, often highly appreciated stock, real estate or a business interest, into an irrevocable trust. Because the trust is tax-exempt, it can sell those assets without paying capital gains tax at the time of sale and reinvest the full proceeds. It then pays you an income for life or a set term of up to 20 years. When the term ends, what remains goes to the charities you named.

What are the tax benefits of a charitable remainder trust?

There are three. The trust can sell appreciated assets without paying capital gains tax at the time of sale, so the whole amount keeps working. You receive an income tax deduction in the year you fund it, based on the projected value of the charity's share. And the assets leave your taxable estate. Your income payments are still taxed as you receive them, under ordering rules set by the IRS.

What is the difference between a CRAT and a CRUT?

A charitable remainder annuity trust (CRAT) pays a fixed dollar amount every year, set when the trust is created, and cannot accept more contributions later. A charitable remainder unitrust (CRUT) pays a fixed percentage of the trust's value, recalculated each year, so payments rise or fall with the investments, and you can add assets later. Both must pay out at least 5% a year.

How do you set up a charitable remainder trust?

Setting one up usually takes a few weeks with an estate attorney and your advisor. The most important timing rule: the assets must go into the trust before any sale is agreed, or the IRS may treat the gain as yours. After that, the trustee sells, reinvests and files the trust's own tax return every year. Choose the assets, the trust type, the payout and term, and the charities first.

What are alternative investments?

Alternative investments are assets or strategies outside traditional stocks, bonds, and cash, including private equity, private credit, real estate, infrastructure, commodities, amongst others. They may offer diversification, income, or growth opportunities, but often involve greater complexity, higher fees, limited liquidity, and risks that differ from those of traditional investments.

What counts as an alternative investment?

The category is broad. It includes private credit, private equity and real estate on a primary and secondary basis, direct and co-investments, venture investing, direct secondaries, aircraft, equipment and cargo shipping leasing, multi-alternative, general partner interests, litigation finance, energy, merchant cash advance and other special situations.

Is the 60/40 portfolio still good?

For many investors, the traditional 60/40 portfolio may no longer be appropriate. For decades, stocks and bonds were considered the foundation of diversification. Today we are in a very different environment, with higher volatility, shifting interest rates and structural changes in global markets. Many institutional investors are increasing their allocation to alternative investment strategies such as private equity, private credit and real estate.

What are illiquid investments, and are they worth it?

Illiquid investments cannot be sold quickly at a quoted price the way a public stock can. Many private investments ask you to commit your money for a set period, anywhere from one to ten years depending on the strategy, in exchange for the potential opportunity to generate higher returns. Illiquidity should be judged against your own plans: how much of your wealth you will need access to, and when.

What is a non-correlated asset?

A non-correlated asset is an investment that behaves differently from the stock and bond markets, especially when those markets are stressed. That is what true diversification means: owning hundreds of stocks is not diversification if they all move in the same direction with market forces. Real diversification often comes from asset classes with little correlation to public markets.

When I recommend it, and when I don't

The real challenge today is not access. It is educating yourself and understanding how these investments work. I look forward to helping you climb the alternatives learning curve. It is steep but not insurmountable.

What is carried interest?

Carried interest is a share of a private investment fund’s profits allocated to its manager as compensation for managing investments, rather than a return on the manager’s own capital. It aligns compensation with performance and is separate from management fees.

What is the 2 and 20 fee structure?

Two and twenty is the classic fee model for private equity and hedge funds: a 2% annual management fee on assets or committed capital, plus 20% of profits as carried interest. The management fee covers the manager's operating costs, while the carry rewards performance. Many funds now charge less, and terms vary widely, so investors should read the fee section of the offering documents closely.

What is the carried interest loophole?

Carried interest is usually taxed as a long-term capital gain rather than as ordinary income, even though it is compensation for managing money. Critics call this the carried interest loophole because capital gains rates are lower than top income tax rates. Since 2018, managers must generally hold the underlying investments for more than three years to receive capital gains treatment on carry.

What is a hurdle rate or preferred return?

A hurdle rate, often called a preferred return, is the minimum return investors must receive before the manager earns carried interest. Eight percent a year is a common figure in private equity. Once investors clear the hurdle, many funds let the manager catch up on its share of profits. The hurdle helps ensure the manager is paid for real performance rather than modest gains.

