What do your clients really know about private equity investment opportunities? They can be forgiven their skepticism in the wake of the PE implosion in 2008. But today, opportunities abound for the diversification, enhanced return potential and access that private equity now offers.
Endowments, public and private pension funds, and high net-worth individuals have allocated to private equity (PE) for the past three decades as the asset class has traditionally outperformed other investment options. According to the NACUBO-Commonfund Study of Endowments, the average endowment had an asset allocation of 14% to private equity in 2012.
Private equity firms are now targeting mainstream investors with new products as the market for institutional money has crested, while new legislation such as the Jumpstart Our Businesses Startups (JOBS) Act has simplified the process for firms to raise money from retail investors.
Here are seven considerations for advisors in preparation for the coming onslaught of PE product announcements:
1. Due Diligence and Performance of PE Manager – According to Preqin, a PE information service, top-performing PE managers tend to show persistent outperformance over time. Advisors should research a management team's background and performance record before investing in a particular fund or product.
2. New Terminology – PE products come with a unique set of acronyms and terminology. Advisors should understand these new terms before investing.
