Capitalizing on the accessibility of niche markets has been made easier
Private Equity Opens Up to Individual Investors
For years, private-equity funds have been a exclusive realm for ultra-high-net-worth individuals and institutional investors such as pension funds and sovereign wealth funds. However, this is changing as more funds are becoming accessible to individual investors.
One such fund is the Oaktree Strategic Credit Fund, which allows investors to invest in the founder share class in sterling. This comes with a discount on the annual management charge, reduced to 1.8% from 2.1%. The fund targets a net distribution yield of 8%-10%, and a net levered return of 9%-11%.
Another example is EQT Nexus, a private-market portfolio with an emphasis on private equity and infrastructure, managed by EQT, the world's second-largest private-equity firm. EQT has grown net assets to €1.1 billion and delivered a return of 20.2% in sterling since June 2023. The minimum investment for EQT Nexus is £26,000.
The Franklin Lexington PE Secondaries Fund, another option, focuses on "secondaries", acquiring private-equity investments from other market participants. Since 1990, secondaries managed by Lexington have delivered an average internal rate of return (IRR) of 16.0%. The minimum investment for this fund is also £26,000.
These funds, often referred to as semi-liquid or evergreen private equity funds, provide more frequent liquidity and lower minimum investments, making private equity more accessible to individual investors.
The trend towards private equity is not surprising given the historic performance of these funds. Over the past 25 years, private equity funds have generally delivered higher annualized returns compared to global listed equity funds, often outperforming by several percentage points per year. A $10,000 investment in private equity might significantly outperform the same amount invested in listed equities over 25 years.
However, it's important to note that these returns come with wider variability and potentially higher risk in some cases. The newer semi-liquid or evergreen structures reduce investor lock-up periods compared to traditional 10-year commitments, but still encourage a long-term horizon.
Oaktree Capital Management, a global specialist credit investor, is another player in the private equity market. The company has a focus on downside risk in private direct lending and opportunistic credit.
Lexington, an expert secondaries manager with a solid record, has been active in this market since its inception over 30 years ago.
In summary, individual investors accessing private equity through semi-liquid or evergreen funds may capture a meaningful annualized return premium of several percentage points over global listed equity funds across the past 25 years, combined with improved liquidity and lower minimum investment thresholds, making private equity more accessible beyond institutional investors.
Investors can now invest in private equity funds, such as the Oaktree Strategic Credit Fund and the Franklin Lexington PE Secondaries Fund, which have lower minimum investments and more frequent liquidity, opening up the private equity realm to individual investors.
Private equity funds, like EQT Nexus managed by EQT, the world's second-largest private-equity firm, have historically delivered higher annualized returns compared to global listed equity funds, making them an attractive investment option for individual investors seeking a significant return premium.
