What is Private Equity?
Private market investing provides unique exposure to industries and companies without the volatility traditionally inherent in listed investments. Given its low historical correlation to listed investments, it provides a source of return diversification. Partnering with credible managers in the space is crucial as the asset class near impossible to replicate as an individual investor.
Private Equity Buyouts and Venture Capital investments are most common in our portfolio through the mix of underlying managers. Both types of investments can be considered alternative assets and can be anticipated to generate outsized returns relative to listed equities.
Venture capital involves the provision of financial capital to early-stage, high-potential, high-risk, growth start-up companies (start-ups). An early-stage venture capital fund makes money by owning equity in start-ups, which usually have a novel technology or business model in high-technology industries, such as IT, software, biotechnology, clean technology, or medical devices. The typical investment occurs at the early expansion stage to generate a return through an eventual realization event, such as an IPO or trade sale of the Start-up.
Private equity buyouts involve acquiring a majority stake, leading to a change of control. Firms that fund and facilitate buyouts are usually financed by institutional investors, wealthy individuals, or loans. The managers seek out underperforming or undervalued companies that they can take private and turn around before going public years later.
We include private market investing in a portfolio as it provides unique exposure to industries and companies without the volatility traditionally inherent in listed investments. This is because the valuation of a Private Equity Fund is driven by the underlying performance of the companies it is invested in rather than market sentiment that influences direct equity valuations.
