Investing in private equity – means investing in companies that are not publicly listed , has grown in an class over the last a few years. Professional investors suggest that private equity returns are attractive but less volatile than stock market returns.
However some say that this is purely down to the use of borrowed money, a lack of liquidity and the absence of “Market-to-Market” accounting. However one thing is hard to dispute. Through an environment which we have undergone from frenzied boom to painful bust for growth companies and in which interest rates and inflation are both rising.
It hard to imagine any realistic scenario where private companies valuations haven’t suffered too. It hard for private equity firms to borrow money to take firms private and woobly equity market also means that exit valuations are less certain. Regardless, of holding periods investors have the luxury of keeping their asset simple.
Whenever, you want to invest in private equity, I would like you to think in term of just five asset classes:bonds,equity,property,cash and gold. Each of these assets have different qualities which make them useful under different economic circumstances. In this case private equity is your exposure and not something you require to own as a distinct asset class.
Another, thing is that even if you are tempted to invest in private equity, you might be best to wait it for now.