Private equity has, historically, been a private world available to pension funds, trusts, university endowments and only the wealthiest.
But times they are a-changin’.
Considered the most coveted alternative asset, individuals want in, and private equity firms are shaking off the welcome mat. But there are rules set by the U.S. Government and are meant to be followed. As long as they are, it’s a new world available to qualified individuals who seek a more diversified portfolio.
Most private equity funds require a participant to be what is termed an accredited investor, qualified client, or qualified purchaser. To which category an investor falls is decided largely by net worth and income. It’s in black and white—details are spelled out on http://www.investor.gov.
Where the black and white blur into gray can be largely found in the investor’s financial goals; his or her comfort level; how liquid they need to be and how fast. And not everyone is comfortable with the risk-reward ratio.
Private equity firms typically work with individuals through their brokerage accounts often referred to as ‘feeder funds’ that require an initial investment of $250,000, far less than previously demanded. The firms charge asset management fees, an upside for handling far more investors at lesser amounts.
And individual investors have become empowered. Getting into the private equity market is no longer limited to partnering with the big PE firms who may offer fewer choices. Boutique firms have established a reputation for specializing in certain sectors and geographies. More options can make it easier for investors to manage risk.
Today PE funds are far less private. Individual investors now have insight into performance and strategy—also critical for institutions where oversight is required.
As the landscape of private equity continues to change, the options for those who don’t fall within the ‘One Percent’ will continue to expand. As individuals react to the volatility of public markets, interest in PE funds will continue to grow.
“The world of private equity is constantly evolving,” notes Alfred Zaccagnino, President of Samarian Group of Companies, a PE firm with a growing global presence. “Individual investors want to be educated about where they’re putting their money—they do the research and utilize new technologies. Due diligence—for all parties—is the most important step toward a successful partnership.”