Interest rate, inflation uncertainty brings private equity into focus for retail investors

Retail investors can benefit from private equity investments due to their low correlation with listed equities markets, which are experiencing increased volatility due to rising inflation expectations and looming interest rate rises, according to diversified funds management group, Pengana Capital.

Investments in private companies can help provide stability to an investment portfolio, according to Russel Pillemer, CEO of Pengana Capital Group. “Private equity’s ability to provide strong returns is well known, but research also shows private equity’s returns have been achieved with lower volatility and risk than listed shares.

“Private equity’s lower correlation with listed shares helps diversify investor portfolios, adding stability over the mid-to-long-term.”

Mr Pillemer said this diversification is more relevant as markets face an unusual confluence of events. “Valuations in shares and property have increased markedly, while cash returns are taking investors backwards.

“Current levels of inflation and longer-term price pressures are proving to be higher than expected, with some fears regarding stagflation, and expectations are growing that rate rises could be brought forward.

“Can shares and property continue their run? Risk mitigation is important and private equity can play a role to spread risk while also delivering returns.”

He said the private equity asset class provides opportunities to invest in a greater pool of companies than listed markets – consider that in the year 2000 the US listed markets had 9,000 listed companies, yet by 2019 this had dropped to 4,200 listed companies.

“There is a reason why private equity asset allocations are increasing, particularly among large institutional investors including Australia’s Future Fund.

“Retail investors have not had access to the same private equity opportunities, but it is now possible to invest in private equity with transparency and liquidity via a listed vehicle.”

The Pengana Private Equity Trust (ASX: PE1), launched in 2019, invests in global private investments, holding investments in 350 underlying private companies, including six of the world’s top 10 private company ‘unicorns’.

The Pengana Private Equity Trust also holds Amazon-backed electric vehicle manufacturer Rivian Automotive, which recently surged to a US$100 billion valuation on its Nasdaq debut – the only way Australian retail investors could access Rivian is via the Pengana Private Equity Trust.

Pillemer said listed private equity breaks new ground and makes it easier for investors to consider the asset class. “The listed structure solves the problems around access and lack of flexibility that investors traditionally faced with private equity.”

More information on the Pengana Private Equity Trust’s top private equity holdings can be found here.

Pengana Capital Group