ALTERNATIVE INVESTMENTS: Private Equity
Driven by success - Jul 23, 2021
Private equity organizations use their capital to buy investments, much like any other investment fund. However, they tend to buy the whole company (or often times a majority share), getting actively involved in the management of the company with a g
Private equity often attracts interest as investors seek alternative investment opportunities in more challenging market times. Private equity organizations have been around for many years. Kohlberg Kravis Roberts and Co. (KKR) and Onex Corp., under Gerald Schwartz, are well known examples of private equity firms that have been active in North America for decades.
Private equity organizations use their capital to buy investments, much like any other investment fund. However, they tend to buy the whole company (or often times a majority share), getting actively involved in the management of the company with a goal to force operational improvements in operations to unlock value. Alternatively, they may provide capital for potentially attractive start-up projects (often termed “venture capital”). All of this will generally be conducted away from the scrutiny of public stock markets — hence, the name “private equity”.
For many private equity firms, the exit strategy from an investment may be to take a company public at some point in time. In other situations, the private equity firm may sell the company after improving its operations or acquiring other operations to make the company larger.
Historically, returns have been good in this sector. Two drivers for this success are low interest rates and strong equity markets, which have allowed private equity groups to advantageously use leverage and to sell their holdings at a profit in the public arena at the right time.
In the past, investing in private equity was only available to larger institutional investors such as pension funds or high net worth individuals. This was because of the high cost to invest in many of these firms – often in excess of $5 or 10 million, depending on the size of the private equity fund. Many institutional investors continue to invest significant portions of their assets in private equity. The Canada Pension Plan Investment Board (CPPIB) had 16 percent of its $392 billion in assets allocated to private equity as of March 31, 2019.* For the CPPIB, the amount of assets invested in private equity has increased substantially over the years.
More recently, private equity products have become increasingly available to ordinary individual investors.
If you are interested in exploring opportunities in this investment class, we can help. Contact your CGWM Investment Advisor to learn if a private equity investment is appropriate for your portfolio. *This includes pure-play Private Equity investing programs. Real Estate is included as separate.