While some investors may be looking warily at the aging bull market, the private equity category seems likely to continue growing in popularity through 2017.
In fact, this niche asset class is increasingly looking mainstream. Private equity grew in size from $30 billion in assets in 1995 to $4 trillion today—a growth rate of almost 28 percent a year, according to the 2016 SEI Private Equity Survey. In contrast, long-term mutual funds in the United States grew in size only 10 percent annually over the same period.
The median of those surveyed predicted that private equity will grow to $7 trillion 10 years from now, the survey says, concluding that, “With such growth prospects, even skeptics may want to acknowledge the fact that private equity is well on its way to becoming a mainstream asset class.”
Private Equity In IRAs
One way in which financial advisors are able to help their clients invest in private equity is with a self-directed IRA. The power of a self-directed IRA comes from its broad access to investment options like private equity, real estate, precious metals or other alternatives to traditional investment choices.
For financial advisors and investors who do their homework and still like the idea of investing alongside some of the nation’s leading institutional investors, private equity may offer six constructive ways to play a role in a retirement plan strategy.
1. Tax-Advantaged
Through a self-directed IRA program, investors can gain access to the potential benefits of private equity on a tax-advantaged basis. It’s important for investors, as well as their advisors, to undertake their own review and analysis of private equity choices.
2. Long-Term Return Potential
While no investment is without risk, according to the 2017 Preqin Global Private Equity & Venture Capital Report, “95 percent of investors (in a recent survey) believe that their private equity portfolios have met or exceeded performance expectations over the past 12 months” for the year ending June 30, 2016.
“2016 was another stellar year for private equity,” the Report continued. “The asset class will continue to appeal to investors looking for high absolute returns and portfolio diversification.”
Preqin provides research on alternative asset trends to some 47,000 professionals located in over 90 countries, according to the Report.