The barriers to entry for investing in private equity are falling and the long-term, conservative nature of some of the opportunities available are well suited to SMSF investors, according to an Australian alternative investment firm.
Reach Alternatives chief executive Sam Phillips said private equity had to date been restricted to large-scale investors, but efforts were being made to open it up to collectives of sophisticated investors.
“Institutional private equity will also require a minimum investment of $10 million and the typical investor in these funds would be endowment funds or an insurance company, so they’ve been out of reach of the non-institutional investors,” Phillips noted.
“What we are doing is building a community of investors who come to us and we aggregate the demand from our community. That might be 150 or 200 investors that we bring together to create the minimum amount of $10 million or more.
“We then face the asset manager as the single institutional investor and we handle the entire process of reporting, taxation, communications on behalf of our community of investors.”
He pointed out this type of approach and the investments available were attractive to SMSFs due to the diversity of investments and disconnect from market movements.
“The reason we are getting attention from the SMSF community is that when you are investing in the stock market there is daily volatility, which brings the risk of emotional investing. When times get tough, a lot of people move at maybe the wrong time in the market due to emotions,” he explained.
“With private equity, there is still a wide spectrum from venture capital right through to real assets and they all target different returns.
“Traditionally, you will find that most private equity investments have the potential to outperform and they have done that over the last 15 to 20 years.
“If you have another 15 to 20 years before you can extract money out of an SMSF, a 10-year investment of a small portion of your portfolio helps to dampen daily volatility and allows the potential for some outperformance.”
Phillips added that access to private equity via Reach Alternatives was currently limited to sophisticated or wholesale investors with a minimum investment amount of $75,000 due to the long-term nature of the investments, which are typically 10 years.
“When we look at people that we want to come on that journey with us we think it’s important it is the right investment for you and you have the ability to hold on to an investment for that type of timeframe,” he said.
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