The highlights
- A financial check-in can help you make sure you’re on track with your goals—like paying down debt, saving for the unexpected, and investing for your future.
- Creating a money goals checklist may help you identify specific steps that can boost your financial wellness.
- Calculating your net worth is one simple way to measure progress toward your financial goals—and to build confidence along the way.
In the 1970s, a Stanford professor led studies on delayed gratification. Preschoolers were each given a sweet treat—like a marshmallow—and a choice. They could enjoy it immediately, or they could resist the urge for 15 minutes and earn an extra one.Disclosure 1 Now, let’s replace that marshmallow with money. Could you set aside a portion of your capital for 10 years in hopes of strong returns? If so, you might want to consider private equity investing.
How does private equity investing work?
In this type of investment, a fund manager selects promising private businesses, then connects them with the pooled resources of private investors. The investors commit a set amount of money (ranging from hundreds of thousands to millions) for an extended period (usually seven to 10 years, with provisions for extensions).
Typically, the capital is “called” in increments (capital calls) until the commitment is met. Throughout the process, the fund manager often works closely with the business to strengthen its foundation and improve its functionality, making minor to sweeping changes, as needed.
There is, of course, risk—as with any type of investment—but private equity investing offers the potential for long-term reward. In fact, a McKinsey report showed that private equity investment has outperformed public equity investment with a 10-year internal rate of return of 14.1% for the 10-year period ending in September of 2024.Disclosure 2 Please remember that past performance is no guarantee of future results.
What makes private equity investing unique?
There are several factors that make private equity investing attractive to some investors.
First, private equity investing diverges from the public equity markets in some key ways. For one, private equity funds do not have the same real-time and quarterly reporting requirements as shares traded on a market like the New York Stock Exchange. Private equity fund managers and leaders at the private companies they back can focus on the long game, not daily market fluctuations.
Even though the time horizon for private equity investing requires more patience and a higher tolerance for risk, the potential for strong returns may appeal to clients who want to diversify their portfolio with the goal of long-term growth.
-David Rakestraw
-Senior Managing Director and Financial Advisor
-Private Client Group of Truist Wealth
Second, private equity is, by nature, a long-term investment. Historically, this has meant its returns have been taxed at the rate of long-term capital gains, which has been lower than that of short-term gains. Its duration also makes it a possible vehicle for the transfer of wealth.
Finally, private equity investing offers a sense of giving back. “Private equity firms bring expertise and contacts to these companies to help them grow faster and improve cash flow,” says David Rakestraw, senior managing director and financial advisor for the Private Client Group of Truist Investment Services, Inc. “You’re not just investing in a stock; you’re helping a business to grow. That’s in the best interest of all stakeholders, including the employees, the customers, and the community.”
Why doesn’t private equity investing fit every portfolio?
Federal regulation limits access to private equity investing to “accredited investors.” Applying that set of criteria assures that individuals or entities have the financial means and investment knowledge to understand the risks of this type of asset.Disclosure 3 And then from that pool of accredited investors, access may be further limited because many fund managers won’t work with investors they don’t know and trust.
What are those risks? First, the success or failure of the company will determine whether investors see a return on their money. Gratification—like in the Stanford marshmallow experiment—may be delayed, or it may not ever happen.
Additional downsides of private equity investing relate to the size of investment and its illiquidity: They tie up a great deal of money for a lengthy period of time. It is possible to sell private equity assets before the time period set at buy-in, but it’s not an easy exit and typically involves selling below fair market value.
Finally, due to the lack of a reliable index or easily observable market values over time, it can be difficult for investors to make an informed decision about individual private equity options.
For these reasons, Truist believes investors should work with a trusted private equity advisory service when exploring this asset class. Truist has certain eligibility requirements to protect clients whose portfolio cannot tolerate the unique risks of private equity investing, and Truist works with fund managers with a demonstrated record in this asset category in order to help clients reach their unique goals.
Is private equity investing right for you—and are you right for it?
That’s a conversation for you and your advisor, but it may be one worth having. “Even though the time horizon for private equity investing requires more patience and a higher tolerance for risk,” says Rakestraw, “the potential for strong returns may appeal to clients who want to diversify their portfolio with the goal of long-term growth.”
Your Truist Wealth advisor will apply Truist’s evidence-based investment philosophy to collaborate with you on a custom portfolio that is built with your specific goals at its core.
What are your planning priorities?
Schedule a conversation with your Truist Wealth advisor, or find an advisor today.
