In general, Private Equity can serve as an addition to a broadly diversified portfolio consisting of several asset classes. The optimal size of the private equity position depends, among other things, on the individual investment objectives, investment horizon, liquidity requirements and risk profile - and therefore cannot be answered universally.
Analyses by the BlackRock Investment Institute show that an addition of up to 20 % Private Market investments, including Private Equity, can be beneficial. Such an addition to a traditional portfolio with 60 % equities and 40 % bonds shows a better risk-return profile in a historical comparison: the expected return increases from 5.5 % to 7.2 % over a ten-year period, while the risk disproportionately rises from 11.3 % to 12.7 %.¹
The following factors can help to determine the optimal individual proportion of Private Equity in the portfolio:
Risk tolerance: Assess your individual risk tolerance carefully. A higher risk tolerance may justify holding a larger proportion of Private Equity in the portfolio.
Investment horizon: A sufficiently long investment horizon is a prerequisite for investing in an illiquid asset class such as Private Equity. According to the key information document, the recommended holding period of the investment is (at least) 5 years.
Liquidity requirements: If you need to draw on your capital in the short to medium term, Private Equity investments should not be undertaken as the asset class has limited liquidity.
Personal Wealth: The portfolio size should be sufficiently large to comfortably meet the minimum investment criteria without having a concentration risk in the portfolio.
¹Please note that Scalable Capital does not provide investment advice. Please obtain additional information on the product, liquidity and product-specific risks before placing an order.