Access to Private Equity
Here are some key takeaways:
1. Private equity involves ownership of companies not publicly traded on stock exchanges, while private credit refers to non-bank lending to businesses that need funding.
2. BlackRock’s CEO Larry Fink suggests future balanced investing might look like 50/30/20 (stocks/bonds/private assets) rather than traditional 60/40 allocation.
3. Major asset managers like KKR, Apollo, Vanguard, Wellington, and Blackstone are beginning to offer private investments in more accessible wrappers like ETFs or target date funds.
4. The main potential benefits of private investments include opportunity for higher returns, diversification benefits, and seemingly more stable prices (though this stability may be misleading due to illiquidity).
5. Key concerns about private investments include illiquidity, high fees, lack of transparency, and difficulty in identifying winners versus losers ahead of time.
6. Private equity firms often take an active role in managing companies with the goal of improving profitability before selling at a future date.
7. The recent push to offer private investments to average investors raises questions about timing – “Why us? Why now?” – possibly because they’ve tapped out their traditional market.
8. Private investments may be marketed as “exclusive” opportunities being “democratized,” which can appeal to investors for psychological reasons rather than fundamental value.
9. The “spray and pray” approach in private equity means if one or two investments work out, they can outweigh all other losses, but identifying these winners in advance is extremely difficult.
10. Unlike public investments with regular reporting requirements, private investments offer very little transparency to investors.
Access to Private Equity – Timestamps
00:40 Introduction to Private Equity & Private Credit
01:12 Private Equity Fundamentals
03:32 Private Credit Explained
05:10 Benefits and Opportunities of Private Investments
07:11 Risks and Concerns with Private Investments
Access to Private Equity – Links
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Watch this episode (Access To Private Equity: Should You Act Now?) on our YouTube Channel
Access to Private Equity – Transcript
There’s been a lot in the news lately about alternative investments like private equity, and private credit in particular.
Normally these are investments that have been reserved for pension funds, institutions, accredited investors (pretty wealthy individuals).
But the news lately has been about them becoming more widely available to regular folks. In fact, BlackRock’s CEO Larry Fink, was saying that he thinks that the future of balanced investing rather than 60 / 40 allocation between stocks and bonds; might look something more like “50, 30, 20″… with “the 20” being private assets.
And he’s not alone.
We’ve seen other major asset managers like KKR Apollo, Vanguard, and Wellington, Blackstone, beginning to offer private investments, in different wrappers that make them more accessible, like exchange traded funds. Or in target date funds.
We thought maybe it would be helpful to discuss “what are we even talking about” when we’re talking about private equity or private credit to help understand maybe where these things come into a diversified portfolio.
Private equity, if we could throw a blanket over the whole term, what we’re really talking about is ownership of companies that are not publicly traded on some kind of stock exchange.
And the way this historically works is, an investment firm, when they’re getting into private equity, would raise money from institutions from pension plans, for example. And as Brendan said, accredited super high net worth investors.
They use this money that they’ve raised, to go out and acquire companies to take them private. Ultimately what they want to do after managing it for a period of time, (say) three years, five years, maybe longer…. they, the exit plan typically is to take that company public again or to sell it, to someone else down the road.
In the simplest terms we’re talking about, like you said, there’s the public markets, which are the stock exchanges that we’re used to following every day, that we all have access to.
And than any other business is going to be a privately held business, whether it’s held by individuals or by a company who is an asset manager in the space. Like we’re talking about private businesses and we’ve seen lot of companies — rather than IPO, you know, become public to get their funding… like they may have past decades take this route of getting private funding instead. As a way to raise capital for their business.
It’s just an alternative way for businesses to get the money that they need to scale and grow when they have a good idea that’s profitable.
It’s certainly not considered a passive investment!
A lot of times these private equity firms will take an active role in the managing of these companies. So you know, what they want to do is make improvements; so that these companies are profitable — or more profitable over the period of time they own it.
They really want to improve the overall appearance of the company, and their profitability, so that they can sell it at a future date down the road and this becomes a good investment for them.
