Retail investors beware: private equity is coming for you
Traditional funding for private equity is drying up or getting more expensive, so private equity firms need a new source of liquidity. They're coming for retail investors.
They’ll say it’s portfolio diversification. They’ll say it’s a smart alternative to indexing.
But what they won’t say? They have no one left to sell this stuff to.
Institutional appetite for private equity is saturated. Private equity firms are sitting on deals underwritten at bloated multiples that will never deliver the returns they modeled. They’re stuck. And now they’re coming for you—the retail investor.
Just listen to Mark Rowan of Apollo making the rounds, telling retail investors to load up on private equity in their 401(k)s, IRAs, and brokerage accounts.
Contrast that with the warning, 1 week earlier, by H.E. Sheikh Saoud Salem Abdulaziz Al-Sabah, the head of Kuwait’s $1 trillion sovereign wealth fund:
I believe Private Equity is very troubled (17:30)
Al-Sabah expects “steep” discounts compared to current prices (21:30). Yet retail investors aren’t getting access to steep discounts, they’re getting deals at prices no one else wants.
The truth?
Yes—there are good private investments.
But you won’t get access to them.
Brokers and even fiduciaries will tell you Private Equity will add diversification to your portfolio. They may even tell you you’re getting privileged access and show you returns from the golden years of private equity.
But don’t buy it. Those years are behind us. And it’s unlikely illiquid private leveraged US assets add any kind of diversification to your portfolio.
If you want more diversification take a look at your exposure to international equities both developed and emerging markets. Take a look at domestic and international fixed income. Take a look at adding a splash of gold or commodities.
Bottom line: Wall Street needs to offload private equity that institutions no longer want. And retail investors are the new liquidity strategy. Buy beware.