Investors should consider Private Equity in their portfolio because it gives them exposure to a range of investment opportunities that are simply not available in the public markets. Private Equity, as the name suggests, is investing in companies which have not yet got a listing on a stock exchange. These are businesses held by entrepreneurs, families and other investors who've yet to take their businesses public. Most businesses are not public, there are tens of thousands of businesses across Europe and across the world which are still private companies. These can be in new business areas, new trends that are not yet available to invest through the stock market, new technologies and new products.
Investing in Private Equity gives you a chance to get exposure to these forms of economic activity that you can't access through the stock market. The second reason that someone should consider Private Equity in their portfolio is that it is a high returning asset class. Typically, Private Equity will deliver several points per annum better than one could achieve through investment in the stock market. Clearly there are risks associated with investing in private companies, this is because generally the companies tend to be smaller. The more limited product range, smaller management teams, the higher gearing on the balance sheet, and because the investor does not have the protection of a listed security. Once you go through a negotiated transaction, and you must come out through a negotiated transaction. You cannot just buy and sell the shares in the stock market, but for all these risks the investor is generally handsomely rewarded, and therefor having part of your portfolio invested in Private Equity is a very complimentary strategy to a main stream equity portfolio.