Considering private equity in volatile times


Volatility has once again been unleashed on markets as the risk of an all-out trade war between the US and China takes hold. In this period of heightened market volatility, we explore the advantages of diversifying into alternatives, particularly private equity.

When market volatility takes hold in the later stages of a macro and market cycle, this strongly supports significant portfolio allocations to alternative assets. In this article, we take a close look at one of the key sub-sectors of alternative assets—private equity. We discuss the benefits of private equity in a diversified portfolio, some of the key private equity strategies, as well as our recommended approach to investing in private equity opportunities.

Key points are:

  • Market volatility is likely to persist, but the current skirmish shouldn’t materially damage the growth outlook. Nevertheless, we remain neutral risk but are tactically hedging our position.
  • We remain overweight equities relative to fixed income, and our current strong overweight to alternatives also provides significant portfolio risk diversification in this period of heightened volatility.
  • Private equity provides a greater opportunity set which is helpful in environments of increased market volatility. In addition to providing greater diversity, private equity investments have consistently outperformed listed equities over time and with lower volatility.
  • There is a range of risks specific to private equity, although utilising fund-of-fund vehicles rather than a single alternative investment partnership can lower these risks