Private Equity: Investors often make rookie mistakes

PPrivate equity, i.e. investing on a large scale in unlisted companies, mostly via funds, is currently enjoying great popularity (see e.g. FAZ of June 8th). On the one hand, higher returns are tempting. According to data from industry service Pitchbook, the asset class has returned 17 percent annually over the past decade. Yields have been incredible over the past year, averaging around 50 percent, though analysts say this is likely to be a temporary phenomenon. So it’s no wonder that investors who have not previously been in this area are now pouncing on it.

On the one hand, this is very nice for fund providers and investor platforms. On the other hand, it causes some grief in the long run. “As with the stock market, there are also basic rules when investing in private equity that many investors are currently ignoring,” says Alexander Binz, partner of the Circle Eleven platform. The advice that Binz and his partner Kevin Gruber give is a little reminiscent of the advice given to beginners in investing in shares. For example, that you shouldn’t put everything on one card, i.e. a fund. Those who are familiar with the asset class, in which the returns of the funds show an immense spread, may not be surprised.

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