As 2022 reaches its end, investors are seeking ways to shield their assets from rising levels of inflation. With volatility in equity markets and continually low yields in fixed income markets, many investors are looking for ways to strengthen their fixed income allocations but are uncertain how best to invest their funds. Private equity is a gateway to a very different investment opportunity set. With private equity, they can invest in companies with higher expected growth rates and returns while benefiting from an added layer of potential diversification.
Comparing public and private equity
Investors aren’t the only ones captivated by the private equity story. For more than ten years, increasingly more U.S. companies have opted to go private or even delayed going public. Why is that the case?
First, private companies are not subjected to the whims associated with financial disclosures and short-term reporting requirements. Unlike public companies, they don’t have to deal with ensuing fluctuations in share prices (especially when their results fall short of analyst expectations).
Second, by not having to reveal too much about their business strategy, private companies are shielded with more anonymity, which improves their chances of gaining an upper hand over their competitors.
The rise in private equity
While lower interest rates have facilitated raising capital since the Great Financial Crisis of 2008, changes in the regulatory framework since have also fostered the appeal of this asset class. For example, regulatory changes* increasing the number of allowable shareholders in a company before a company is obligated to disclose results has encouraged more companies to remain private.
In the U.S., the number of companies backed by private sources of financing has exceeded those backed by public sources of financing.
Private equity solutions
Private markets have grown in popularity in comparison to public markets. However, due to the very few listed private equity vehicles available, this asset class remains out of reach for most investors.
Fortunately, the few listed private equity solutions available have made investments in private equity more accessible than ever before. Not only are these solutions a great way to tap into the private equity space, but more importantly, they are liquid, regulated and traded publicly!
*The passing of the 2012 Jobs Act in the U.S.
The NBI Global Private Equity ETF (NGPE) figures among the private equity investments you may consider.
- Currently, NGPE tracks the performance of the Morningstar® PitchBook Developed Markets Listed Private Equity Select IndexSM.
- The portfolio is composed primarily of securities of globally listed private equity companies and investment vehicles.
- NGPE can be effectively used as a complement to any portfolio where the investment objective is to generate long-term capital growth.