Building out a Private Equity Portfolio

This article was last updated on April 16, 2022

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All investments carry at least some level of risk and while the Victorians coined the term “safe as houses” as a way to suggest certain investments are always a safe bet (they’re not), finding ways to invest and grow a portfolio can be easy when you look to the right people and places.

Investment in private equity is on the rise as people lean back towards safer bets. And while investing in bonds is as safe and minimally risky as it gets, building out a private equity portfolio doesn’t need to be as difficult as it is made out to be.

Whether you’re looking to see if there are avenues for better returns, are having trouble seeking out institutional investors or feel like a private equity program is the way to go, here is some guidance on how to build that portfolio to better reflect what you need.

Keep a reasonable portfolio

Don’t go crazy building up a large portfolio because you think that more is better. While sticking to two or three equity stocks in a portfolio may seem more secure than having 20, the risk is more palpable when you focus on too little or too much.

When you get to grips with having a portfolio, 10 to 15 is seen as a good number to build a solid portfolio with, just as long as you don’t focus in on one industry (again too many fingers in one pie).

What stage do you want to invest at?

The type of investor you want to be will be key in helping you form a portfolio that works for you; it depends on what fund types you’re interested in:

1) Venture Capital – suited for those who want in early on companies starting out to create the highest possible growth

2) Growth Capital – steadying the ship for established companies to continue growing with minimal risk

3) Buyouts – setting up to invest in a controlling manner with investment generally going towards leveraging loans

Knowing what stage investor you see yourself as can help understand how risky you are and what you’ll want that portfolio to become.

Europe is in better shape than you’d think

While much of the news we hear about the EU revolves around Brexit, investment in Europe is a great idea. European portfolios (when averaging 15 funds) have a better return than American counterparts.

You may want to avoid investing in Britain just now, but neighbouring Ireland is still the tax haven that private groups prefer to invest in.

And if you’re interested, there is an old post on the blog about the stock’s markets Achilles heel which you can read here.

Don’t worry if you have no background

It’s true that anyone can invest, but it doesn’t mean that everyone can invest. A private equity group is the way to go when you know you have the means but not the capability to build a private portfolio. A dedicated lawyer can be the difference between stagnant investment and knowing a dividend recap like the back of your hand.

​You’ll always need to have someone monitoring your portfolio regularly when you can’t pick up trends and possible problems that someone new to this world wouldn’t be clued in on.

Split your cards (funds)

Get two aces on the blackjack table, and you’ll instinctively want to split. It’s the easiest way to chance to get a stronger hand later. The same rules can apply to building your portfolio. When you have someone looking after and finding potential investments, lean towards small and mid-cap investments where you can garner a better return rate for a smaller price.

For example, if you had $1 million to invest, you could split it five ways into big funds and hope the risk pays off, or you split it into one or two big funds and split the remainder into 10 small sized funds with less risk.

The split lowers risks and provides you with a better hand.

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