Private equity refers to a type of investment that involves the acquisition, management, and sale of equity or ownership stakes in privately held companies. Private equity firms raise funds from institutional investors, pension funds, endowments, and individuals to use those funds to invest in companies that are not publicly traded on stock exchanges. Private equity funds target investments in companies they view as having growth potential or operational improvements, aiming to create value and generate enhanced returns upon exit.
High net worth investors often include private equity funds in their investment portfolios for several reasons. The first reason is access. Private equity funds provide access to investment opportunities that are not typically available to smaller, individual investors. These funds have established networks, expertise, and resources the leverage in seeking to identify and evaluate promising private companies. High net worth investors can typically access these investments, and benefit from the due diligence and investment selection capabilities of experienced private equity managers.
Due to the access and opportunity set provided by private equity, the second reason is the potential for higher returns. While history may not be indicative of future performance, private equity has historically delivered attractive returns compared to public market investments over the long term.
Private equity also offers diversification benefits by providing exposure to a different asset class compared to traditional investments such as stocks and bonds. This exposure to non-traditional assets classes may work to lessen the volatility in a client’s overall portfolio. However, with the opportunity for enhanced returns comes additional risks. Private equity funds are subject to additional risk, including, but not limited to lack of liquidity, volatility of returns, the loss of all principal invested, restrictions on transfer, absence of information regarding valuation and pricing, and lessened regulatory requirements. High net worth investors should ensure they understand the risks associated with any private equity fund investment.
Private equity is an important aspect of what we do here at Gryphon from an investment process and philosophy standpoint. Where clients are qualified and comfortable with the illiquidity and non-traditional aspect of the asset class, our Investment Committee believes private investments serve an important role in the overall construction of an investment portfolio.
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product.