Why-private-equity

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Private vs public markets

The private equity market has grown massively over the last 30 years due to a long period of outperformance compared to the public markets. Consequently, top performing endowments and pensions funds have shifted their allocations from public market to private equity.

Nonetheless there is an intense debate between supporters and detractors of the private equity vs public outperformance. Michael Cembalest and his team from JP Morgan¹ published a remarkable and comprehensive paper on this matter. The short conclusion was that private equity outperforms public markets.

Beyond this question, private equity provides investment access to the best SMEs in the world economies, which is not possible in the public market. Public markets are nonetheless an attractive way to invest in some of the world’s largest companies (US$10bn market caps).

¹JP Morgan, June 2021. “Food Fight: An update on private equity performance vs public equity markets.” https://privatebank.jpmorgan.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/private-equity-food-fight.pdf

Why does private equity perform so well?

If you are looking to be invested with active selection and monitoring in these mid-market companies, investing in private equity with rigorous discernment and method is a great option - if not the best!

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A different type of governance/interaction between shareholders and management
Public markets are suited for large listed companies, as these are able to absorb the associated costs and constraints. However being listed can place onerous bureaucratic and governance requirements, which is often unsuitable for mid-sized companies.
For private equity backed mid-sized companies, the governance model is completely different: the interaction between the shareholders (the private equity fund) and the top management are extremely frequent (several times a month if not per week) with dedicated, smart and focused resources by the fund to each investment.
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A different focus between public and private
A public market analyst usually follows 10 to 20 or more companies depending on their size and cannot hold stocks in them to remain fully independent.
A private equity fund’s team has a sizeable incentive and commitment in their portfolio (which need to be carefully assessed). Typically, a deal Partner/ VP at a private equity firm follows a maximum of 3-4 investee companies. He/she is much more intimate and focused.
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In an ever changing world, private equity funds select and back the winners

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This website does not constitute an offer or solicitation to buy shares in any of the funds referred to herein for anyone in any jurisdiction in which such offer, solicitation or distribution would be unlawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation.This website is not intended to provide investment, tax or legal advice and none of its content should not be construed as a recommendation to buy, sell, or hold, any security, investment product or service. You are solely responsible for determining whether any investment is appropriate for you, based on your investment objectives, financial circumstances and risk tolerance.

Why a private equity portfolio?

Private vs public markets

Why does private equity perform so well?