For investors with a long investment horizon, alternative investments can make a valuable contribution to optimising the risk-return profile of their portfolio, especially in volatile times. Given that Private Equity concerns off-market equity investments in companies, typical stock market risks such as price fluctuations do not apply to this asset class.
Access to investment opportunities
Especially institutional investors such as pension funds and insurances have a widespread interest in private equity. Nevertheless, the high initial investment amounts of typically several million Euros or US dollars were a hurdle to private clients for a long time. However, in order to give our clients access to these over-the-counter investment opportunities, we built up a team of experts twenty years ago. The team analyses and selects private equity funds and provides our clients with access to these funds via exclusive investment structures - with significantly lower minimum investment amounts. These experts will be your contacts to accompany you throughout the entire investment period.
Private equity funds are usually closed-end fund structures managed by specialised private equity companies. These funds invest in companies that are in different stages. A basic distinction is made between three investment strategies: so-called "venture capital" flows to companies in the start-up or early stages. As a result, this type of investment has the greatest return potential, but also the highest investment risk. So-called "growth capital", on the other hand, is provided to companies in the growth phase as liquidity for larger growth initiatives. Finally, the least risky strategy is the "buyout" strategy: it focuses on the acquisition and further development of already mature companies.
Traditionally, due to the high entry threshold, private equity was particularly attractive for institutional investors, who on the one hand could benefit from the above-average return opportunities and on the other hand could thus diversify their (very large) portfolio. However, for the last twenty years we have also been offering access to this alternative asset class to our private clients, foundations and smaller (semi-)institutional investors. Given that the companies invested in work with the capital over a longer period of time, it is also tied up for longer. Private equity investors therefore need a long investment horizon.
Private equity companies not only provide businesses with financial resources, but also achieve an increase in profits and thus in the value of the company, in particular through active management and operational improvements. In this context, the term "active value creation" is often used. Investors typically do not invest directly, but rather through closed-end fund structures managed by the private equity companies. The fund generally builds a portfolio of company investments over a period of five years. Throughout this investment phase, the private equity company gradually retrieves the investors' capital and invests it in promising companies in a targeted manner. Capital repayments normally begin as the portfolio matures, for example as a result of dividend payments from the companies or as a result of the initiation of company sales. Distributions to investors are made in particular through the sale of companies from the investment portfolio - until the last company has been sold.
Please be aware that investing in private equity involves various risks. For instance, the business plan of an acquired company may not work out. A planned resale of an acquired company may also fail or only be possible under unfavourable conditions. In this case, there may be a partial or even total loss of the capital invested. In certain market situations, there may also be a lack of suitable new acquisition targets for the private equity company, resulting in investments in new businesses being delayed or not being made at all. Currency risks can also have a negative impact. Please also be aware that the shares in a private equity investment are usually not resalable and therefore tie up the invested capital for a long time.
