Private equity (PE) investments can play a crucial role in diversifying and enhancing high-net-worth portfolios. Previously accessible only to pension funds, insurance companies, and other institutional investors, these asset classes have traditionally been avoided by individual investors due to their high investment minimums and long lock-up periods.
Not anymore. As seasoned financial experts such as Michael Meekins emphasize, PE has become much more accessible to private investors, particularly high-net-worth individuals.
The president and CEO of the private equity firm, Westbridge Capital Ltd., Michael Meekins highlights the many attractive diversification opportunities PE offers.
The Case for Private Equity
Statistics show that private markets have grown significantly since 2010. An S&P Global report reveals that assets under management ballooned from $3 trillion in 2010 to a staggering $11.7 trillion in 2022
Furthermore, more companies are opting to remain private longer. In 1999, new public firms had an average age of 4.5 years. But by 2020, the average age of new public companies was over 12 years.
Fewer opportunities in public markets also make a strong case for considering PE as a diversification option for high-net-worth portfolios. In the United States, the number of publicly listed firms has declined steadily over the past two decades.
The shrinking pool of public companies and the trend toward retaining private companies longer have many significant implications for investors. It’s increasingly becoming apparent that private companies now have a bigger role in driving innovation and creating value.
PE’s Role in Portfolio Diversification
Private equity offers many benefits with regard to complementing and stabilizing portfolios by way of diversification. The exposure to private companies it provides is especially useful given the reduced efficiency of the standard 60/40 (stocks/bonds) allocation in high-interest and high-inflation markets.
Furthermore, private equity can provide returns that don’t correlate to public market conditions. In fact, some of the most profitable returns have been realized during periods of severe economic strife, such as the recessions of 2001 and 2009.
Other Benefits of PE for High-Net-Worth Portfolios
Beyond diversification, PE offers several other advantages for high-net-worth portfolios. For instance, it offers access to opportunities that aren’t typically available in public markets. PE also covers companies during different stages of growth and even business sectors experiencing difficult periods.
PE firms can invest in anything from early-stage enterprises developing new space technology to companies building clean energy infrastructure. Many even encompass the entire lifecycle of a business, investing in a company’s early-stage ventures and subsequent growth, and on through maturity.
This range of involvement enables PE firms to identify emerging technologies that have the potential to shape large companies’ futures. In return, these partner companies benefit from the PE firm’s insights and gain exposure to high-growth sectors.
Private Equity: The Key to a Diversified Investment Strategy
Private equity can be a valuable component of a diversified investment strategy, particularly for high-net-worth portfolios. As Michael Meekins knows firsthand, it can unlock many new investment opportunities that offer significant returns. With the judicious incorporation of private equity into a portfolio, investors can strengthen their overall investment strategy considerably.
