Private equity has historically provided high rates of return with a low correlation with other asset classes (e.g., fixed income and stocks) thus making it an excellent diversification element in an investment portfolio.
Examples
United States - Yale Investment Office (www.yale.edu/investments/): 20% of assets under management invested in Private Equity. From 1998 to 2008 the net rate of return of the endowment was 16.3% p.a. Since its inception, the Private Equity portfolio had annual returns of 30.9%. A detailed case study can be found in Lerner, J.and Light, J. Yale University Investments Office, 2006, HBS Case Study.
Source: Yale Endowment Annual Report, 2008
Brazil - Funcef (www.funcef.com.br): 6% of assets under management invested in Private Equity. Began its investments in 1996 and increased its participation in the sector in 2004. Has more than 20 funds in its portfolio.
Source: Capital Aberto Especial: Private Equity and Venture Capital, 2008
Investment challenges
Investing in Private Equity is a challenging activity. Funds' information is not publicly available; there is a high discrepancy of returns among managers; investments have a long-term, low liquidity nature and a high amount of work is necessary on undertaking due diligence. All of these issues are even more severe when making investments in emerging market funds.
| Manager selection: | Challenge for foreign investors to tap highly capable, but locally based managers. High variability of returns among different managers |
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| Diversification: | A typical PE fund will invest in only 5-10 companies, not providing enough diversification for an investor to benefit from the returns of the asset class as a whole |
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| Monitoriong: | Need to perform time consuming activities as fund analysis, meetings, agreement revisions and reporting. Monitoring is made more difficult when the investor is not locally present |
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| Scale: | High minimum investments (e.g., $5 - 10mln) | |
| Access: | Best performers invite selected investors only | |
| Illiquidity: | 10 year close-ended funds, with minimal secondary market. Investment mistakes are difficult to correct |
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| Costs: | Necessity of having dedicated professionals specialized in this niche market and asset class |
A fund-of-funds is the solution to those challenges.
Get more information about this opportunity.
INVESTMENT FUNDS ARE NOT COVERED BY ANY GUARANTEE FROM THE ADMINISTRATOR, FUND MANAGER, INSURANCE OR FUNDO GARANTIDOR DE CRÉDITO – FGC. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RETURNS. IT IS HIGHLY RECOMMENDED THAT POTENTIAL INVESTORS READ THE FUND'S OFFERING DOCUMENTS BEFORE ANY INVESTMENT DECISION IS MADE.