What documents should I review before investing in alternative investments?

Review the offering documents (typically a private placement memorandum or prospectus), along with the subscription agreement, partnership or operating agreement, available audited financial statements, and fee disclosures. Focus on investment risks, manager experience, conflicts of interest, leverage, tax implications, capital commitments, distribution policies, and restrictions on withdrawals or resale.

What is a private placement?

A private placement is a sale of securities directly to selected investors rather than through a public offering. Most rely on SEC Regulation D, which exempts them from full registration and generally limits sales to accredited investors. Private placements can offer access to private companies, funds and real estate, but they come with less public disclosure and resale restrictions.

What is in a private placement memorandum?

A private placement memorandum, or PPM, describes the investment in detail. It typically covers the strategy, the manager's background, fees and expenses, risk factors, conflicts of interest, how and when investors may withdraw, how the investment is valued and how it is taxed. It is a disclosure document, not a sales brochure, and the risk factors section deserves the closest reading.

What is a subscription agreement?

The subscription agreement is the contract an investor signs to buy into a private offering. It records the amount invested, confirms the investor's eligibility, such as accredited investor status, and states that the investor has read the offering documents and understands the risks. Signing it usually binds you to the terms in the partnership or operating agreement.

What is an interval fund?

An interval fund is a closed-end investment fund whose shares typically do not trade on an exchange. Instead, it offers to repurchase a limited portion of outstanding shares at net asset value periodically, often quarterly. Unlike traditional mutual funds, it does not provide daily redemptions, and if redemption requests exceed the quarterly limit, often 5% of the NAV, investors can be restricted from selling all requested shares.

Are interval funds closed-end funds?

Yes. Under the Investment Company Act of 1940, an interval fund is a type of closed-end fund. Unlike most closed-end funds, its shares usually do not trade on an exchange. Instead, the fund itself offers to buy back a set percentage of shares at regular intervals, typically every quarter, at the fund's net asset value.

What is a 40 Act fund?

A 40 Act fund is an investment fund registered with the SEC under the Investment Company Act of 1940. The group includes mutual funds, ETFs, closed-end funds and interval funds. Registration brings rules on disclosure, governance, custody of assets and limits on leverage. Many private funds are not registered, which is one reason they are usually limited to wealthier, accredited investors.

What is the difference between an interval fund and a tender offer fund?

Both are closed-end funds that offer limited liquidity instead of daily redemptions. An interval fund must offer to repurchase shares on a fixed schedule, usually quarterly, as a fundamental policy. A tender offer fund's board decides whether and when to make each repurchase offer. That gives tender offer funds more flexibility, and investors less certainty about when they can sell.

What is a business development company, or BDC?

A business development company, or BDC, is a closed-end investment company that primarily lends to or invests in small and midsize businesses, often privately held. Investors gain exposure to private credit or equity and potential distributions, but face borrower defaults, leverage, and valuation risks. BDC shares may be publicly traded or nontraded.

What is the difference between a traded and a non-traded BDC?

A traded BDC lists its shares on a stock exchange, so investors can buy and sell daily, but the share price can move well above or below the value of the loans it holds. A non-traded BDC is sold through advisors and offers limited periodic repurchases, usually at net asset value. Non-traded BDCs avoid market price swings but are much less liquid.

How are BDC distributions taxed?

Most BDCs elect to be taxed as regulated investment companies. They avoid corporate income tax by distributing at least 90% of their taxable income to shareholders. Because that income is mostly interest from loans, distributions are generally taxed as ordinary income rather than at lower qualified dividend rates. Holding a BDC in an IRA can defer that tax.

Is a BDC the same as a private credit fund?

Not exactly. Many BDCs are, in effect, private credit funds wrapped in a registered structure, and they are one of the main ways individual investors reach private lending. But BDCs are subject to rules that private funds are not, such as leverage limits and public reporting, and they are open to investors who are not accredited.

What is a capital call?

A capital call is a request from an investment fund for investors to contribute part of the money they previously committed. Funds typically call capital as needed for investments, fees, or expenses rather than collecting everything upfront. Investors must pay by the specified deadline or risk penalties under the fund’s governing documents.

What happens if you miss a capital call?

