Private equity firms are increasingly turning to retail investors to broaden their capital base amid ongoing constraints in institutional distributions and a growing appetite for diversification among individuals. 

The shift marks a key evolution in private market fundraising strategies as firms seek to unlock the $26tn sitting in US retirement and IRA accounts.

Historically dominated by pension funds, endowments, and sovereign wealth vehicles, private equity is now welcoming individual investors into its universe, often through new product structures tailored to smaller ticket sizes and periodic liquidity. While the opportunity is real, so are the risks.

Retail investors are drawn by the promise of accessing high-growth private companies that are staying private longer and by the smoother volatility profile that private assets can offer. Buyout strategies are also increasingly viewed as a counterbalance to public equity concentration risks.

However, industry experts caution that many retail-focused offerings can obscure the full cost of investment. Despite headline fees advertised as low as 1%, deeper layers of charges including overheads, legal expenses, and performance fees can push average lifetime costs to nearly 24%, according to Harvard research cited in the article. That translates to an annualised drag of nearly 8% on performance.

Liquidity risk also looms large. Recent examples like Blackstone’s BREIT, which was forced to limit redemptions amid a surge in withdrawals, highlight the tension between investor expectations and the underlying illiquidity of private assets. Despite new fund formats including KKR and Capital Group’s hybrid interval funds and Apollo’s ETF-style products, industry redemptions as a share of NAV fell to a 10-year low, reflecting limited exit activity.

For investors seeking to enter private equity, careful due diligence is essential. “Democratising access” must be matched with transparency, realistic expectations, and professional oversight.

Source: Forbes

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