National Bank Investments
Home Products
Price and performance
Firms and managers
Expert insights
Resources
Regulatory documents
About us
CLOSE

The growing allure of private equity from the perspective of the retail investor

29 September 2021 by National Bank Investments
Image of NBI Monthly Edition – October 2021

When talking about private equity, an average retail investor usually doesn’t come to mind. Yet, an increasing number of these investors are looking to private equity to enhance the risk-return characteristics of their portfolios. Why?

Well for starters, the rise of listed private equity has increased investor accessibility to this asset class. Secondly, private equity is a gateway to a very different investment opportunity set. With private equity, investors can invest in companies with higher expected growth rates and returns and benefit 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 ten years and running, more and more U.S. companies have opted to go private and even delayed going public. Why is that the case?

Firstly, private companies are not subject 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).

Secondly, by not having to reveal too much about their business strategy, private companies have more anonymity, which betters their chances of gaining an upper hand over competitors.

The rise in private equity

While lower interest rates have facilitated raising capital since the financial crisis of 2008, changes in the regulatory framework 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 stay private.

In the U.S., the number of companies backed by private sources of financing has exceeded those backed by public sources of financing.

To conclude

As shown, private markets have really grown in popularity in comparison to public markets. However, due to the very few listed private equity vehicles available, this asset class still 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 they are liquid, regulated and traded publicly! 

*The passing of the 2012 Jobs Act in the U.S.

 

 

Legal notes

The information and opinions herein are provided for information purposes only and are subject to change. The opinions are not intended as investment advice nor are they provided to promote any particular investments and should in no way form the basis for your investment decisions. National Bank Investments Inc. has taken the necessary measures to ensure the quality and accuracy of the information contained herein at the time of publication. It does not, however, guarantee that the information is accurate or complete, and this communication creates no legal or contractual obligation on the part of National Bank Investments Inc.

NBI Funds and ETFs (the “Funds”) are offered by National Bank Investments Inc., a wholly owned subsidiary of National Bank of Canada. Commissions, trailing commissions, management fees, brokerage fees and expenses all may be associated with investments in investment funds. Please read the prospectus of the Funds before investing. The Funds are not guaranteed, their values change frequently and past performance may not be repeated. The Funds’ securities are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer. ETF 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.

© 2021 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.

®NATIONAL BANK INVESTMENTS is a registered trademark of National Bank of Canada, used under license by National Bank Investments Inc.

Categories

Investor Education

Get informed with investor education content.

 

Learn more