Q:  Do private equity investments have a place in a diversified portfolio?

A:  Properly-selected private equity investments have the potential to generate high returns relative to publicly-traded stocks, but offer little in the way of added diversification to a traditional stock and bond portfolio.  A discussion of investing in private equity, therefore, quickly becomes all about portfolio returns.  It should be noted not all private equity investments deliver high returns.  Historically, the average private equity manager has delivered returns only on par with, or even below, those of returns from a traditional stock mutual fund.  Bottom-quartile managers often perform far worse than the poorest-performing mutual funds.   As a result, manager selection is crucial.  Finding the right manager is but one of many risks of private equity investing: illiquidity, use of leverage, and higher management fees are others.  As a result, private equity investing is not appropriate for many investors.  For more about our access to private equity, see our full-length article, “The Role of Private Equity.”