Private equity and venture capital are “private market” investments rather than the public market investments which likely make up most of your portfolio. PE and VC funds typically invest in privately held companies, meaning they do not trade on public stock exchanges such as the New York Stock Exchange or NASDAQ. 

Having exposure in your portfolio to the appropriate level of private market investments can have tremendous investment benefits. We detail 5 benefits below: 

1. 1. Historically high returns
2. Over the last 25 years, private equity has outperformed public market benchmarks by nearly 5 percentage points per year on average.¹ These returns have helped those with access to PE grow their personal wealth significantly. Giving everyone access private equity, not just those who can afford the multi-million-dollar minimums, would go a long way towards helping everyday investors build their wealth. 

1. 2. Diversification 
2. Investing in the public markets, even in total market index funds, only gives you exposure to a fraction of the US economy. Public stock exchanges represent far fewer companies than those that are held privately. Gaining exposure to these privately held companies can significantly diversify your your portfolio to reflect the true economy.  

1. 3. Stability
2. Private equity has historically performed better during recessions and recovered faster afterwards. Neuberger Berman showed that during the 2008 financial crisis, private equity buyout funds saw asset values decline only 28%, compared to 55% in public stock markets. Additionally, buyout funds bounced back to pre-recession prices a full one and half years before the S&P 500. This stability can offer incredible peace of mind and a hedge against uncertainty.²

1. 4. Long-term investments
2. Private equity and venture capital forces investors to have a long-term view. PE & VC funds typically invest over 5 to 10 year periods, so funds can focus on true long-term growth. While public companies are subject to quarterly earnings reports and fickle public investors, privately held companies are not as driven by quarter-to-quarter results due to these longer timelines. 
3.  
4. 5. Next generation technologies
5. The most exciting, innovative technologies are typically created in the private markets. Companies such as Facebook, Snowflake, Slack, Spotify, and more all started as VC-backed businesses. While you can invest in public companies that are developing new technologies, often the most direct way to invest in innovative tech is through private equity and venture capital.

    

    

    1 Source: Cambridge Associates, US Private Equity Index and Selected Benchmark Statistics, September 30, 2021.

6.  2 Source: Neuberger Berman, The Historical Impact of Economic Downturns on Private Equity, May 2020.