Recently, investing in private equity has become more accessible and cost-effective, thanks to innovative fund structures like ‘evergreen’ funds offered by companies like Voya, JPMorgan, and Pantheon. These funds have smaller minimum investments, use 1099s for tax reporting instead of cumbersome K-1s, and eliminate the need for capital calls, making investing in private equity easier than ever before.
With lower expenses and increased diversification opportunities through allocations to secondaries and direct co-investments, these modern private equity funds offer investors a more efficient way to access the asset class. But how should investors determine their allocation to private equity?
According to global market capitalizations, a 10% allocation to private equity within the equity portfolio may be appropriate for many investors. However, those with a higher tolerance for illiquidity risk or seeking exposure to smaller companies may consider a higher allocation.
Research shows that persistence in performance exists in venture capital, making it an attractive investment opportunity. Diversification across multiple funds and focusing on managers with a history of top-quartile performance can help mitigate risks associated with private equity investments.
In conclusion, with the evolving landscape of private equity investments, investors have the opportunity to enhance their portfolios with innovative fund structures while mitigating risks through strategic allocation and diversification strategies.
