Private Equity Funds Versus The Stock Market

Who comes out on top?

I read a research paper recently that compared private equity fund performance to stock market returns. They found that since the recession or the great financial collapse (GFC) as they refer to it, private equity performed better and recovered quicker than stocks.

This is just another expert reinforcing what I believe – that investing in real assets like multifamily apartments that produce positive monthly cash flow and have the ability to appreciate is a great wealth-building tool.

Private Equity Definition:
Private equity is capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies. Investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions (like real estate) or expand working capital.

Public Equity (Stocks) Definition:
Public equity is an asset class where individuals and/or organizations can buy ownership in shares/stock of a company through a public market such as the New York Stock Exchange.

JPMorgan Asset Management estimates that from 2002 to 2017 private equity generated a 14.4 percent net annual return versus 8.8 percent for the MSCI World equity index (Wall Street).

Not only does private equity investments beat Wall Street they also have low downside risk.
Research from JP Morgan states that two-fifths of stocks experience a “catastrophic loss” which they define as a seventy percent or greater drop from peak value, with little to no recovery.

Compare that to less than three out of one hundred private equity funds suffer from a similar loss.

That makes stocks thirteen times riskier than private equity funds.

Now consider this. We are almost a decade in from the global financial meltdown. We’ve had nine years of economic expansion. Investors everywhere are starting to talk about, and are preparing for a downturn.

Where do you want your money to be when the bubble bursts?

Now consider this. Not all private equity firms are created equal. Some invest in technology or are used to take a company private. Some firms are diversified and into a little bit of everything. And when you really dig into it, the experts believe that while large equity funds are still generally better than the stock market, smaller funds may be even better prepared to outperform in the event of a recession.

And those same experts say that today’s retirement accounts are so heavily invested in public equity (Wall Street) that they are extremely vulnerable in regard to being recession-proof.

Why don’t more people invest in private equity funds like real estate?

Because public equity has made it extremely difficult to invest in private equity. They don’t want to give up your money when they are making so much off it.

Think how much control you give up and the risk you take when you hand over your money to Wall Street. You have no control.

Take the recent Sears and Mattress Firm bankruptcies. As a regular, everyday investor, you’d have had no control over how they ran their companies and your money would have gone down the toilet with them.

The investment deck is stacked against you.

What can you do? What should you do?

First you need to educate yourself. Study the wealthy. Study what they do and how they create wealth and make it grow into indestructible, generational wealth. Study their investments. What are they doing?

I studied Warren Buffett, Rockefeller, Ford, Kroc, and many others. I looked at how they created and grew their wealth.

It was through real estate. They bought land that produced income right away and that would appreciate in value over time.

Second, you need to decide if you can do it alone. Can you learn all that you need to make good investments? And do you have the capital to go against the big firms to get the big deals that will weather during a recession?

I’ve spent twenty-five years investing and have found that large multifamily real estate deals are what works.

I don’t expect you to change your investment strategy after one blog post, but if you’ve been reading or watching any of my real estate posts you are probably interested in what I’m doing and see the value.

Learn more, watch more. My real estate podcasts are available on iTunes and Stitcher. My real estate show is on YouTube. Read more of my blog posts here. Dig deeper and study CardoneCapital.com

I’m here to help. I have a ton of free information out there for you and am posting more each day. If you are serious and want more insight or information, look at some of my programs and courses here.

You’ve worked incredibly hard for your money. You should work just as hard turning that money into indestructible wealth.

 

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