What is Private Equity? An Investment Guide

What is Private Equity?

Private equity (“PE”) generally refers to investments made in companies that are not publicly traded on a stock exchange or the acquisition of public companies with the intention of bringing them private. Unlike public market investments, PE generally involves active ownership, where general partners (“GP”) work closely with portfolio companies to enhance operational efficiencies, drive innovation, and improve profitability. PE investments typically have longer holding periods and are generally less liquid than publicly traded securities, but offer the potential for substantial capital appreciation at a fraction of the volatility exhibited by public equities.

Why consider Private Equity for your portfolios?

PE offers access to a vastly larger universe of private companies compared to public markets, which continues to expand as public markets shrink and companies choose to stay private for longer, as illustrated in the accompanying chart.

With active management and long-term investment strategies, PE has historically delivered superior risk-adjusted returns compared to traditional public market investments.

PE’s low correlation with public markets provides diversification benefits and can act as a buffer against public market volatility during economic downturns.

PE provides access to privately held, fundamentally strong businesses. These companies often have significant growth potential and are not typically accessible through public markets.

PE managers actively work to enhance the value of their portfolio companies through operational improvements, strategic growth initiatives, and strong governance practices. By often co-investing their own capital alongside investors, managers align their interests with those of their clients, ensuring a shared focus on long-term value creation.

Large companies in major markets are primarily private

Share of public and private companies in the U.S. and Europe, with revenue greater than US$100 million

Data as of December 2023. Source: S&P Capital IQ, Apollo Chief Economist. Note: For companies with last 12-month revenue greater than $100 million by count.

Global private equity can enhance the risk-adjusted returns of a well-balanced portfolio

Data as of September 30, 2024. Source: Pitchbook, Bloomberg. Note: The “Global 40/20/40 Portfolio” is a hypothetical, unmanaged index and comprises 40% MSCI World Index Net Total Return; 20% Global Private Equity; and 40% Bloomberg Global Aggregate Total Return Index.

Data as of September 30, 2024. Source: Pitchbook, Bloomberg. Note: The “Global 60/40 Portfolio” is a hypothetical, unmanaged index and comprises 60% MSCI World Index Net Total Return; and 40% Bloomberg Global Aggregate Total Return Index. The “Global 40/20/40 Portfolio” is a hypothetical, unmanaged index and comprises 40% MSCI World Index Net Total Return; 20% Global Private Equity; and 40% Bloomberg Global Aggregate Total Return Index.

Private Equity