When we’re talking about private credit, it’s basically the same thing we’re talking about non-bank lenders.
Like, non-traditional lending to businesses that need funding.
That would differ from a company like Apple offering bonds.
Or the United States Treasury offering bonds.
These are going to be, I guess by their nature, probably for companies that, for whatever reason, are not capable of going the route of getting traditional loans.
Not from lenders or, at least not to the extent that they want or, or there could be some other reason why they’re seeking this.
But it’s, it’s ways for these companies to capitalize themselves,
Sure.
…that differ from the more traditional routes.
And so that’s what …when we’re talking about these private investments… it’s the equity or the debt. Like these are the two sides of kind of that, that private marketplace that, um, differ from, you know, the more public, readily investible areas of the market.
Yeah, they’re not bank loans. And they’re not all the time, but they’re sometimes they would be considered “not investment grade.”
If you owned private credit, there’s no readily available market.
And I think, we’ll, we’ll touch on that in a moment as well.
So this is an opportunity for, as an investor, opportunity for higher yields. But you may be taking on significantly more risk, with private credit, a private lending type of deal.
I guess that probably brings us to, maybe the next logical stop in this conversation.
Which is why would people want to have exposure to private equity or to private credit?
Like what are the good reasons for it?
And, what you just said is kind of, it’s almost like a “pro AND con.”
In the sense that if these are riskier loans, or if like a private company, if you’ve bought their equity, by the nature of it, you would assume perhaps it’s riskier than buying a blue chip stock.
You would hope that more risk equals more return.
And so the idea is that some of these endowment funds have famously done very well investing in the private markets.
Because it’s higher risk. Higher reward is the idea.
So maybe that’s like the top reason that you would want to do this.
Sure on the private equity side, if you have one winner out of ten, that can outweigh ALL the other losses that you took. Investing in some of these seed companies, or startups, or projects that you’re looking to turn around, you only need one winner. And that will knock out all the other losers on the flip side of that.
On the private credit or private lending side, you know, before private equity really took off in the sixties, seventies, and through the eighties, when a publicly traded company ran into trouble; and the stock went to zero and it looked like bankruptcy was looming.
That’s when a lot of people realized that the bond holders really own the company. Because once the stockholders got wiped out, the lenders – or in this case, the private lenders, would wind up owning the whole shebang.
I think what we’re talking about is there is kind of like the opportunity for better returns.
Sure, sure.
I guess in addition to that. Just general diversification benefits, I think (another) “pro” would be that most people would say in favor of private investments is that prices tend to be more stable.
But I think that that’s kind of “misleading,” is probably the way that I would put it.
Even though that’s maybe not fair, to people who want to sell these investments.
It’s because they’re private. Like, when we have publicly traded companies, they’re priced every day on the exchange.
So if you want to sell them, you know exactly what they’re worth, at that moment in time.
And you can?sell, whether or not that’s what you actually want to do.
And with private investments,?there’s really no way of knowing, until you want to go sell the (investment), sell and get a bid. So like, they’re illiquid and that’s part of the reason why you can get higher returns in them IS the illiquidity. Or at least that’s the idea.
Yeah.
And again, that factors into the risk. But, um, I guess some would say that that, non-correlation or, or diversification benefits could come in in the sense that like, the prices don’t seem to move as frequently as your public market investments do.
But I kind of have a bit of an issue, with folks who would say that’s a?”pro.”
But that’s normally one of the pros that you would hear from.
I guess we’re talking about these companies and their CEOs talking about bringing private investments to a broader base of investors. And that’s usually one of the things that they’ll say is that diversification benefits are a reason, like, like we’re all missing?out
Yeah.
“…and that the very rich have been this way for decades without us. And now now’s our chance to strike while the iron’s hot!”
Right.
So this also tips over into… and we should probably do a separate video on this… but it’s for some of the same reasons we talk about with high yield bonds.
You know, when we talk about high yield bonds as part of a client’s portfolio, we really look at that as all it’s, it is a part of the income sleeve, sure. But it really behaves like equity. It behaves like stocks.
