Investing in private equity

Investing in private equity

Traditional private equity funds are difficult for most private investors to access. Minimum commitment sizes are typically at least £5m, and investors commit to a long term obligation to fund a private equity managers’ investment programme. This commitment is typically through a ten year limited partnership fund, with a five year investment period, and requires careful management of cash resources to ensure that all commitments can be met. It can also be difficult to sell fund interests, as secondary market liquidity can be limited.

Like all asset classes, manager selection is key. However, unlike traditional asset classes such as equities or bonds, the dispersion of returns in private equity is far more pronounced. Historically, top performing private equity managers have materially outperformed public markets; the same cannot always be said for median or poorer performing managers. To safeguard against mediocre returns, extensive due diligence on the private equity manager, its track record, investment strategy and competitive differentiators is essential, as are strong relationships with funds managed by top performing firms, which are often oversubscribed and hard to access.