Apparently not much, based on estimates of future returns from private equity. And let’s not forget about the risks. Private equity is perhaps the most potent form of active management, typically delivering concentrated and highly levered portfolios of smaller companies. The degree to which things can go wrong far exceeds that of a broad-market stock index fund.
That doesn’t mean investing in private equity is entirely without merit. Private funds give investors access to companies that are absent from public markets, which bolsters diversification. Private companies are also protected from the daily gyrations of stock markets, which can dampen the volatility of investors’ portfolios. But for investors who don’t already own private equity, this seems like a questionable time to start.
Which is precisely the time ordinary investors are often invited to the party. Still, it’ll be good experience. After all, how are they supposed to become more sophisticated without the opportunity to make mistakes? So yes, the SEC should remove restrictions not just around private equity but all gates that deny ordinary investors equal access to markets.
And when money managers come around with their new private equity funds, investors should ask what they’re not being offered. That’s where they want to be invested.
Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.