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What is Private Equity?

Private Equity is the investment realized by financial investors in unlisted companies with a potential high-growth, on a medium-long term.

 

The Private Equity firms support companies in all stages of maturity:

 

  • Providing funding at critical stages of their development,

  • Accompanying managers in strategic decisions

  • Improving growth which benefits customers, shareholders, employees and management.

ACG-CAPITAL_Invest_in_private_equity

ODDO BHF Private Equity

Why invest in Private Equity?

  • Private equity has outperformed all other asset classes over the long-term
  • Its synergies compared to other asset classes: an optimization of risk-return profile due to portfolio diversification and a low correlation with equity markets
  • Its socially responsible investment nature, characterized by Private Equity support to the development of the fastest growing and most innovative companies.

How to build a Private Equity portfolio?

Institutional investors have three ways of investing in Private Equity:

 

 

 

investir-diagram-en

 

 

 

Due to their complementary characteristics, these approaches could be combined, depending on the investors risk profile. An investor may blend direct funds, because of their geographical proximity, and funds of funds, covering distant geographical areas or market segments requiring greater technical expertise.

 

  • The level of Private Equity allocation will depend on multiple factors:
    • The investor’s liabilities structure
    • Its cash-flow
    • Its risk/return profile
    • Its resources of selecting and monitoring investments

 

  • Secure access to Private Equity requires the implementation of a structured and professional approach in order to control risks and constraints
    • Seeking outperformance in Private Equity requires an established approach of selection due to performance’s great dispersion among Private Equity actors
    • Due to investments’ medium-long term life cycle, it is essential to implement a multi-year investment strategy in order to ensure portfolios’ gradual and steady cash-flows

 

  • Given its low liquidity, Private Equity portfolio needs a greater diversification:
    • By nature (venture, growth, mezzanine, secondary etc.) and/or sector of activity
    • By geography
    • By vintage (to mitigate economic life cycle and specific funds fluctuations of a funds family)
    • By type of risk (co-investments, direct funds or funds of funds)

 

In building its Private Equity allocation, an investor should consider the asset’s liquidity criterion over the long term. Distribution could be received with an uneven frequency and after a cycle of about 3 to 7 years.

 

An optimized Private Equity portfolio should be thought on the long-run, blending different structures and types of funds as well as investing over periods, through regular annual allocation.