Private Equity ?

Private equity funds invest in unlisted companies and support them with financial, operational and strategic measures to further develop their business. This approach offers investors an investment with an attractive risk-return profile.

99% of the return potential
lies outside the stock market

Private equity and venture capital tap the high return potential of direct investments in companies and help improve the risk profile of investors.

To the products
Attractive return potential
The effect of adding private equity to a portfolio depends - as always - on the portfolio itself. However, a Pantheon study from 2015* suggests that adding 20% private equity to an equity portfolio can unlock 3.16% of annualized excess return. Viewed over an investment horizon of 10 to 20 years, this has a significant impact on wealth accumulation.
Reasons for this include:

Access to unlisted companies
The number of companies available for investment in public markets is limited and each traded company is carefully screened. Although public markets can never be truly "efficient," the value of a company going public will likely already be recognized, causing the price to skyrocket at that point. Private equity funds have access to the private market, and thus to a larger pool of unknown opportunities that are not subject to rigorous vetting. They have the resources to viscerally vet these companies and figure out which ones are worthy of investment.

Private equity investments are often financed with debt. This practice allows the fund to deploy a smaller amount of cash while simultaneously magnifying profits in the event of a sale. Of course, the opposite is also true: if the investment fails, there is a significant risk of loss.

Value Creation
Since the goal of private equity investing is to sell the stake in the company, there is a strong motivation to create value. Most modern private equity firms have clear value creation methodologies and often dedicated value creation teams within the firm. Value creation initiatives can include restructuring, cost reduction, technology improvements, or the introduction of ESG frameworks, all of which are thoroughly planned before an investment is made.

Diversification and risk mitigation
Modern portfolio theory states that one should reduce business and financial risk as much as possible through diversification, which is best achieved by selecting assets with low correlation to each other.

Private equity can help diversify a portfolio by mitigating both public market risk and economic risk. The inclusion of private equity can increase returns disproportionately to the increase in risk within a portfolio. Nevertheless, there is still an increased risk within the private equity asset class.
Structural advantages over equity funds
Compared to traditional equity funds, private equity funds benefit from structural advantages throughout the investment process.

Before making a purchase, private equity funds can intensively examine potential investments. In doing so, they use experts with relevant (industry) experience, with whom they develop a detailed concept for the investment (the so-called investment thesis).

Value enhancement
Because private equity funds control their portfolio companies, they can consistently implement their investment thesis after the purchase. Typical value enhancement measures range from optimizing purchasing and production to strategic acquisitions, geographic expansion and changes to management incentive structures.

Thanks to their long-term perspective, private equity funds usually have the flexibility to determine the best time to sell a portfolio company. Depending on the situation, an exit can take the form of an IPO or a sale to another company or private equity fund.

Special features of secondary funds
A secondary private equity fund is an investment fund that invests in existing private equity investments that are sold by other investors. This type of investment fund is a popular choice for investors looking to invest in private equity, as it gives them the opportunity to invest in established companies that already have a certain level of success and stability.
Other advantages:

Attractive risk/return ratio
Secondary funds offer above-average returns compared to the equity market, while historically having the lowest risk of default in the private equity segment.

Shorter maturities and faster portfolio development
Secondary funds' portfolio companies tend to be more advanced, allowing for faster generation of exit proceeds. As a result, capital accumulation is significantly lower compared to other private equity strategies.

Attractive entry prices
A well-managed secondary private equity fund can generate above-average returns compared to other private equity investments because the investment strategy is to identify and invest in undervalued but high-growth companies.

Important considerations for investors
Just as the characteristics of private equity can lead to the benefits of higher returns and greater diversification, there are also certain factors that need to be considered before deciding whether an investment is personally the right choice.

High minimums
In traditional private equity investing, the high minimums required to invest have been a barrier for most individuals.

Low liquidity and delayed cash flows
The lock-up period of a private equity fund makes private equity an illiquid investment with a long-term horizon.

Risk of Loss
Private equity investments are high risk and may result in partial or total loss of principal. Alternative investments are inherently complex, speculative investment vehicles and are suitable only for investors with sufficient knowledge and experience to understand the risks involved.

Management Fees
When evaluating a fund, you must not look only at gross returns. You must consider the net performance - after fees - as this is the return you would have actually received if you had invested.

What others say

"If your retirement is 20 years away? Why don't you have access to great long-term risk-adjusted returns?"

Verdun Perry - Global Head of Strategic Partners at Blackstone

"According to a 2021 survey, 73% of asset managers believe that non-accredited individuals should be able to invest in private markets to achieve better portfolio diversification."
Laurent Capolaghi - EY Luxembourg Partner, Private Equity Leader

"There are few teams with such outstanding potential as tokenstreet's."
Gunnar Ebner - Executive Vice President at Capgemini