Institutions turn to private market funds to find better return potential, with improved diversification & lower return volatility.
When you bake a cake, it often does not pay to open the door frequently to check on how it is going.
Listed assets (e.g. shares, ETFs, those assets listed on an exchange) make up a large proportion of Australians' investment portfolios. While you might be investing for the long term, other investors, the market, the board or executives may have shorter term incentives. There is increased volatility leading to a bias for action.
Private equity has the advantage of being long-term, patient money. Investment in these funds is typically locked-up, and is priced less frequently (usually, once a quarter). This forces investors to take a long-term perspective, and incentivises sensible sustained growth.
Private equity funds, carefully selected by an investor, may offer significant diversification to an investment portfolio, potentially lowering risk, while increasing the likelihood of returns. This is because such funds have access to deals not available to the public.
Moreover, many well-constructed private equity strategies have inbuilt diversification. Many of the world’s largest private equity funds find diversification by being able to buy multiple assets across different geographic areas.
Please note that past performance is not indicative of future performance. In all cases, please refer to the particular fund’s information memorandum for further details about any fund listed on our portal.
Private equity funds typically provide access to assets, investments or market segments that are otherwise impossible to reach through public markets, like venture funded startups, private buyouts or other private companies.
Without access to these funds, many investors are simply missing out. This access is becoming ever more salient in a world where the number of private companies ‘going public’ (i.e. listed on an exchange) has fallen and IPOs (initial public offerings) have grown larger. This suggests much more of the early value is being captured by private investors.
The most in-depth research continues to affirm that, by nearly any measure, private equity outperforms public market equivalents.
McKinsey Global, Private Markets Annual Review
AGE 65
TRADITIONAL SPLIT
$100,000
AGE 30
AGE 65
WITH PRIVATE EQUITY
$1,240,000
$2,300,000
AGE 30
$100,000
AGE 65
TRADITIONAL SPLIT
$1,240,000
AGE 65
WITH PRIVATE EQUITY
$2,300,000
*Value of hypothetical portfolio in nominal terms based on historical data, with returns averaged across all private equity and an allocation of 20% to private equity. Past performance is not indicative of future performance
This performance has seen a demand for private equity increase ten-fold since 2000, outpacing capitalisation in public equities by nearly threefold over the same period.*
To date, it has been large institutions that have benefited from the performance and diversification that such private equity funds provide.
*McKinsey Global “A year of disruption in the private markets: Private Markets Review 2021” (April 2021).
In general, private equity funds do not perform the same way as other assets you may be used to investing in. Typically, they may follow a 'j-curve'. This means there is usually a dip in the value of the investment during the initial years as new assets or investment are acquired by the manager. It takes time to see results - this is why it is 'patient money'.
Traditionally, private equity and private market funds are illiquid, meaning there is little ability to exit until the fund matures. It is illiquid because the assets that comprise the fund are typically not easily bought and sold, nor do the managers want to sell before they have had the ability to implement their strategy, which may take time.
Often private market investments can be between 5 and 10+ years. You should invest with that in mind.
Typically, when you invest in a private market fund, you commit to invest a certain amount (usually referred to as the “Committed Capital”). However, generally, the total amount you commit is not payable on day one. It may be ‘called’ over a period of time (sometimes years).
This is because a fund manager usually takes some time to find all the assets that will make up the fund. For example, the fund manager may focus on buying certain companies. However, it is unlikely that on day one of the fund, the manager knows all the companies it will ultimately buy. Therefore, when seeking funds from investors, a fund manager does not need all the capital up front.
A capital call describes the trigger point at which a manager requires investors to pay a portion of, or in some cases all of, the money they committed to paying to the manager. The called capital allows the manager to complete an investment purchase (e.g. buy a property or company, depending on the investment thesis of a fund). A capital call may also be referred to as a "draw down".
Here at Reach, any money left in your account awaiting drawdown, or returned from a fund is automatically invested in US treasuries to maximise your returns.
It's easy to invest through our investment portal in a few steps:
- Sign up through our investor portal
- Confirm your investment entity
- Select the fund/s you wish to invest in
Our team is available to answer any questions you may have and guide you through every step of the investment process. Contact us to book a meeting.
Private market funds tend to have a longer term view compared to the share market. Private equity funds have historically outperformed public markets by 5% over the last 20 Years and over 8% during years of global recession according to the Bain Global Private Equity Report & Cambridge Associates.
Diversification is crucial to maintain a balanced investment portfolio. By allocating assets across different investment types, like private equity, you can minimise the impact of a single asset's poor performance. By allocating assets across different investment types, like private equity, you can minimise the impact of a single asset's poor performance. Private equity has historically demonstrated strong returns and low correlation to public markets, providing growth potential and a buffer against market downturns.
Alternative investments, including private equity funds, can potentially provide better returns than traditional investments. Our fund managers can access unique opportunities and strategies such as buyouts, venture capital, growth equity, and many other opportunities which may result in higher returns over the long term.
Many assume that the lockup period of private equity means you do not see any money until the end of the term of the investment (sometimes, ten years). However, in many private equity funds, investors typically receive distributions each year after an initial period.
From our analysis of data available through Preqin, distributions can start as early as year 2 and many see their initial capital returned by year 6. Returns are realised through exit strategies such as acquisitions, initial public offerings (IPOs), or secondary sales.
Our members can access additional information and supporting documents on specific funds through our investor portal. You can also reach out to a member of our team who will be more than happy to answer any questions you may have.
We pride ourselves on our simple simple, transparent and fair pricing.
Access fee: 1.5% on total committed capital (one-off, on entry). We undertake a significant amount of work to source funds, conduct due diligence and structure an investment.
Management fee: 0.65% annually on funds under management. We undertake ongoing work to manage the investment and provide reporting and compliance.
Fees may vary depending on the fund, please read the Information Memorandum carefully for details.
