What is Private Equity?

What is Private Equity?

The Wikipedia definition of ‘private equity’ is “investment funds organised as limited partnerships that are not publicly traded and whose investors are typically large institutional investors, university endowments or wealthy individuals”.

So it’s not surprising that the majority of people believe private equity to be exclusive and not a mainstream option for their capital.

In short, private equity is an asset class that has led from the front of the pack for a decade, and it has done so without widespread acknowledgement from the general public.  

Private equity real estate, meanwhile, is the one of the few asset classes that has beaten the overheated stock market since the financial crisis and continues to boom, with PE firms now dictating even leaner terms to their investors.

So how is Berkeley different?

The answer is simple. We aren’t reinventing the wheel; we’re investing in tangible assets and businesses that have proven demand and consistency. We are expanding the client base that has access to private equity as an asset class and this has clear advantages for both our business and our new client base.

“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” – George Soros, billionaire and philanthropist

Typically, instead of going to the stock market to raise capital, PE firms raise funds from institutional investors such as pension funds, endowments, and high net worth individuals.  PE firms use these funds, along with their own commercial acumen, to help build and invest in assets that have the potential for high growth.

At Berkeley Assets, we also allow retail clients to come on board. Why should your personal wealth level limit your access to private equity?  It shouldn’t.

Why have we expanded our client base?

PE is an industry that is subject to more regulation every single day and as a private industry it is important to allow this to happen to enable clients of all shapes and sizes to have access.

As retail clients become smarter and more aware of the hindrance of management fees, they are demanding yield and demanding change.

Recently the US has shaken up the industry, putting pressure on the mutual fund industry to reduce their over generous fee structures, which are largely in favour of the fund managers.

Last year, the US House passed legislation widening the definition of clients who should have access to PE.  The Commissioner of the Securities and Exchange Commission, Michael Piwowar has also publicly supported broadening access to private markets.  This is the hot topic in PE right now and is driven mainly by better informed clients hungry for yield in a low interest environment.

But why choose private equity over others, such as mutual funds?

The attraction of private equity investment to a business is the opportunity for business managers to own a significant portion of their business.  Aligned interests between the managers and the investors fosters the sense of ownership that is central to the concept of private equity investment.

When you have co-investment between investors and managers, something important is born. Everyone is singing from the same hymn sheet and it drives rapid positive change, but ultimately it drives value. This is the value that we pass onto our clients, in the form of sustained, robust and transparent returns.

With managing tangible real estate and businesses, there is no speculation. Assets and businesses are always worth their value and through rigorous selection criteria, we generate yield while preserving capital. We don’t buy on emotion or market sentiment, we buy and drive value through controlling the process. Unlike stocks and securities, we deal only in fundamentals, not market mentality and hype.