What you need to know if you want to invest in private equity

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We think high net worth investors should seek out a more diversified approach by investing in a handful private equity funds run by management teams that have ownership themselves.Illustration by Chloe Cushman for National Post files

As an outsourced chief investment officer that is fairly active across all asset classes, we’ve really noticed a pick-up in investor flow into the private equity market. This shift isn’t unusual: low interest rates have already motivated investors to seek out higher yields in the private debt market and now a moderating outlook for equity returns is causing some to look toward private equity to torque up their portfolios.

The problem is that this strategy isn’t without risk — and at times a lot of it, especially if one is new to investing in the space. If an investor’s portfolio isn’t large enough, there is the risk that one or two bad deals could blow up a large portion of his or her net worth.

These risks should not scare investors off private equity, but they highlight how important it is to do a bit of homework first. It also helps to follow the lead of those who have successfully been involved in the space for a full cycle and understand how to manage liquidity, transparency, diversification and risk. With that said, here are a few rules to keep in mind if you are considering adding private equity investments into your portfolio.

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