Missing a capital call is a serious default under most fund agreements. Penalties can include interest charges, loss of future distributions, a forced sale of your interest at a discount, or forfeiture of part of what you have already invested. Before committing, investors should keep enough liquid reserves to meet calls over the fund's investment period.

What is an unfunded commitment?

An unfunded commitment is the part of your pledged capital the fund has not yet called. If you commit $500,000 and the fund has called $200,000, your unfunded commitment is $300,000. You remain obligated to pay it when called, usually over the first three to five years of the fund. Planning for it is part of planning your cash.

How often do capital calls happen?

There is no fixed schedule. Most calls come during a fund's investment period, typically the first three to five years, whenever the manager finds a new investment or needs to pay fees and expenses. A fund might call capital several times a year. Notices usually give about ten business days to pay.

What are IDCs and can they be deducted against any kind of income?

IDCs (intangible drilling costs) are oil-and-gas drilling expenses without salvage value, such as labor and supplies, that may qualify for immediate deduction. Qualifying nonpassive working-interest deductions may offset wages, investment income and capital gains, subject to basis, at-risk, excess-business-loss, and alternative minimum tax rules.

What is the difference between intangible and tangible drilling costs?

Intangible drilling costs are expenses with no salvage value, such as labor, fuel, chemicals and site preparation, and they often make up most of a well's cost. Tangible drilling costs are for equipment that can be reused or resold, such as pipe and wellheads. Tangible costs are generally depreciated over several years rather than deducted right away.

What is a working interest?

A working interest is an ownership share in an oil or gas well that carries a share of the costs of drilling and operating it, along with a share of the revenue. A royalty interest receives revenue without paying costs. Working interests held without limiting liability are generally treated as nonpassive, which is why their deductions can offset other kinds of income.

What other tax benefits do oil and gas investments offer?

Beyond the deduction for intangible drilling costs, eligible investors may claim the percentage depletion allowance, which lets them treat a portion of production income, often 15%, as tax-free. Tangible equipment can be depreciated. These benefits depend on the investor's structure and tax situation, so a tax advisor should confirm how they apply.

Alternative Investment FAQs | Amadeus Wealth Alternatives

What is private equity and how does it work?
Answer: Private equity involves investing in ownership stakes in companies outside public stock markets. Fund managers pool investors’ capital to acquire or finance businesses, seek to increase their value through growth or operational improvements, and eventually sell their stakes. Investors pursue long-term gains but can face potential losses, fees, and limited liquidity.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
Can individual investors invest in private equity?
Yes, increasingly. Traditional private equity funds are generally limited to accredited investors or qualified purchasers and often require large minimums. Newer structures, such as interval funds, tender offer funds and some business development companies, offer private equity exposure with lower minimums and periodic liquidity. Each structure has its own fees, liquidity terms and risks, so the vehicle matters as much as the strategy.
How long is money tied up in private equity?
A traditional private equity fund typically runs about ten years, often with options to extend. Investors commit capital up front, the manager calls it over the first several years as acquisitions are identified and purchased, and distributions usually come as companies are sold in the later years. Secondary markets and evergreen funds can offer earlier exits, but investors should plan on a long commitment.
What is the J-curve in private equity?
The J-curve describes the typical pattern of private equity returns over time. In the early years, fees and the cost of new investments usually make returns look negative. As portfolio companies grow and are sold, returns tend to rise, so the line on a chart resembles the letter J. It is one reason early performance figures say little about a fund's final result.
Talk to us
To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
Related questions

What is private credit and how does it work?

Answer: Private credit is lending provided by nonbank lenders through privately negotiated loans rather than public bond markets. Investors typically pool money in a fund whose manager selects borrowers, negotiates terms, and collects interest and principal repayments. Investors seek income but face risks, including borrower defaults and limited ability to withdraw their money.

By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026

What is the difference between private credit and private equity?

Private credit lends money to companies and earns interest, while private equity buys ownership and earns a share of growth when the company is sold. Lenders are usually repaid before owners if a company struggles, so private credit typically aims for steadier income and lower risk. Private equity aims for higher long-term gains, with more uncertainty along the way.

Private credit vs private equity

	Private credit	Private equity
What you own	A loan	A share of the company
How you earn	Interest payments	Gains when the company is sold
Typical goal	Income	Long-term growth
If the company struggles	Lenders are paid first	Owners are paid last

Why has private credit grown so quickly?

