Private Market Investing

What is Private Equity Investing?
This term may be unfamiliar to some investors but worth a deeper dive as a possible investment recommendation.

Most people are familiar with investing in shares of a public company or trading on a stock exchange. This may be the purchase of an individual security, or via a mutual fund or an exchange traded fund (ETF). An example of a publicly traded stock would be Royal Bank of Canada shares, which can be purchased on the Toronto Stock Exchange. These shares are traded daily and can be bought and sold easily.

A private equity investment is an investment in a business that is not publicly listed, these are usually medium to large companies. A few examples of large private companies are IKEA and Lego. Two examples of companies that were public and have gone private are Burger King and H.J. Heinz . A private company does not have the same reporting requirements as a public company and investment into these companies cannot be purchased or sold easily.

How can investing in a private equity fund be a benefit to a client?
• There is a low correlation of public to private markets and this can balance out overall portfolio returns by lowering volatility.
• There is the potential for higher returns by investing in differentiated companies.
• There is less volatility as private companies are not traded on a daily basis and can withstand the “noise” of the day-to-day trading.
• Suitable for investors seeking long-term growth with a medium to high risk tolerance
• Private markets are a growing market segment – According to Preqin, AUM is expected to climb by close to $10 trillion to $18.4 trillion by 2026.

Who is currently investing in private equity markets?
Many pension plans are increasingly allocating funds to private equity investments, such as the CPP investment board and the Ontario Teachers Pension plan. Both are excellent examples of large investment pools with a long-term investment cycle.

How can an investor get access to private equity investing?
A Private Equity Fund is an excellent way to get exposure to a diversified pool of companies with experienced portfolio managers. Similar to a mutual fund or ETF investment, a private equity fund has multi manager sourcing across a large geographic area and a due diligence process. This results in a diversified offering at a low entry investment minimum, making this accessible for investors outside of institutional clients.

Who is the ideal client for a private equity fund?
Due to the longer-term nature of this type of investment, the ideal client would be a client with a high net worth, over 5 million, or investable assets in the 1 million range. A client could also qualify with an income over $200,000 or a family income above $300,000. Allocation into this investment pool is recommended in the 5-10% range.
For example, a client with 1 million in investable assets may allocate between $25,000 to $100,000 in a private equity fund.

If this may be of interest to you, please reach out to us to see if private equity investing could fit into your overall portfolio.

Source: Preqin, Venture Capital AUM