There are many reasons to invest in private equity. First and foremost, the private markets have far outperformed the public markets. Over the past 25 years, Private Markets, as represented by CAMBRIDGE ASSOCIATES LLC US VENTURE CAPITAL INDEX, have outperformed public indices over a 25-year time horizon (as of 12/31/23). The average return is about 23% while over the same period, the Nasdaq Composite, Russell 2000 and MSCI All World public indices returned under 10.5% per year.
On a fundamental level, private investments are generally riskier and therefore demand higher returns on investment. In today’s market, companies are staying private for much longer than they used to1. The median age for tech companies going public in 2000 was 4-5 years compared with 12 years in 2018. The returns generated by these companies during their growth phase are only achievable by accessing the private share market. As an investor, this makes it advantageous to gain an earlier entry point to these companies by investing in private company shares.
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Sources:
1. https://www.hamiltonlane.com/en-us/insight/staying-private-longer