After the 2008 financial crisis, banks faced tighter rules on lending to midsize companies. Nonbank lenders stepped in, often offering faster decisions and more flexible terms. Investors were drawn by floating-rate income that has generally paid more than public bonds of similar credit quality. Pensions, endowments and, more recently, individual investors have all increased their allocations.

What are the risks of private credit?

The main risks are borrower defaults, limited liquidity and valuation. Private loans do not trade daily, so their prices are estimated by managers rather than set by a market. Many loans go to companies with high debt, and an economic slowdown can raise defaults. Manager skill in choosing borrowers and negotiating protections matters a great deal.

Talk to us

To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.

Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ

Related questions

What is a backdoor Roth IRA and can I use one?
Answer: A backdoor Roth IRA strategy involves making a nondeductible traditional IRA contribution, then converting it to a Roth IRA. It can work even when income exceeds direct Roth contribution limits, provided you meet IRA contribution requirements. Existing pretax traditional, SEP, or SIMPLE IRA balances can make the conversion partly taxable under pro-rata rules.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
Is a backdoor Roth IRA legal?
Yes. A backdoor Roth combines two steps that are each allowed under the tax code: a nondeductible contribution to a traditional IRA and a conversion of that IRA to a Roth. Since 2010 there has been no income limit on Roth conversions, which is what makes the strategy work for higher earners. Congress has debated restricting it, so it is worth confirming the current rules each year.
What is the pro-rata rule?
When you convert money to a Roth IRA, the pro-rata rule treats all of your traditional IRA balances as one pool. You cannot choose to convert only your nondeductible contributions: the conversion's taxable and tax-free portions reflect the pool's mix of pretax money and after-tax contributions. The calculation uses your December 31 balances for the conversion year, along with that year's conversions and other distributions. Some investors reduce or eliminate the pretax IRA balance by rolling eligible pretax money into an employer retirement plan that accepts it before year-end.
How do you do a backdoor Roth, step by step?
First, make a nondeductible contribution to a traditional IRA. Second, convert that IRA to a Roth IRA, often soon after so little or no growth is taxed. Third, report the nondeductible contribution and the conversion on IRS Form 8606 with your tax return. Before starting, check whether you hold other pretax IRA balances, because the pro-rata rule can make part of the conversion taxable.
Talk to us
To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
Related questions

What is a self-directed IRA?
Answer: A self-directed IRA is a traditional or Roth retirement account that allows investments beyond typical stocks and bonds, including real estate, private funds, and private loans. A specialized custodian administers the account, while you choose investments. Standard IRA rules still apply, including restrictions on self-dealing and potential taxes on certain income.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
What can you invest in with a self-directed IRA?
Beyond stocks, bonds and mutual funds, a self-directed IRA can hold private credit, private equity and real estate on a primary and secondary basis, direct and co-investments, venture investing, direct secondaries, aircraft and cargo shipping leasing, multi-alternative, general partner interests, litigation finance, energy, and other special situations. The law excludes only a few assets, such as life insurance and most collectibles. The bigger limits come from the custodian, who must agree to hold the asset, and from the rules against self-dealing.
What is UBTI in an IRA?
Unrelated business taxable income, or UBTI, is income an IRA earns from an active business or from debt-financed investments, rather than from passive sources such as interest or dividends. It can arise from some partnerships and leveraged real estate. If UBTI exceeds $1,000 in a year, the IRA itself may owe tax and must file IRS Form 990-T, even though IRAs are otherwise tax-deferred.
What are prohibited transactions in a self-directed IRA?
You cannot use the IRA to benefit yourself or certain close relatives now. That means you cannot buy property from your own IRA, live in a house it owns, lend it money, or have it lend to your children or parents. Breaking these rules can disqualify the entire IRA, making its full value taxable as if it had been withdrawn.
Talk to us
To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
Related questions

