I consider adding alternatives to my portfolio.
More specifically private equity buy out funds.
My strategic allocation:
60% equity (VT and viac 3a)
7% CH residential real estate (UBS direct residential fund)
5% short term CHF bond fund (i consider it cash like, also my emergency reserve)
3% bitcoin (cold storage)
2% physical gold (bc. You never know what happens in this crazy world)
The rest is pillar 2. I consider it fixed income for my purposes.
Now the idea would be to add some investments with higher returns and not increase the listed equity portion.
From my research private equity buyout funds seem to be an attractive place to be (if the right fund is selected).
Now the main question is, how to access a good fund and avoid the bad ones?
For most worthwhile PE funds you need a min. investment of at least 100k and your funds will be locked for 10+ years. In addition these are mostly only available for institutional and qualified investors.
Higher EXPECTED returns, are you also aware of the way higher risks you take with PE funds?
Getting access to (traditional) private equity (PE) is usually possible through private banks, wealth managers, family offices. Clients of these institutions usually have 20mio+ in assets, so they can allocate a sizeable (absolute) amount to PE.
It very much depends on the relationship of the private bank, wealth manager which funds are offered. So being able to choose the best fund is unrealistic IMO, since the fund offering is highly selective.
Higher expected returns on what metric, IRR? PE often mentions IRR returns, which are returns on deployed capital invested, excluding cash. PE adds extra leverage, so I would expect returns to be higher.
To get similar returns you could apply leverage (20-40%?) to the existing listed equity portfolio. Alternatively, you could look for some listed PE funds, not sure if there are any buyout funds.
Private equity on average will give you about the same return as public equities. The gross return is higher, but that higher return is gobbled up by the insane fees these funds charge.
Big problem is also manager selection and access in general. I would not be confident in vetting a good choice.
I would much rather look into other asset classes like managed futures, as a high expected return alternative (funds with enough volatility).
100k would be around the amount I like to invest, but either in a Fund of Funds or spread over multiple funds. Therefore, I was looking at fintechs that offer access to private equity, like moonfare or ADDX with lower minimum investments per fund.
The total portfolio is below 2m, but I should be recognized as qualified investor due to professional background. Lock-in period is not an issue. Risk, absolutely aware.
Thats exactly my concern, but was hoping somebody in the forum might be able to share positive experience.
Honestly, haven’t considered this yet. Thanks for the advice.
Finpension is also offering Alternate investment’s options. Maybe you can check out the fund they have in their plan to check out if it’s available at brokers too
In my view PE includes many of the risk factors also embedded in public markets. Some of them are even exacerbated (eg high dependence on interest rates and general economic environment) due to the structure of the asset class (eg higher capital requirements, less regulation). This may come with higher returns, but just because PE is another asset class does not necessarily mean it also increases diversification. In fact, there are many studies out there questioning the fund industries’ claims about low correlation to public markets, see eg here for an initial discussion:
Other asset classes (eg managed futures) are probably more independent to public markets but again include the high risk of manager selection.
If you are very concerned about public markets, you could consider increasing your gold and/ or RE portion somewhat. You could also consider overweighting certain defensive equity sectors such as utilities, food etc. Personally I would not do it but it would still seem less risky to me than going into PE or managed futures.
The OP is seeking higher returns. Not diversification. Since private equity gives early access to companies, it should give exposure to higher returns before a company goes public. Most of the returns (in % terms) of a modern company is realised in early stages which is typically accessible only to Venture money. However, funds need to have many companies because only few succeed.
The problem is that it is difficult to compare Apple to Apple performance of Private equity vs public equity because they have different type of fees. Based on what I read , there seems to be 2-3 % additional return net of fees. But I don’t know if that’s entirely correct.
Just wanted to comment something similar before watching parts of what this guy is saying.
I understand the promising funds are simply not accessible for retail investors. Take venture capital managers with a proven record, mostly tech. They appear to, like, calling their friends and previous business partners when starting a new fund and asking for a minimum investment of 500m. Maybe more these days.
PE can of course also mean “boring” industrial SME buy-outs or infrastructure. There again, they don’t want to bother with pesky, flinchy 100k or 1m investors, unless they have to. The target group are institutional investors or ultra-rich.
So I guess it’s fair to assume that if you can invest in it as retail investor, it’s likely the same or worse expected outcome like equities, and the same lottery to pick a good active fund over a bad one.
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