Private Equity deserves a place in your conversations

26 October 2022 by National Bank Investments
NBI Insights Bulletin – November 2022

The private equity asset class is growing, so how can retail investors access privately held companies to enhance the risk-return characteristics of their portfolios if they are not directly listed on any stock exchange?

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.

Table Investors Continue to Increase Private Market Allocations

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.

Legal notes

The information and the data supplied in the present document, including those supplied by third parties, are considered accurate at the time of their printing and were obtained from sources which we considered reliable. We reserve the right to modify them without advance notice. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares mentioned herein and should not be considered as recommendations.

NBI exchange-traded funds (the "NBI ETFs") are offered by National Bank Investments Inc., a wholly owned subsidiary of National Bank of Canada. Management fees, brokerage fees and expenses all may be associated with investments in NBI ETFs. Please read the prospectus or ETF Facts document(s) before investing. NBI ETFs are not guaranteed, their values change frequently and past performance may not be repeated. NBI ETFs units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns. NBI ETFs do not seek to return any predetermined amount at maturity.

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