What is a charitable remainder trust and when should I consider using one?
Answer: A charitable remainder trust is an irrevocable trust that pays you or other beneficiaries income for life or a specified term, then distributes remaining assets to charity or a family foundation. Consider one when you have charitable goals, appreciated assets, a need for income, deferring immediate taxation upon sale and receiving a partial charitable deduction.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
How does a charitable remainder trust work?
You transfer assets, often highly appreciated stock, real estate or a business interest, into an irrevocable trust. Because the trust is tax-exempt, it can sell those assets without paying capital gains tax at the time of sale and reinvest the full proceeds. It then pays you an income for life or a set term of up to 20 years. When the term ends, what remains goes to the charities you named.
CRAT vs CRUT

Annuity trust (CRAT)
Unitrust (CRUT)
Payment
Fixed dollar amount
Fixed percentage of the trust's value
Payment changes?
No
Yes, recalculated every year
Add assets later?
No
Yes
Minimum payout
5% a year
5% a year
What are the tax benefits of a charitable remainder trust?
There are three. The trust can sell appreciated assets without paying capital gains tax at the time of sale, so the whole amount keeps working. You receive an income tax deduction in the year you fund it, based on the projected value of the charity's share. And the assets leave your taxable estate. Your income payments are still taxed as you receive them, under ordering rules set by the IRS.
What is the difference between a CRAT and a CRUT?
A charitable remainder annuity trust (CRAT) pays a fixed dollar amount every year, set when the trust is created, and cannot accept more contributions later. A charitable remainder unitrust (CRUT) pays a fixed percentage of the trust's value, recalculated each year, so payments rise or fall with the investments, and you can add assets later. Both must pay out at least 5% a year.
How do you set up a charitable remainder trust?
Setting one up usually takes a few weeks with an estate attorney and your advisor. The most important timing rule: the assets must go into the trust before any sale is agreed, or the IRS may treat the gain as yours. After that, the trustee sells, reinvests and files the trust's own tax return every year. Choose the assets, the trust type, the payout and term, and the charities first.
Talk to us
To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
Related questions

	Annuity trust (CRAT)	Unitrust (CRUT)
Payment	Fixed dollar amount	Fixed percentage of the trust's value
Payment changes?	No	Yes, recalculated every year
Add assets later?	No	Yes
Minimum payout	5% a year	5% a year

What are alternative investments?
Answer: Alternative investments are assets or strategies outside traditional stocks, bonds, and cash, including private equity, private credit, real estate, infrastructure, commodities, amongst others. They may offer diversification, income, or growth opportunities, but often involve greater complexity, higher fees, limited liquidity, and risks that differ from those of traditional investments.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
What counts as an alternative investment?
The category is broad. It includes private credit, private equity and real estate on a primary and secondary basis, direct and co-investments, venture investing, direct secondaries, aircraft, equipment and cargo shipping leasing, multi-alternative, general partner interests, litigation finance, energy, merchant cash advance and other special situations.
Is the 60/40 portfolio still good?
For many investors, the traditional 60/40 portfolio may no longer be appropriate. For decades, stocks and bonds were considered the foundation of diversification. Today we are in a very different environment, with higher volatility, shifting interest rates and structural changes in global markets. Many institutional investors are increasing their allocation to alternative investment strategies such as private equity, private credit and real estate.
What are illiquid investments, and are they worth it?
Illiquid investments cannot be sold quickly at a quoted price the way a public stock can. Many private investments ask you to commit your money for a set period, anywhere from one to ten years depending on the strategy, in exchange for the potential opportunity to generate higher returns. Illiquidity should be judged against your own plans: how much of your wealth you will need access to, and when.
What is a non-correlated asset?
A non-correlated asset is an investment that behaves differently from the stock and bond markets, especially when those markets are stressed. That is what true diversification means: owning hundreds of stocks is not diversification if they all move in the same direction with market forces. Real diversification often comes from asset classes with little correlation to public markets.
When I recommend it, and when I don't
The real challenge today is not access. It is educating yourself and understanding how these investments work. I look forward to helping you climb the alternatives learning curve. It is steep but not insurmountable.
Talk to us
To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
Related questions

