07.11.17

Are you backing the right horse?

Private equity (PE) as an asset class has consistently outperformed listed investments in Australia.

By Tom Matthews

Where to invest your money is a question commonly debated with colleagues, friends and even with taxi drivers.  However, current investment themes in Australia do not make great reading, namely:

  • Cash rates are at a historic low and could fall further
  • Australian listed equities seem inflated, with the ASX 200 trading at an almost 10-year high
  • Australian bond yields have declined
  • Nervousness in Australian residential property, with a noticeable slowdown in auction clearance rates and investor housing finance
  • Turbulence in the value of Bitcoin and other crypto-currencies, with some claiming a speculative bubble.
Outperformance of Private Equity investments

What some investors (not just taxi drivers) do not know is that private equity (PE) as an asset class has consistently outperformed listed investments in Australia.

Accessing PE investments

PE investments have historically been limited to institutions via pooled investment structures.  Now, there are PE managers that specialise in ‘deal by deal’ investment opportunities.  These PE managers provide sophisticated investors access to PE investments.

Not for everyone

Whilst PE investments can generate stellar returns, they are not for everyone.  Potential PE investors will need to consider:

1)    Illiquidity

PE investments tend to be illiquid.  Investors cannot access their invested capital for many years (typically until the investment has been sold).  The timeframe for PE investment is usually 3 to 5 years.

2)    Risk still exists

Before making an investment with a PE manager make sure you do your research.  Forensically examine its investment strategy, track record, sector focus, continuity of team, remuneration structure.  Ensure that its interests are aligned to yours.

3)    Fees

PE typically charge higher fees than those associated with other asset classes.  Fees erode investors’ returns. When doing your homework, focus on investment track record returns net of fees.

Getting started
If you are interested in accessing PE investments and want to find out more, then please send me an email at info@pemba.com.au, I’d be happy to share my thoughts.

Photo by Mathew Schwartz on Unsplash

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