The Stages of Private Equity
September 26, 2022
After discussing the significance of asset class and vintage diversification when building a private market portfolio, WE Family Offices Senior Investment Manager Matt Farrell, CAIA, returns to dive further into the space. However, this time, Farrell utilizes his extensive experience as WE’s leader in private investment research to focus on private equity and the importance of being diversified amongst underlying company maturity levels.
During the video, Farrell specifically explains that all private equity is NOT the same. Within each stage of private equity, the underlying companies can have a range of risk profiles. As a result, it is crucial for private market portfolios to be adequately diversified across company maturity levels and the family’s personal risk tolerance.
We hope that through this video, families will better understand the different stages of private company life cycles so they can size and diversify appropriately. If you have any questions about building private equity portfolios, please do not hesitate to contact us.
This video contains our current opinions and commentary that are subject to change without notice. Our commentary is distributed for informational and educational purposes only and does not consider the specific investment objective, financial situation, or particular needs of any recipient. Information contained herein has been obtained from sources we believe to be reliable, but we do not guarantee its completeness or accuracy. The information contained herein does not constitute legal or tax advice to any person. Please consult with your tax advisor regarding any taxation implications of the information presented in this presentation.
Private market investments are very risky and should only be incorporated in a portfolio after a careful assessment of the private investment’s offering materials and other information in consultation with your investment, tax, and legal advisors. Private market investments are often less liquid than traditional investments and redemptions from such investments often involve holdbacks and other restrictions on the timing of the redemption. Private placements, limited partnerships, hedge funds, funds of funds, or other types of these investment vehicles are typically illiquid, often for long periods of time, i.e., years. The terms governing these investments generally provide for significant redemption notice periods, lock-up periods, and holdbacks upon redemption, resale restrictions, and other provisions that preclude prompt liquidation of these investments Among the primary risks are long term illiquidity, lack of transparency, lack of control of the investment vehicle and investment decisions, and in the worst case, the total loss of your investment.
A particular illiquid fund’s returns typically will vary materially over the life cycle of the fund depending on the particular strategy of the fund; returns may be higher at the beginning, middle or end of the fund’s life cycle. So, the return profile of a private equity fund over the life of the fund will be very different that the return profile of a venture capital, distressed credit, or secondary illiquid strategy.
Certain statements contained herein may constitute “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variation thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions.