Private equity: Are the doors to the most exclusive club in town finally opening?
Private equity has carved out a record as one of the best-performing asset
classes of the last 25 years – for the exclusive benefit of a privileged few. Now, at last,
private investors can get in.
Trillions of dollars have flowed into private equity in the past twenty-odd years. Global private capital assets under management reportedly more than tripled in the last decade alone, to around US$14.5 trillion and private equity accounts for two-thirds of that.
In that time, investors have enjoyed substantial returns. In the 25 years from 1999 to 2024, annualised returns on private equity funds surpassed global listed equity funds by 7.3 per cent a year.
Put differently, a $10,000 investment in a basket of private equity funds could have grown to around $200,000 over 25 years. That compares to around $37,000 from an equivalent investment in global listed equities. Of course, the usual caveat on past performance applies: it’s not a guide to the future.
Even a relatively small allocation to private equity has historically delivered an outsized impact on investor portfolios. In a recent report, UBS looked at returns from a traditional portfolio (60 per cent equity and 40 per cent bonds) and one with a 20 per cent allocation to private equity (and a 40/40 equity bond split). It found the latter to have outperformed the 60/40 benchmark by nearly a third over the nearly 20 years to the first quarter of 2024.
However, not all investors have been able to benefit.
A very exclusive private club
Historically, private equity has been a niche domain reserved for institutional giants and venture capital elites – the most exclusive private club in the investment world.
The industry is dominated by a number of investment giants. They raise multi-billion dollar funds to buy companies: either from other investors or owners or by acquiring public firms and taking them private. The goal is to grow the business – through strategic growth, by introducing operational efficiencies, or better management, etc. – and eventually sell it at a profit.
Historically, access to private equity funds has been severely restricted due to high investment minimums (typically millions of US dollars), complex regulatory frameworks, and a requirement to lock up capital for 10 years or more. Unsurprisingly, the only investors able to satisfy those demanding entry prerequisites – and potentially reap significant rewards – were institutional investors, like pension funds, endowments, sovereign wealth funds and large financial corporations.
Private investors have been forced to watch from the sidelines.
According to Deloitte, retail investors’ slice of the private capital pie is currently tiny (under $1 trillion, roughly seven per cent of the $14.5 trillion global private capital market) across US and Europe. But that number might be on the verge of a major shift.
Doors finally opening to private investors?
In the same report, Deloitte predicts that, if recent trends continue, retail investors’ allocations to private capital will grow exponentially from the end of 2024 through 2030, from an estimated $80bn to $2.4 trillion in the US, and more than triple in the EU – from €924bn to €3.3 trillion.
A major driver is the emergence of semi-liquid or evergreen private market funds, private market investment vehicles structured similarly to unit trusts with a few more restrictions. Capital can be invested at regular intervals and there are periodic liquidity windows (usually once a quarter), compared to a 10-year capital lock-up typical for conventional private markets funds, though a long-term horizon is still encouraged.
Minimum investment thresholds can be as low as £10,000, compared to $5-$10m for traditional private markets funds.
Many of the world’s leading private equity and alternative investment managers are creating evergreen versions of their flagship funds for private investors.
EQT, Europe’s largest private equity firm, has developed the Nexus platform designed specifically for this segment. Brookfield and Oaktree, leaders in alternative assets and private credit, have joined forces to create Brookfield Oaktree Wealth Solutions, which delivers institutional-quality investment opportunities to private investors. World-leading secondaries investor Lexington Partners, part of Franklin Templeton, is also opening up its offering.
Private investors are increasingly embracing these innovative structures, which have become one of the fastest-growing segments of the asset management industry. In the U.S. alone, net assets under management totalled $381bn across 351 semi-liquid evergreen funds as of Q3 2024, with more than half of these funds having been launched just in the last four years.
Just because you now can – does it mean you should?
The investment case for an allocation to private equity are hard to ignore. There are whole swathes of the economy that simply cannot be accessed through public market investment today.
Of the 159,000 companies generating $100m or more in annual revenue, around 140,000, or 88 per cent, are privately owned. It is a vast opportunity set, which dwarfs public listed markets.
Moreover, the gap is widening, with public markets continuing to shrink. Last year, global public equity markets saw a net decline of over $120bn – three times the total of the previous year. This was mainly driven by a surge in delisting.
Closer to home, the London Stock Exchange lost 88 companies – the largest exodus since the global financial crisis. 14 were taken private, in transactions worth a combined £16.5bn: notably British cybersecurity firm Darktrace, acquired by US-based private equity giant Thoma Bravo for approximately $5.3bn, and investment platform Hargreaves Lansdown acquired by a private equity consortium led by CVC Capital Partners in a deal valued at £5.4bn.
Increasingly, some of the best growth stories are happening off-exchange. The opportunity may well be just too big to ignore. Investors limiting their choice to equities and bonds risk missing out. Even governments around the world recognise this: they are advocating – and indeed legislating – for greater exposure to private equity and private markets.
What was once the domain of institutional giants is opening up to individuals looking to diversify their portfolios beyond equities and bonds.
With new fund structures, lower entry points, and a plethora of credible funds available, the door to private equity and other private assets is no longer sealed shut.
Want to learn more? Download your free guide here
If you are an experienced investor curious about the world of Private Equity and how you might now be able to access this asset class, Wealth Club has produced a comprehensive free guide: “Investing in Private Equity and Private Markets”.
This guide explains what Private Markets and Private Equity are, how they work, the potential benefits, and importantly, the risks involved. It also details how eligible investors could potentially invest from just £10,000.
Private Markets investments are high risk and illiquid. You could lose your capital. Only High Net Worth Individuals or Sophisticated Investors are eligible to invest. Promotion issued by Wealth Club Ltd, a non-advisory service.