Three reasons to invest in private equity
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Three reasons to invest in private equity

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Private equity has become an increasingly viable option for many individual investors seeking to diversify their portfolios and mitigate volatility. Here are a few reasons to consider PE as part of a strategic allocation to alternatives.

1 Access to a wide field of opportunities not offered in public markets

For every Amazon or Apple traded on public stock exchanges, there are a thousand privately held businesses seeking investor capital to grow. Roughly seven million private incorporated businesses currently operate in the United States, a third of which employ at least 50 workers. These companies represent every major industry, from technology to manufacturing to retail, and include some of the fastest growing and most disruptive startups.

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2 Strong long-term return potential

Private equity has historically outperformed broad public stock indexes. Over the past 20 years, the PE funds in the Cambridge Private Equity Index returned over 15% annually, beating US public indexes by more than 500 basis points, using modified public returns (mPME3 ). (The modified return calculation provides a better comparison to private equity performance, replicating public market conditions according to the private fund cash flow schedule.)

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3 Historical resilience during market downturns

In addition to delivering strong overall returns over time, private equity has historically outperformed during drawdowns in public equity markets, including the most severe downturns such as the dotcom collapse and the 2008–09 financial crisis. Because private equity is insulated from the daily price swings of public markets, investors often look to PE as a way to mitigate volatility and potentially improve a portfolio’s risk-adjusted returns.

Strong track record during market downturns
Calendar year return (%)
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Where does PE fit in a portfolio?

Private equity is considered an “alternative investment” used by many investors to diversify traditional stock and bond portfolio allocations.

Private equity provides access to a broad range of investment strategies and may exhibit diversifying correlations to traditional stock and bond investments. As a complement to public equity investments or other alternative asset classes, private equity has the potential to reduce risk while maintaining or enhancing returns. As a result, we believe private equity can provide more consistency for investors with long-term financial goals such as retirement and long-term care.

How PE can fit in a strategic asset allocation | Sample diversified portfolio
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Risks of investing and important disclosures
There are no guarantees a diversified portfolio will outperform a non-diversified portfolio. Diversification does not guarantee a profit or ensure against loss. Past performance is no guarantee of future results.

Private equity may not be suitable for every investor, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Private equity investments are subject to various risks. These risks are generally related to: (i) the ability of the manager to select and manage successful investment opportunities; (ii) the quality of the management of each company in which a private equity fund invests; (iii) the ability of a private equity fund to liquidate its investments; and (iv) general economic conditions. Private equity funds that focus on buyouts have generally been dependent on the availability of debt or equity financing to fund the acquisitions of their investments. Depending on market conditions, however, the availability of such financing may be reduced dramatically, limiting the ability of such private equity funds to obtain the required financing or reducing their expected rate of return. Private equity funds, as well as securities that invest in such funds and companies in which such funds or securities may invest, tend to lack the liquidity associated with the securities of publicly traded companies and as a result are inherently more speculative.

All equity investing involves risks of fluctuating prices and the uncertainties of rates of return and yield inherent in investing. Stock of an issuer in a fund’s portfolio may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial condition. Securities of small and mid-sized companies may entail greater price volatility and less liquidity than investing in stocks of larger companies.

This information is proprietary and cannot be reproduced or distributed. Certain information may be received from sources Voya Investment Management (“Voya IM”) considers reliable; Voya IM does not represent that such information is accurate or complete. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial data. Actual results, performance or event may differ materially from those in such statements. Any opinions, projections, forecasts and forward-looking statements presented herein are valid only as of the date of this document and are subject to change. Nothing contained herein should be construed as (i) an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Voya IM assumes no obligation to update any forward-looking information.

 

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