Investing in private equity has become an increasingly relevant strategy for investors worldwide. Although it is sometimes perceived as a 'new' option, this asset class has decades of history and has proven to offer consistent benefits in terms of returns, diversification, and access to a broad range of opportunities.
Decades of history and institutional trust
Private equity has existed since the mid-20th century and has gradually become a key component in sophisticated institutional investors’ portfolios. Endowments like Harvard and Yale — which have recorded some of the world’s highest returns — allocate a significant portion of their portfolios1 (between 50% and 60%) to private equity. Other institutional investors, such as insurance companies, pension funds, or family offices, typically allocate between 10%(1) and 30%1 to these asset classes.
Key advantages of private equity
Long-term returns
Historically, private equity has delivered higher returns than public markets. Buyout funds have generated annualised returns close to 15%2 over ten-year periods, consistently outperforming certain public equity indices and fixed income. These figures underscore the asset’s potential to enhance portfolio performance.
- Lower volatility3
Without daily market pricing, private equity valuations are less exposed to short-term market swings. This helps smooth out volatility and allows managers to execute value creation plans without constant market pressure. Studies by specialised asset managers show that adding private equity to a traditional portfolio (e.g. 70% equity / 30% bonds) can reduce overall risk while improving risk-adjusted returns.
- Low correlation2
Investing in unlisted companies means performance does not track public indices directly. Asset managers can focus on long-term value creation without daily scrutiny. In the U.S., the historical correlation between buyout fund returns and the S&P 500 has rarely exceeded 50%. This means public market volatility has a more limited impact on private equity portfolios, enhancing diversification.
- Access to private companies
The private equity universe includes companies not listed on public exchanges, many of which lead dynamic sectors and have strong growth potential. According to recent studies, only 13%4 of U.S. companies with over $100 million in revenue are publicly listed. In other words, investing solely in public markets leaves out 87% of mid- to large-sized companies. Private equity opens the door to this universe of investment opportunities.
From exclusivity to democratisation: a new era for private wealth management
Historically, private equity was reserved for institutional investors and ultra-high-net-worth individuals due to high minimums and complex fund structures (closed-end funds, capital calls, distributions, etc.). These barriers made access more difficult for private clients.
This is changing: in recent years, we have seen a progressive 'democratisation' of access through fully-funded evergreen funds. These open-ended structures allow periodic subscriptions and offer limited liquidity under defined conditions, removing the need for cumbersome capital calls.
This allows more investors to gain immediate exposure to diversified private equity portfolios via a single vehicle with lower minimums. However, it remains a sophisticated asset that requires a long-term commitment, tolerance for illiquidity, and a certain level of financial knowledge. These new access models are allowing more investors to benefit from private equity’s unique advantages.
Is it a good time to invest in private equity?
The current environment is especially favorable for private equity. After years of high liquidity and elevated public market valuations, the recent adjustment has created more attractive entry points for managers, who also have significant dry powder ready to be deployed.
We believe that better access, rigorous analysis, expert opportunity selection, and ongoing investor education will continue to support the growth of this asset class in portfolios. In particular, semi-liquid vehicles are enabling investor profiles that were previously excluded to participate, allowing them to possibly benefit from private equity’s differentiated returns.
Ultimately, integrating private equity into a diversified investment strategy can provide significant and sustained added value, leveraging a favorable environment and the tools that now make this historically exclusive asset more accessible.
Private Equity is one of Mirabaud four investment pillars, and we have dedicated portfolio strategies that include between 5 and 15% of private equity.
For professional investors only. All investments involve risks and investors may lose the amount invested.
1. Source; Bain Capital Report 2023
2. Source: Eikon – “10-year horizon pooled net IRR.” Includes all buyout funds. The average is based on 10-year returns from investments made during the periods from 1993–2003 to 2013–2023
3. Source: NB, FactSet. The chart reflects the combined portfolio return over the 25 years to June 30, 2018. It assumes quarterly rebalancing to the indicated allocation (e.g., 70% bonds, 25% equities, 5% private equity). Bonds, equities, and private equity are represented by the Bloomberg Barclays U.S. Aggregate Bond Index, the S&P 500, and the Cambridge Associates LLC U.S. Private Equity Index, respectively. The indices are unmanaged and not available for direct investment
4. Source: Advisorpedia: iCapital, Hamilton Lane, Capital IQ (as of February 2023).
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