Why portfolios should include private equity

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Retail investors need to be wary of traditional investments that are now riskier given the concentration in large-cap listed markets. As businesses evolve, so should portfolios.

in an investment portfolio has become normalised, initially with US endowments achieving stellar returns from large allocations to illiquid assets encouraging family wealth into the segment alongside institutional money. The commitment to private markets is often cited by large investors as a key to their success.

The influence is significant. Every week a new offer arises from a private equity firm to take over a listed company – front of mind is the proposition for. The thesis behind this bid can be summarised as taking advantage of earnings disrupted by COVID-19, property assets to be realised and pricing advantage thanks to a narrow set of competitors.

The most likely pathway for an average investor is via the debt channels that support these transactions. Leveraged buyout debt is often included in private funds, a generally safer but lower-return participation without the bonanza of huge upside. Some can include equity participation to sweeten the deal.

 

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