About Private Equity
Private equity refers to investments in companies that are not typically publicly traded.
Privately owned companies include many well-known companies and products across industry sectors. From retail and consumer goods, to healthcare services, software to industrials, chances are that you come into contact with private equity-backed businesses every day.
Many of the world’s largest and most sophisticated institutional investors and pension funds are increasingly allocating capital to this alternative investment class, and it is estimated that $5.3 trillion is invested globally in private equity-backed companies.
Private equity typically involves an active ownership model, where managers proactively work with company management teams to deliver strategic change, operational improvements and drive value creation.
A long-term asset class driving returns in excess of public markets
Private equity returns have outperformed public markets over multiple cycles, and Neuberger Berman believes this outperformance has been driven by a number of compelling advantages over public markets:
- Long-term investment horizon – a focus on driving long-term value through strategic change
- Control investments – an ability to control strategy, business development and performance
- Active ownership – a hands-on approach by a team of experts; private equity managers tend to be sector specialists
- Alignment of interests – management teams and private equity managers fully aligned to drive growth
10-YEAR RETURN AS AT 30 SEPTEMBER 20221
Access to a wider opportunity set of companies
Private equity investment offers diversification away from listed markets, giving access to a wider opportunity. It is now estimated that there are 18,000+ private equity-owned companies in North America alone.2 These companies represent all sizes and industries, and they offer the potential for returns that outperform the public market.
Over the last 20 years, the number of public companies has been declining, reducing choice for investors where concentration in sectors such as natural resources, financials and, in the US, large technology companies have become increasingly more common. Investing in private equity gives investors an exposure to a wider opportunity set of companies, access to fast-growing companies in sectors that are harder to reach through public markets, and businesses that are better suited to the private markets.
Investing in private equity
Private equity is not the simplest asset class to navigate or access. Barriers to entry can be high and manager selection is key.
As with all investments, private equity comes with risks. By its very nature, private equity is an illiquid asset class and traditional private equity funds have been difficult for private investors to access for several reasons, including a high minimum investment commitment. Listed private equity funds provide a structure that addresses many of these common barriers for individuals wishing to access the asset class.
The Association of Investment Companies has further resources on the sector, here.
1For illustrative purposes only. The benchmark performance is presented for illustrative purposes only to show general trends in the market for the relevant periods shown. The investment objectives and strategies of the benchmarks may be different than the investment objectives and strategies of a particular private fund, and may have different risk and reward profiles. A variety of factors may cause this comparison to be an inaccurate benchmark for any particular type of fund and the benchmarks do not necessarily represent the actual investment strategy of a fund. It should not be assumed that any correlations to the benchmark based on historical returns would persist in the future. Past performance is no guarantee of future results. Indexes are unmanaged and are not available for direct investment.
Source: Private equity data from Burgiss. Represents pooled horizon IRR and first quartile return for Global Private Equity Buyout as of September 30, 2022, which is the latest data available. Public market data sourced from Neuberger Berman.
The benchmark performance is presented for illustrative purposes only to show general trends in the market for the relevant periods shown. The investment objectives and strategies of each fund in the benchmark may be different than the investment objectives and strategies of NBPE and may have different risk and reward profiles. A variety of factors may cause this comparison to be an inaccurate benchmark for any particular fund and the benchmarks do not necessarily represent the actual investment strategy of a fund. It should not be assumed that any correlations to the benchmark based on historical returns would persist in the future. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.
2 Pitchbook, October 2020.