And so, you know, one of the things, one of the shortcuts I’d say a lot was, “you know, if you want to invest in junk bonds, or high yield bonds; you should just own the stocks, you know, own stocks instead. Because you’re taking the same amount of risk.”
I mean, that’s our take on the situation.
Right.
There’s plenty of?people allocating to these other asset classes or, or more broadly to fixed income, than we might.
True.
But I think what you’re gonna get from private, private credit exposure is going to look like “bonds on steroids!”
Yeah.
Like, these are riskier loans that are like, part of the reason you would do it, is because of the higher yield that you’re promised to get.
And I think inherent in that has to be the understanding that, accepting more risk is a result of it?
So let’s, we’re, we’re kind of tap dancing around the third point. But let’s deal with this head on.
What are some of the reservations we may have about, just if we can just summarize all of the things that we think about – and talk about – here in the office – when we’re dealing or talking about private equity and private credit.
Um, you know, I think illiquidity and high fees are the top things that you need to be – at least aware of – if you’re going to allocate to these asset classes.
Yeah.
And those both – in tandem – tend to be things that we philosophically aren’t big fans of – when it comes to investing.
But I mean, if you’re aware of them, at least you can decide whether or not it’s a big enough deterrent for you… if it’s for you.
Like, with the higher fees…. you have the guarantee of a higher fee – for the possibility of outperformance.
Some pensions, endowments, individual investors have very famously, as I’ve said, done really well in these asset classes.
I guess, for me, it’s a matter of trying to understand “why” at – this point in time – they’re coming to offer this everyone else?
Yeah. Why us? Why now?
I mean, as in?like more average investors.
Like why, why are they offering this supposedly great opportunity to everybody now?
And it kind of seems like maybe they’ve tapped out their market for private investments.
And now they need more people to come in. And like “buy their bags” from them.
I don’t know?if I that person… you need to vet the individual private opportunity that is in front of you. And understand it well enough to say whether it’s a good one or a bad one.
Because like all active investments, I think there are bound to be some winners.
But there are bound to be, mathematically, just way more losers.
Yeah.
And if you don’t know how to pick the winners ahead of time, then I’m not sure that it’s worth allocating to this in a way that’s gonna be costly from a fee perspective.
So two thoughts on this.
And the guys have heard me say this around the office too many times now.
I like to say “if it were that good of a deal, they’d keep it for themselves!”
Probably!
But I’ll also speculate that, you know, in reading some of the articles in the Wall Street Journal and in Bloomberg and a few other places, one of the things that has come up is that when companies were taken?private or acquired before they even went public; the initial plan or the original plan was, “Hey, we’re going to work with the management of this company for the next 3, 4, 5 years. And then take them public, or sell them somewhere else.”
Well, the back end of these transactions (the sale) has not been happening.
So they haven’t been able to move a lot of their “merchandise.” In the sense that, you know, the IPO market has been really spotty for the last few years. There just haven’t been a lot of successful initial public offerings.
There haven’t really been a great deal of stock?activity, when it’s come to that. That slowed down a lot of their pipeline in the sense that, “hey, you know, we’d like to invest in more of these projects, but our capital’s tied up in some of these (now) longer projects.”
So just speculating that may be a reason.
Yeah. I think I’m also just very wary of like, even,?way that these assets are titled. Like by calling them “private,” I feel like, you like activate some sort of thing in our “lizard brains,” where “I must need this opportunity because it’s exclusive!”
Like the exclusivity of it attracts people and their money. Like some sort of bug zapper.
And I just feel like, if you’re interested in this asset class, because, because it seems exclusive, I’m just,?I’m even more reluctant now that they’re like using phrases like “democratizing!”
To suggest like why like almost as if they’re bringing these things to the public.
Like a sort of like Robinhood, like act of good.
Yeah. “We’ve got a duty to do this!” And, “I want to be the one to bring it to you because it’s so wonderful!”
And I just, I don’t know, like obviously there are going to continue to be good opportunities.
But there’s going to be a lot of blowups too.
Yeah.
I don’t, I don’t know whether I like the idea some of these are going to be packaged up into target date funds.
