When most Americans shop, they do it at big department stores or online at popular websites. It's a predictable experience, with nationally known brands selling at competitive prices. Exploring antique shops, on the other hand, appeals more to the adventurer. Will this be the day the antique hunter spots a mahogany dresser whose value has been obscured by years of dust and neglect?
You could compare these shopping experiences to the difference between buying publicly listed stocks and investing in private equity. With apologies to Gertrude Stein, a share of IBM is a share of IBM is a share of IBM. Private equity, by contrast, is more unique, complicated and unpredictable—more like finding the neglected piece of furniture that, in the right hands, could become a treasure.
Private equity could be considered one of the pillars of alternative investments. However, hefty minimums, illiquid holdings, long lock-ups and keeping track of capital calls have kept private equity off-limits to mainstream investors. No surprise then that institutional investors have accounted for the bulk of assets in private equity, while very high-net-worth individuals, people who can meet $5 million-plus minimums, have made up the rest.
So, how do these investors access private equity? Institutional investors typically access private equity through primary, secondary or co-investment opportunities. A primary investment is an investment in a newly offered private equity fund in which the majority of capital has not yet been "put to work" and portfolio holdings are largely unknown, except for strategy or geographic focus. A secondary investment is an investment in a more mature private equity fund (which was once a primary investment) in which capital is largely invested and where there is greater knowledge of portfolio holdings. A co-investment provides an investor with an opportunity to invest alongside the private equity firm through a direct investment into a single portfolio company.
