Why Invest in Private Equity?

Section Outline:

• Why Invest in Private Equity?
• Who invests in Private Equity?
• Why have retail investors been locked out of Private Equity?

Why invest in Private Equity?

1. Private equity has proven to provide far better returns than stocks and bonds.

Private equity has had average annual returns of 10.64% over the past 10 years.¹

And more specifically, private “growth” equity (the area of investing we focus on at InvestX), which is an investment in a late-stage private company, had an average annual return of 11.67% over the past 10 years.¹

2. Private Equity provides improved portfolio diversification, which decreases market risk.

Private equity investments are usually much less correlated to the market. Investors who watch the market know that it bounces up and down all of the time.

This can be extremely stressful and often causes investors to make emotional decisions and sell at the wrong time. Having a diversified portfolio will smooth out those bumps. You don’t lose money every time the market goes down.

Who invests in Private Equity?

Unfortunately, only 1% of the investing population has had direct access to private equity – institutional investors (e.g., pension funds) and the ultra high net-worth individuals.
Who makes up this minute 1%? Below is a breakdown of the main sources of private equity money in Canada: ²

• Pension funds: 12%
• Corporations: 13%
• Individuals: 20%
• Foreign sources: 47%
• Other institutions: 8%
• Retail investors: 0

Below is a 2014 Bain & Company survey of LPs in Private Equity Funds:

90% say that their Private Equity exceeded their expectations

92% say that they believe Private Equity investments will outperform the public markets

98% say they plan to maintain or increase the amount of money they have in Private Equity

Why have retail investors been locked out of Private Equity?

For two reasons:

1. Very high investment minimums required to invest – minimums often start at $1 million and are sometimes as high as $10 or $20 million, which leaves 99.9% of investors out of the Private Equity markets.
2. Limited access/information – there is no public market for finding private equity investments and regulators have disallowed general advertising of private equity deals.

For the first time, InvestX Financial Canada provides accredited investors with access to institutional-quality private equity deals.
 

Sources:

1. https://www.cambridgeassociates.com/benchmarks/

2. McKinsey report on Private Equity in Canada