Private Equity: a bold new frontier for your investment portfolio?

Private Equity has earned itself a mixed reputation over the years.

It’s been the catalyst behind some of the most successful growth stories of the past two decades – for brands including Burger King and Hilton Hotels.

At the same time, however, a few commentators have raised an eyebrow over the often-aggressive restructuring and cost-cutting carried out by select Private Equity firms.

But what’s the truth of the matter?

And how is any of this relevant to you, the investor?

First let’s be clear about what Private Equity actually means.

As an investment strategy, Private Equity refers to taking a stake in any company not listed on a public stock market, such as the London Stock Exchange.

That’s a lot of companies.

Out of around 140,000 firms worldwide with revenues over $100 million, a mere 19,000 (13%) are publicly listed. The rest are privately owned.

And there’s little doubt that Private Equity investors play a vital role for these firms.

They provide long-term capital at a time when there may be few other options as well as expertise to support growth – and are compensated for taking this risk.

Private Equity funds regularly pull struggling firms back from the brink or help businesses get through the next stage of growth while saving and creating jobs.

Nonetheless, many regular investors remain in the dark about Private Equity.

Due to high investment minimums (sometimes £5m+) and long capital lock-up periods (of up to a decade), Private Equity has traditionally only been available to big institutions and the ultra-wealthy.

Fortunately, though, this is changing.

Recently, Private Equity has become more flexible and accessible.

Innovative new vehicles, such as Semi-Liquid Funds, have opened the door for smaller, non-institutional clients with the financial acumen to understand these investments.

As a result, it’s now possible to get exposure to Private Equity for as little as £10,000.

Semi-Liquid funds allow investors to sell their holding on a rolling basis – usually once a quarter, subject to liquidity. This effectively makes it much easier for you to exit the fund and request to get your capital back.

Ok, so far so good.

But why invest in Private Equity when there is a myriad of public alternatives?

We’ve written at some length about the relative benefits of Private Equity.

As the chart below shows, returns from Private Equity have comfortably outperformed those on public stock markets over the past 10, 15 and 25 years. Please remember past performance is not a guide to the future: returns are not guaranteed and capital is at risk.

In addition, Private Equity isn’t affected by global investor sentiment to the same extent as listed markets. As a result, it can potentially bring diversification to an existing long-term portfolio of listed stocks and bonds.

Plus, as mentioned, there are many more private companies than public ones.

Hence when you invest in Private Equity, you can access a broader universe of opportunities – including small, dynamic companies that are not listed, and may never be.

Nevertheless, Private Equity investments are a long-term commitment. Investments can fail and you should not invest money you cannot afford to lose. These are for experienced investors only. Capital is at risk and returns are not guaranteed.

Many factors could affect the performance of the investment. If you are eligible to access these deals (see below), each will have relevant offer documents which contain more details on the specific risks and you should read these carefully.

Wealth Club has negotiated access to funds run by some of the world’s top Private Equity managers. We’d be happy to share the details of these deals with you: you’ll need to confirm you are a high net worth or sophisticated investor first.