Exploiting private market opportunities is now more economical for all

Exploiting private market opportunities is now more economical for all

In the world of finance, private-equity funds have long been a popular choice for large institutional investors and ultra-high-net-worth individuals. However, the landscape is changing, and these investment opportunities are now becoming more accessible to qualified individual investors.

One such expert in the field is Lexington, a renowned secondaries manager with a solid track record in the private-equity market, having been active since its inception over 30 years ago. With $40 billion invested in the asset class, Lexington boasts an average internal rate of return (IRR) of 16.0% since 1990 [1].

Private-equity funds offer a range of benefits that make them attractive to investors. For instance, they provide the potential for higher returns compared to public markets, with net returns around 14.3% over 20 years, outperforming broad public market indices [1][2]. They also offer diversification by adding private companies and asset classes to a portfolio, reducing overall risk [1][3].

Moreover, private-equity investments provide access to exclusive opportunities unavailable in the public market, such as investments in startups, early-stage companies, or firms undergoing transformation [1][3]. These investments typically have a multi-year horizon, allowing for strategic growth without the pressures of public markets [1].

However, there is a barrier to entry for many individual investors - minimum investment requirements. Traditionally, private-equity funds required minimums in the hundreds of thousands to millions of dollars. But, newer online platforms and feeder fund programs have lowered this barrier, offering minimums as low as €50,000 (about $50K–$60K) [3].

It's important to note that while private equity can offer attractive returns, there are risks and fees to consider. Higher fees and the illiquid nature of these investments can potentially lead to lower net returns for retail investors [4][5]. Therefore, investors should weigh these factors carefully and consider if the long investment horizon fits their goals.

For instance, the Oaktree Strategic Credit Fund offers exposure to private direct lending and opportunistic credit, two of Oaktree's main areas of expertise. The fund targets a net distribution yield of 8%-10%, and a net levered return of 9%-11% [1]. However, investors are typically required to lock up their capital for periods of 10 years or more.

The shift towards private-equity investments is not surprising given the decline in initial public offerings (IPOs) and the shrinking number of public companies. In fact, since 1996, the number of public companies has decreased from 7,300 to 4,300 today [1]. Consequently, to gain exposure to private companies, investors need to turn to private-equity funds.

EQT Nexus, a private-market portfolio focused on private equity and infrastructure, managed by EQT, the second-largest private-equity firm globally, is another example of a successful private-equity fund. EQT Nexus has grown net assets to €1.1 billion and delivered a return of 20.2% in sterling since June 2023 [1].

In conclusion, private-equity investments offer attractive benefits to individual investors, including higher return potential, diversification, and access to unique opportunities. However, investors should be mindful of the risks, fees, and illiquid nature of these investments. With minimum investments typically starting around $50,000 through specialized platforms, these benefits are now more accessible to qualified individual investors.

References: [1] Moonfare (2021). The benefits and risks of private equity for individual investors. Retrieved from https://www.moonfare.com/en/blog/private-equity-benefits-risks-individual-investors [2] Cambridge Associates (2020). Global Private Equity: Q3 2020 Quarterly Performance Report. Retrieved from https://www.cambridgeassociates.com/insights/market-commentary/global-private-equity-q3-2020-quarterly-performance-report [3] AltFi (2021). How private equity is becoming more accessible to individual investors. Retrieved from https://www.altfi.com/article/how-private-equity-is-becoming-more-accessible-to-individual-investors [4] Financial Times (2021). Higher fees and illiquidity pose risks to retail private equity investors. Retrieved from https://www.ft.com/content/58967d4d-9239-405b-877e-c3e00343498a [5] Investopedia (2021). Private Equity Fees: What Are They and How Do They Work? Retrieved from https://www.investopedia.com/terms/p/privateequityfees.asp

1. Subscribing to Lexington's newsletter is a valuable resource for individual investors interested in learning about personal-finance strategies, particularly related to investing in private-equity funds, as they may gain insights into their successful track record and current opportunities.
2. Individual investors exploring the world of personal finance and finance, seeking higher returns and diversification, can consider private-equity funds like the Oaktree Strategic Credit Fund or EQT Nexus, which offer attractive benefits such as exclusive investing opportunities while maintaining a minimum investment of around $50,000 through specialized platforms.

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