Like what Larry Fink was saying, instead of getting, you know, a 60 / 40 fund with stock and bond exposure one day. The default option in a 401k plan could then (might) be a target date fund that has 10 or 20% or something, you know, some percentage of the portfolio in private investments,
(And this has) already been happening. But they’re talking about doing it in a bigger way.
And so like the idea that that’s going to happen and somebody isn’t even going to necessarily be aware of it – or be able to vet the type of private equity or private credit exposure that they’re getting “under the hood,” Like, I’m not willing to believe that is going to be that… that they’re going to get exposure to one of the good ones…
Yeah.
…is my problem.
How do we know that?
Yeah.
I think a lot of people were surprised when, …or they may not even be aware… today in 2025, mutual funds can have up to 15% of their capital invested in private equity.
And it’s amazing. Sometimes you?look at the top 10 positions of a fund. And you’ll see (I’m going back now, 10 years ago), an investment in Uber was the seventh or eighth largest position in a particular fund.
How did that even happen?
And, you know, what are the deals that we didn’t know about?
That’s what I mean though.
I think that’s the problem, is like we only go back and look at, “wow, look at this, this fund! It owned Uber way early! And like?that’s?been to their benefit, since it’s a publicly traded company now, and it’s been one of the winners.
But as you described earlier, that kind of private equity mentality is like “spray and pray.”
Right.
If one or two of them work, and become 5% or 10% of the portfolio for an active manager… like, great!
But there’s been a ton that have fallen by the wayside that were total zeros.
Yeah.
And I don’t know – ahead of time – that you can identify the fund who is going to be able to get these, get an allocation to, the “next Uber.”
If we knew that, then we would do better things than just selecting the mutual fund that’s going to get an allocation.
Sure.
(Maybe) we’d go and try to offer the company our money directly, I think.
I also think that, you know, you talk about the term private, like in private equity or private credit being a little bit like a bug zapper.
I love that line.
But the, the other thing that I think about when I hear that term “private” is there’s very little transparency.
You know, if you own an individual stock,?or an ETF, or a mutual fund.
You can?look up, in the case of a fund, you can look up and see whether what their quarterly positions are.
With an ETF, you can look up every single day – and see what their positions are.
And a publicly traded company has to report their earnings every 90 days.
There’s plenty of news and plenty of transparency going on.
Not so with private equity deals.
Yeah, no. And for all of the extra cost involved – for either the asset managers, or the companies to report and kind of deal with, like the regulation, red tape stuff.
I mean, a lot of it is in the best interest of investors. In terms of having this information.
So maybe there’s a little more trust that needs to be involved. When you’re allocating to?a fund that’s going to be selecting private companies, like, you’re just?going to have a lot less information.
I’m not even quite sure what the process would be, …to vet an active manager.
Like, you know, if you’re going to put money into a private equity fund.
Like what are you even hearing, from the manager of that fund? In terms of what their process is and how those funds…
And like what the criteria is – in terms of what the exposure’s going to look like?
I mean, I’m sure you’ll hear something from them! I don’t think that you’re going to get assurances, in the same way that you do allocating to an index fund.
With an index, you know, based on the rules of the fund.. exactly what you’re going to be getting.
Yeah. Yeah. Good point.
So, it could be rewarding. Or it could be the opposite.
And, I don’t know. I guess that’s the point of the conversation today is to just (maybe) think through all facets of that.
It’s not currently something that we have, you know. I think we’ve, we’ve stuck to the boring stocks, bonds, cash portfolio.
It doesn’t mean we don’t consider alternatives. You know, the alternatives bucket could mean stuff like we’ve talked about on podcast videos before. Like commodities, like private equity, like private credit.
These are all things that we have to think through for our clients. But we’ve kind of stuck to that tried and true stocks, bonds, cash.
And I think that’s served folks well. It works.
This conversation is this sort of stuff that’s going on, “behind the scenes” though. As we build client portfolios and we’ve got to stay on top of this stuff. So it’s why we’re thinking it through.
And why we wanted to share it with you today.
Thanks for tuning in.
