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Thinking About Investing in Private Equity? We’re Weighing the Pros and Cons
In our latest episode of Off the Wall, Dave Armstrong and I sat down with George Coyle, Chief Investment Officer of Triangulated Capital Management, to dig into the pros and cons of “private” investing.
After a few decades of limited access to only the high-net-worth, private equity (PE) funds are suddenly opening their doors to the masses, signaling a shift in the market. In the episode, we unpack why this is happening, what it means, and how you should think about private equity moving forward.
The Why Behind the What
First, we discuss potential reasons behind the push to market private investments to everyone – it’s no longer an “exclusive club” reserved for qualified, high-net-worth investors.
As someone who spends considerable time poring over transcripts and research, George proposes three possible reasons he sees from where he’s sitting:
- Interest rates going up
- The success of Australia’s retirement system
- A misunderstanding of the relationship between volatility and risk
Should You Take Advantage, Or Take Cover?
Regardless of why, the trend is gaining steam, and you’ve probably had an uptick in people pitching you private investment products. In the episode, we weigh the pros and cons of adding things like Private Equity to your portfolio.
Historically, PE funds have had great returns – often quoted in the 20%+ range compared to the S&P’s annual average of a little over 10%. That being said, all three of us are skeptical that such returns will continue much longer. As Dave says, with the way fund managers are pushing this right now, it feels like a sign that PE may be at or near the top of its rise.
As far as cons, PE funds are notoriously illiquid investments, often requiring that money be locked up for years at a time – although, admittedly, some of those fund structures are changing. And often, private investments can make investors “captive” to their advisor. All things considered, there is a lack of flexibility that you don’t run into with publicly-traded stocks. Add to that the fact that PE funds often come with higher fees.
The Bottom Line
In short, we’re not saying that PE funds are bad investments. It’s important to keep an open mind when it comes to investing. That being said, private investments are hardly a prerequisite for successful investing. They may be worth pursuing, but only after understanding the impact of illiquidity and higher fees could have on your portfolio.
Tune in on Spotify, YouTube, and Apple Podcasts to hear the full conversation!
Erin M. Hay, CFA®, CMT®
Private Wealth Advisor, Portfolio Manager
A graduate of the University of Oklahoma, Erin began his investment management career with J.P. Morgan Private Bank. There, he worked with portfolio managers, traders and asset class specialists to bring tailored investment solutions to his team’s high net worth clients. However, intellectual curiosity would dictate both a change in geography and job description.
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