Asset Diversification in SMSFs: The Role of Private Equity

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Reach Alternative Investments
October 31, 2023
min read

Asset Diversification in SMSFs: The Role of Private Equity

For self-managed super fund (SMSF) trustees, successful investment strategy often requires a delicate balance between risk and reward. A crucial part of this strategy is diversification across various asset classes, which can help to cushion your portfolio against market fluctuations. Recognising this need, many trustees are increasingly turning towards alternative asset classes such as private equity. In this article, we’ll explore the role private equity can play in diversifying your SMSF portfolio.

What is private equity and why does it matter for SMSFs?

Unlike public stocks, which can be bought and sold freely on the open market, private equity funds take positions (whether majority or minority) in companies that aren't listed on a public exchange. In essence, private equity investors through a fund gain ownership in private companies, selected by the fund manager, often with the aim of later selling their shares at a profit. While private equity does come with its own unique set of risks, the potential for high returns makes it a compelling option for many SMSF trustees (past performance is not indicative of future performance).

How can private equity increase diversification in SMSFs?

The primary benefit of incorporating private equity in your SMSF portfolio is the opportunity to diversify. Given the uncertainties of the market, spreading your investments across a broad range of asset classes can help to limit your exposure to any one sector. In the context of SMSFs, adding private equity to a mix of traditional assets like stocks, bonds, and real estate can offer a valuable buffer in volatile market conditions.

What returns can SMSFs expect from private equity investments?

Despite the inherent risks, private equity can offer potentially higher returns than traditional asset classes (past performance is not indicative of future performance). While the performance of private equity investments can vary greatly, a well-managed fund can provide SMSF trustees with significant capital growth over the long term.

How can SMSF trustees access private equity?

Historically, the high entry point of private equity investments has been a barrier for most individual investors. However, companies such as Reach Alternative Investments provide a platform to give SMSF trustees access to some of the world's top-tier private equity funds. With a minimum investment as low as AU $15,000 into a fund, Reach allows wholesale investors to easily include private equity in your SMSF portfolio.

What are the risks and benefits of private equity investments for SMSFs?

Like any investment, private equity involves a certain degree of risk. While these investments can offer greater potential returns, this can come with higher volatility and liquidity risk. On the other hand, the benefits of top-tier private equity can be significant. These include potential above-average returns, access to unique investment opportunities, and enhanced portfolio diversification.

The introduction of private equity into your SMSF portfolio requires careful consideration and thorough research. At Reach Alternative Investments, we have made it our mission to make this exclusive asset class accessible, responsible, and more transparent for Australian wholesale clients. Through our investor's portal, you can easily view, engage, and invest in some of the world's leading private equity funds, all in one place.

If you're a SMSF trustee, considering private equity as part of your investment strategy could be the key to unlocking new growth opportunities for your superannuation. Connect with the expert team at Reach Alternative Investments today and start your journey into the world of private equity.

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