Navigating the World of Private Equity– What to Consider

private equity with financial advisor
August 15th, 2023 0 Comments

Private equity is now becoming a more popular option for individuals who want to expand their portfolios and potentially lower their long-term risks. Also, it is no longer an exclusive option for wealthy investors.  A private equity fund can be an attractive option for investors for a broad array of reasons, but because private equity can vary so widely, it’s best to begin with a plan.  

An experienced wealth management firm like Saddock Wealth can provide an in-depth private investment review and analysis. It can help craft private equity strategies that align with an investor’s goals. Foundationally, however, it’s helpful for new investors to understand the basics of private equity, and the advantages and possible disadvantages before they take a deeper look into this area of investing. 

What is Private Equity? 

Private equity is a term that describes investments representing an equity interest in a privately owned company. Essentially, any business, not a public company, can technically fall under this umbrella. Additionally, it can equate to millions of businesses in the United States versus a few thousand businesses in the U.S. that are publicly traded on the stock market. 

Private equity shares can be purchased from an issuing company or part of a larger fund.  The private equity industry has grown dramatically in recent years through increased allocations to these alternative investments. In 2021, private equity buyouts totaled more than $1,1 trillion, roughly double that of 2020. 

What Are the Benefits of Private Equity? 

There are a few reasons why the popularity of private equity is on the rise, and private equity may be attractive to investors. These reasons include the following:

Diversity and Reducing Overall Risk 

 While private equity can be riskier, individuals who have investments in a wide array of asset categories may want to investigate private equity opportunities as well, just to make their portfolio even more diverse. Private equity returns or performances are not necessarily tied to the stock market or other factors.  

Therefore, while stocks and bonds may rise and fall at similar rates and time periods, private equity may perform differently. As such, investors reduce their overall risk while expanding their portfolio’s different types of investments.  

Broader Opportunities for Financial Success  

 Because the pool of privately owned companies is so much greater, there are more opportunities to identify businesses, startups, and funds that could result in attractive investments over time. Simply put, there is room for more distinctive and potentially profitable investments because the number of options is much larger than the public market. 

Potential for Bigger Returns  

Private companies can include startups or long-established businesses that are not publicly owned, and private equity funds can include a mixture of these companies. Investments in private companies or funds can yield higher returns due to reduced scrutiny and potentially faster growth.  This lack of scrutiny can mean more risk for investments in individual companies as well, however, especially for new or startup businesses. As a result, the smartest move is to partner with an expert that can provide sound guidance on options that correspond with an individual investor’s risk tolerance.  

What Are the Drawbacks of Private Equity? 

As stated, the risk of private equity alone is naturally greater because there is much less public oversight and because many private companies or funds entail relatively new or underperforming companies.  The best way to mitigate the risks of private equity is to diversify and ensure that private equity is not the only type of asset in your investment portfolio. In other words, it’s fine to invest in private equity, but it’s smart to also have additional types of investments like stocks, bonds, and real assets such as art or real estate in your portfolio. 

In addition, depending on the individual fund, the cost to invest in private equity or private funds can be relatively high. Some private equity funds require $100,000 or more to invest, while others may only be open to investors by invitation only. 

Partner with Saddcock Wealth to Elevate Your Investment Strategy with Private Equity  

At Saddock Wealth, we can help you navigate the world of private equity by identifying opportunities and options that fit in with your risk tolerance. We can also evaluate and help you achieve your short-term and long-term goals.  

With Saddock Wealth at your side, you can explore new types of investments that can have high rewards over the long term. By working with our financial advisors, you’ll gain valuable insights into the intricacies of private equity.  

Connect with us today to get started. 

Financial and Wealth Portfolios, Financial Planning
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