Private Equity and the Allocation Gap: Barwon Investment Partners

Private equity (PE) investments are simply investments in private companies. There is a broad spectrum of private equity investment structures but typically it involves the PE manager (also known as a General Partner (GP) or sponsor) acquiring a controlling stake in a business. The asset class has grown tremendously over the past 10 years as investors are increasingly attracted to its long-term nature and historic outperformance against public equity market benchmarks. 

PE funds are typically structured as progressively called, locked-up, 10+ year life, offshore investment partnerships with high minimum investment thresholds. There is a high level of administrative complexity and illiquidity compared to traditional public equity and fixed income assets. Accessing the best PE managers and building diversification are additional challenges for investors. 

As a result, institutional investors have allocated far more capital to private equity than have private individuals and retail investors. 

A sample of the largest Australian superannuation funds shows a typical 3-5% allocation to private equity in their balanced strategy. American public pension funds have increased their target PE allocations on average 50% over the past decade to 9%. This is not unusual, with leading pension funds, sovereign wealth funds, family offices and UHNWIs all allocating an increasingly substantial portion of their portfolio to the asset class. 

Private equity is a sector that has seen strong growth on the back of higher investor demand, structural changes to public and private capital markets, and strong long term investment performance.