Private equity investments hit a new record in 2017 with ~$453 billion raised. This surpasses the previous record of $414 billion, which was set in 2007. This is due, in part, to an increase in fund sizes – for example, Apollo closed the largest buyout fund to date at $24.7 billion and SoftBank’s $98 billion Vision Fund is the largest tech pool and private equity fund in history.
Private equity: equity – or shares representing ownership or interest in an entity – that is not publicly listed or traded. Private equity investments are often required to be held for a considerably long time in order to enable liquidity events such as an initial public offering (IPO) or acquisition.
That trend just may continue, with over half of private equity professionals reporting that their firms will raise a new fund this year, up from 40% in 2017, according to financial data firm PitchBook. Buyout and growth funds are the most popular strategies this year, survey takers report, followed by secondary investments and funds of funds. According to research from McKinsey & Company, 90% of limited partners said that private equity will outperform public markets in coming years, even though academic research suggests outperformance has declined on average. What’s more, transparency and clarity of private equity fund terms and performance is anticipated to improve in both the U.S. and around the globe in 2018.
So what does this mean for individual investors?
A source of investment capital, private equity investment opportunities are typically only available to corporations, institutional investors, or extremely high net worth individuals or trusts. Some private equity firms – including Blackstone Group, Apollo Global Management LLC, and KKR & Co. – do offer publicly traded stock, giving investors the opportunity to participate. These investors can also turn to exchange-traded funds (ETFs) that hold shares of private equity companies.
That said, private equity differs from VC in a number of ways. Though they both refer to the process of investing in private companies, private equity investments are typically made in companies that are already well established – the investment is completed with the goal of helping such companies become more financially stable. VC traditionally deals with startups or newer ventures. Private equity firms typically buy a majority stake, if not 100% ownership, in the company; VC firms prefer to diversify and spread out their investments across many opportunities.
Online investment platforms like MicroVentures can connect investors with investment opportunities as well as source private equity deal flow for qualified institutional investors. At MicroVentures, we serve institutional investor clients in the U.S. and globally by providing direct access to both early- and late-stage private companies that are frequently closed off to other investors. Not a MicroVentures investor? Sign up today.