Money For the Rest of Us

Should You Invest in Private Equity?

Aug 21, 2024

Dive into the intricate world of private equity investing! Discover how buyouts and venture capital operate and the performance measurement against the stock market. Learn about the concept of 'dry powder' and its implications. Explore the hurdles individual investors face in accessing lucrative funds and the importance of diversification. The discussion also covers emerging alternatives like collateralized loan obligations, highlighting the dynamic nature of private equity and the cautious approach required for individual investors.

28:15

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Quick takeaways

Private equity encompasses three main areas: buyouts, growth capital, and venture capital, each with distinct investment strategies and risks.

Individual investors face significant barriers to entry in private equity, necessitating extensive diversification and often leading them towards more accessible asset classes.

Deep dives

Understanding Private Equity

Private equity encompasses three main areas: buyouts, growth capital, and venture capital. Buyouts involve acquiring established companies, often using borrowed funds, to improve their operations and grow their value. In contrast, venture capital focuses on investing in early-stage startups with high growth potential. Growth capital serves as a later-stage investment for companies that are already established but need additional funding to expand further.

Intro

18min

The Dynamics of Capital and Returns in Private Equity

3min

Navigating the Complex World of Private Equity Investing

8min

Exploring Challenges and Alternatives in Private Equity Investing

2min

How do buyouts, venture capital, and growth equity work? Has private equity outperformed the stock market, and can individual investors pursue these investment strategies?

Topics covered include:

How are private equity funds structured, and what are the fees
How is private equity performance measured, and how has it performed
Why does private equity have such a large dispersion of returns compared to the public stock market
What is private equity dry powder, and why is there much of it
What are some ways individuals can invest in private equity and why should they use caution in doing so

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Show Notes

Understanding Private Fund Performance by Kaitlin Hendrix and Mamdouh Medhat—SSRN

What Drives Private-Equity Performance Persistence? New Deal-Level Evidence by Axel Buchner and Susanne Espenlaub and Abdul Mohamed—SSRN

Unlocking the Power of Relationships: Limited Partner Networks and Performance in Private Equity by José Carlos Franco de Abreu Neto and Saito Richard—SSRN

Private equity dry powder growth accelerated in H1 2024 by Dylan Thomas and Annie Sabater—S&P Global

Private Equity Gets Creative to Buy Time for More Gains. Clients Say Pay Me Now by Allison McNeely and Dawn Lim—Bloomberg