How Retail Investors Can Get a Private Equity Boost
Private equity as an asset class has outperformed stocks, bonds, hedge funds and REITS over the last 10 years. Unfortunately, individual investors remain at a disadvantage when it comes to gaining exposure to PE investments, said David Carlson, head of solutions research at AMG Funds (AMG) - Get Report .
Historically, retail investors may have gotten exposure to private equity through their pension plans: Some of the biggest and best known public pension plans -- CALPERS, CALSTRS, and New York State, for example -- have target PE allocations of 10% or greater. Similarly, large educational endowments such as Harvard, Stanford and Yale have invested in PE for decades, with current target allocations of 18%, 23% and 31%, respectively, according to AMG Funds.
However, exposure to this strong performing asset class is diminishing as the burden of retirement savings and investing has now been shifted largely onto individual investors.
"Private equity is a difficult asset class to access for individual investors because of the high initial investments required, the longer lock-up period and transparency worries," said Carlson. "We are seeing a transition where it is becoming harder for an individual to access private equity."
Carlson said individual investors should ask their advisors about the best way to add private equity exposure to their portfolios, perhaps in the form of a liquid alternative fund. AMG Funds recently opened the AMG Pantheon Fund to accredited investors for a minimum investment of $25,000. The fund uses multiple managers to seek diversification across all key PE categories -- manager, stage, vintage, industry and geography -- and targeting opportunities across the private equity universe.
As for the idea of investing in a publicly traded PE company like Blackstone (BX) - Get Report , KKR (KKR) - Get Report or the Carlyle Group (CG) - Get Report , Carlson advised against it, saying "that's not true private equity."
"What you are getting there is access to the earnings stream of a private equity company, not necessarily the deals that they are doing," said Carlson.