What is carried interest?
Answer: Carried interest is a share of a private investment fund’s profits allocated to its manager as compensation for managing investments, rather than a return on the manager’s own capital. It aligns compensation with performance and is separate from management fees.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
What is the 2 and 20 fee structure?
Two and twenty is the classic fee model for private equity and hedge funds: a 2% annual management fee on assets or committed capital, plus 20% of profits as carried interest. The management fee covers the manager's operating costs, while the carry rewards performance. Many funds now charge less, and terms vary widely, so investors should read the fee section of the offering documents closely.
What is the carried interest loophole?
Carried interest is usually taxed as a long-term capital gain rather than as ordinary income, even though it is compensation for managing money. Critics call this the carried interest loophole because capital gains rates are lower than top income tax rates. Since 2018, managers must generally hold the underlying investments for more than three years to receive capital gains treatment on carry.
What is a hurdle rate or preferred return?
A hurdle rate, often called a preferred return, is the minimum return investors must receive before the manager earns carried interest. Eight percent a year is a common figure in private equity. Once investors clear the hurdle, many funds let the manager catch up on its share of profits. The hurdle helps ensure the manager is paid for real performance rather than modest gains.
Talk to us
To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
Related questions

What documents should I review before investing in alternative investments?
Answer: Review the offering documents (typically a private placement memorandum or prospectus), along with the subscription agreement, partnership or operating agreement, available audited financial statements, and fee disclosures. Focus on investment risks, manager experience, conflicts of interest, leverage, tax implications, capital commitments, distribution policies, and restrictions on withdrawals or resale.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
What is a private placement?
A private placement is a sale of securities directly to selected investors rather than through a public offering. Most rely on SEC Regulation D, which exempts them from full registration and generally limits sales to accredited investors. Private placements can offer access to private companies, funds and real estate, but they come with less public disclosure and resale restrictions.
What is in a private placement memorandum?
A private placement memorandum, or PPM, describes the investment in detail. It typically covers the strategy, the manager's background, fees and expenses, risk factors, conflicts of interest, how and when investors may withdraw, how the investment is valued and how it is taxed. It is a disclosure document, not a sales brochure, and the risk factors section deserves the closest reading.
What is a subscription agreement?
The subscription agreement is the contract an investor signs to buy into a private offering. It records the amount invested, confirms the investor's eligibility, such as accredited investor status, and states that the investor has read the offering documents and understands the risks. Signing it usually binds you to the terms in the partnership or operating agreement.
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To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
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What is an interval fund?
Answer: An interval fund is a closed-end investment fund whose shares typically do not trade on an exchange. Instead, it offers to repurchase a limited portion of outstanding shares at net asset value periodically, often quarterly. Unlike traditional mutual funds, it does not provide daily redemptions, and if redemption requests exceed the quarterly limit, often 5% of the NAV, investors can be restricted from selling all requested shares.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
Are interval funds closed-end funds?
Yes. Under the Investment Company Act of 1940, an interval fund is a type of closed-end fund. Unlike most closed-end funds, its shares usually do not trade on an exchange. Instead, the fund itself offers to buy back a set percentage of shares at regular intervals, typically every quarter, at the fund's net asset value.
What is a 40 Act fund?
A 40 Act fund is an investment fund registered with the SEC under the Investment Company Act of 1940. The group includes mutual funds, ETFs, closed-end funds and interval funds. Registration brings rules on disclosure, governance, custody of assets and limits on leverage. Many private funds are not registered, which is one reason they are usually limited to wealthier, accredited investors.
What is the difference between an interval fund and a tender offer fund?
Both are closed-end funds that offer limited liquidity instead of daily redemptions. An interval fund must offer to repurchase shares on a fixed schedule, usually quarterly, as a fundamental policy. A tender offer fund's board decides whether and when to make each repurchase offer. That gives tender offer funds more flexibility, and investors less certainty about when they can sell.
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To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
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What is a business development company, or BDC?
Answer: A business development company, or BDC, is a closed-end investment company that primarily lends to or invests in small and midsize businesses, often privately held. Investors gain exposure to private credit or equity and potential distributions, but face borrower defaults, leverage, and valuation risks. BDC shares may be publicly traded or nontraded.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
What is the difference between a traded and a non-traded BDC?
A traded BDC lists its shares on a stock exchange, so investors can buy and sell daily, but the share price can move well above or below the value of the loans it holds. A non-traded BDC is sold through advisors and offers limited periodic repurchases, usually at net asset value. Non-traded BDCs avoid market price swings but are much less liquid.
