Private equity’s global expansion continues at pace and the net is being spread wider to more investors every year. The asset class offers attractive returns and diversification but investors need to understand the long-term and illiquid nature of the investments.
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
These are the wise words of the world’s most famous investor – Warren Buffett. While the Oracle of Omaha said this in the context of public markets, it has readthroughs for the mindset needed for private equity investing too.
Private equity becoming mainstream
Private equity is a global industry that continues to grow exponentially – Blackstone, KKR, and Apollo are now Fortune 500 companies. In fact, The Economist recently ran a cover story on how American finance has been transformed in the past decade and private equity firms and their peers are replacing banks as the new kingpins of the global finance industry.
Private equity has outperformed listed equities over time, provides access to unique opportunities not available in public markets, and can help diversify an investment portfolio.
Global private equity assets under management have grown from NZ$2 trillion in 2010 to $12tr today. Preqin, an investment data company, forecasts that this could reach $20tr by 2029.
The ever-expanding investor base
To date, investing in private equity has been the realm of large institutions, pension funds, sovereign wealth funds, and some high-net-worth individuals.
You may be a private equity investor without even realising it – your KiwiSaver provider may be investing in, or starting to invest in, private equity as part of a diversified portfolio. Australian superannuation funds hold as much as 20% in private markets assets.
There is now a global convergence occurring as the private equity industry seeks untapped sources of capital, such as individual investors, and these investors become more astute – that there is more to investing than just shares and bonds.
Blackstone, the world’s largest alternative asset manager, estimates there is more than NZ$150tr of individual investor wealth globally, with very little of that currently allocated to private equity.
Many of the large players have teamed up to unlock this opportunity – Blackstone has partnered with Vanguard and Wellington Asset Management; KKR has partnered with Capital Group; Apollo has partnered with State Street.
The private equity industry is creating offerings to attract the millions of individual investors globally that are not currently investing in private equity. Many of these new offerings can be accessed through an adviser but they will increasingly be directly accessible by individual investors in future.
Examples of these innovations include open-ended vehicles and exchange traded funds that incorporate a combination of listed equities and private equity exposure.
Structures are evolving
The traditional private equity structure since the 1970s has been the closed-ended limited partnership structure. This involves investors making a commitment on day one and having their money drawdown over five years as the private equity fund finds and makes investments. The investor may start getting distributions from around year five but would not expect all their money back (targeting double or more the original commitment) until year 10 or so. The minimum commitment for a closed-ended fund is typically anywhere from $100,000 to $10m.
The big news in this space is the emergence of open-ended vehicles, often referred to as semi-liquid funds or evergreen funds. These vehicles are fully funded with private equity investments from day one. New investors can buy in at fair value and withdraw capital at regular intervals, subject to available liquidity.
This structure seeks to reduce some of the barriers previously faced by individual investors, including access and liquidity. The minimum investment is lower and the investor’s money is put to work on day one. Liquidity is provided typically on a quarterly basis.
Interestingly, many large investors are also investing in these vehicles because they are fully funded, diversified, and provide some flexibility.
There are now more than 500 evergreen funds offering exposure to private equity and other alternative asset classes, accordingly to Preqin.
New structures, new risks
Private equity comes with risks. New structures come with risks. Key areas to watch out for include understanding the type of investments being made, how the liquidity works, and the expected return profile over time.
The liquidity mechanism is typically gated such that an investor may not be able to redeem if many other investors also seek to redeem at the same time. Returns are affected by the sleeve of liquid investments the vehicle holds in order to meet quarterly redemptions.
While open-ended vehicles are proliferating overseas, only a few have made their way to New Zealand so far. More will reach our shores in the coming years. Always do your due diligence or seek advice.
Private equity requires a long-term mindset when investing. Maybe the next Warren Buffett will be a public and private markets investor.
Talk to us
If you have any questions about your investment or would like to make sure you have the right investment strategy to reach your ambitions, get in touch with us – our team are always happy to help.
An amended version of this article was originally published in the NBR on 17 June 2025 (paywalled).
