Private equity-backed companies are a vital part of the economy and a significant driver of economic growth. In France, for instance, 120 of the most promising startups are doubling their turnover every year, according to consultancy firm Roland Berger. By contrast, companies in the CAC index are growing at just 3% a year on average.
As Invest Europe points out in the report, private equity isn’t niche, rather it is a cornerstone of the European economy and an integral part of its society.
A building block for portfolios
Many investors, including family offices, are missing out on this growth potential. In part, this is because of private equity’s perceived lack of liquidity and barriers to entry. These characteristics mean investors often lump private equity assets in with a broader basket of alternative assets, such as hedge funds or structured products, says Edouard Nouvellon, founder of European financial consultancy Risk Return. You can read Nouvellon’s full report on the role of private equity in the family office portfolio by clicking here.
“Private equity forms the major part of the economic fabric of many developed countries,” Nouvellon says. “Therefore, it shouldn’t be viewed merely as an alternative asset, but rather a building block in the constitution of a portfolio – much like bonds.”
Nouvellon argues that the liquidity offered by listed shares often leads to a bias in their allocation, with the allocator forgetting that listed shares are only a subset of the broader equity asset class.
Accessing more of a company’s lifecycle
What about illiquidity?
There are, of course, risks to investing in private equity. But one that is often cited – that investors must give up liquidity by locking up capital for longer periods of time – is not clear cut. Some investor surveys have started to hint at the disutility of liquidity, in part because the ease of buying and selling listed equities can cause bouts of market volatility that private equity investors avoid. The assumption, therefore, that less liquidity brings more risk, is debatable, says Nouvellon.
Read our full report Allocating for the family office — what role might private equity play? written by Edouard Nouvellon for Titanbay, by clicking below.