How are BDC distributions taxed?
Most BDCs elect to be taxed as regulated investment companies. They avoid corporate income tax by distributing at least 90% of their taxable income to shareholders. Because that income is mostly interest from loans, distributions are generally taxed as ordinary income rather than at lower qualified dividend rates. Holding a BDC in an IRA can defer that tax.
Is a BDC the same as a private credit fund?
Not exactly. Many BDCs are, in effect, private credit funds wrapped in a registered structure, and they are one of the main ways individual investors reach private lending. But BDCs are subject to rules that private funds are not, such as leverage limits and public reporting, and they are open to investors who are not accredited.
Talk to us
To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
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What is a capital call?
Answer: A capital call is a request from an investment fund for investors to contribute part of the money they previously committed. Funds typically call capital as needed for investments, fees, or expenses rather than collecting everything upfront. Investors must pay by the specified deadline or risk penalties under the fund’s governing documents.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
What happens if you miss a capital call?
Missing a capital call is a serious default under most fund agreements. Penalties can include interest charges, loss of future distributions, a forced sale of your interest at a discount, or forfeiture of part of what you have already invested. Before committing, investors should keep enough liquid reserves to meet calls over the fund's investment period.
What is an unfunded commitment?
An unfunded commitment is the part of your pledged capital the fund has not yet called. If you commit $500,000 and the fund has called $200,000, your unfunded commitment is $300,000. You remain obligated to pay it when called, usually over the first three to five years of the fund. Planning for it is part of planning your cash.
How often do capital calls happen?
There is no fixed schedule. Most calls come during a fund's investment period, typically the first three to five years, whenever the manager finds a new investment or needs to pay fees and expenses. A fund might call capital several times a year. Notices usually give about ten business days to pay.
Talk to us
To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
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What are IDCs and can they be deducted against any kind of income?
Answer: IDCs (intangible drilling costs) are oil-and-gas drilling expenses without salvage value, such as labor and supplies, that may qualify for immediate deduction. Qualifying nonpassive working-interest deductions may offset wages, investment income and capital gains, subject to basis, at-risk, excess-business-loss, and alternative minimum tax rules.
By Edward Papier, CIMA, CF2, CM&AA · Last updated November 5, 2026
What is the difference between intangible and tangible drilling costs?
Intangible drilling costs are expenses with no salvage value, such as labor, fuel, chemicals and site preparation, and they often make up most of a well's cost. Tangible drilling costs are for equipment that can be reused or resold, such as pipe and wellheads. Tangible costs are generally depreciated over several years rather than deducted right away.
What is a working interest?
A working interest is an ownership share in an oil or gas well that carries a share of the costs of drilling and operating it, along with a share of the revenue. A royalty interest receives revenue without paying costs. Working interests held without limiting liability are generally treated as nonpassive, which is why their deductions can offset other kinds of income.
What other tax benefits do oil and gas investments offer?
Beyond the deduction for intangible drilling costs, eligible investors may claim the percentage depletion allowance, which lets them treat a portion of production income, often 15%, as tax-free. Tangible equipment can be depreciated. These benefits depend on the investor's structure and tax situation, so a tax advisor should confirm how they apply.
Talk to us
To talk through your own situation, please call 212-697-3930, email ep@amadeuswealth.com, or schedule a meeting at calendly.com/ep-awa.
Edward Papier, CIMA, CF2, CM&AA
President, Amadeus Wealth Alternatives, Hackensack, NJ
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What is a charitable remainder trust and when should I consider using one?

How does a charitable remainder trust work?

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What are alternative investments?

What counts as an alternative investment?

Is the 60/40 portfolio still good?

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When I recommend it, and when I don't

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What is carried interest?

What is the 2 and 20 fee structure?

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What documents should I review before investing in alternative investments?

What is a private placement?

What is in a private placement memorandum?

What is a subscription agreement?

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What is an interval fund?

Are interval funds closed-end funds?

What is a 40 Act fund?

What is the difference between an interval fund and a tender offer fund?

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What is a business development company, or BDC?

What is the difference between a traded and a non-traded BDC?

How are BDC distributions taxed?

Is a BDC the same as a private credit fund?

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What is a capital call?

What happens if you miss a capital call?

What is an unfunded commitment?

How often do capital calls happen?

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What are IDCs and can they be deducted against any kind of income?

What is the difference between intangible and tangible drilling costs?

What is a working interest?

What other tax benefits do oil and gas investments offer?

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