There has been a significant increase in the number of Australians managing their own Superannuation, and exploring investment opportunities that were once inaccessible to the average individual. One such opportunity is private equity, an asset class that has the potential for high returns. But like any other investment, it's essential to understand both the benefits and risks associated with it. In this article, we delve into the pros and cons of using Self-Managed Super Funds (SMSFs) for Private Equity Investments.
Private Equity is a type of investment that involves investing directly into private companies, or buying out public companies, to make them private. It's a high-return, high-risk investment typically reserved for institutional investors. A private equity fund typically uses the expertise of a fund manager to invest across a number of private companies within an industry, taking either a minority or majority stake. Investors lend the fund manager the capital to make such investments.
Traditionally, the threshold for entering the Private Equity market has been high, excluding many potential investors. However, Reach Alternative Investments has created a model whereby wholesale investors who have an SMSF can access globally curated top-tier private market funds for as little as AU $15,000.
Private equity has the potential to offer significant returns, often out-performing other investment types (past performance is not indicative of future performance). For SMSFs, private equity provides diversification, reducing the risk associated with relying solely on traditional asset classes such as shares and property. Additionally, investing via SMSFs allows for control over your super and potential tax advantages.
It's crucial to note that while private equity offers significant potential rewards, it also comes with risks. These include reduced accessibility, valuation complexities, and long-term investment lock-in periods (although, the longer investment horizon may suit an SMSF). Therefore, it's critical that SMSF trustees have a robust understanding of the private equity market before investing.
Reach Alternative Investments tailor their opportunities towards 'wholesale clients', being ‘sophisticated’ or ‘professional’ investors as defined in the Corporations Act 2001. While every individual circumstance is unique, generally, SMSFs with larger balances, those with a sound understanding of investment risks and returns, and are able to tolerate some level of illiquidity would be most suited to private equity investments.
Before embarking on a private equity investment journey with your SMSF, it's essential to undertake detailed research and due diligence. It's recommended to seek professional guidance to understand the legal, regulatory, and tax ramifications. In addition, the unique characteristics of private equity, like lock-in periods, should align with your retirement plans and overall risk tolerance.
Adding private equity to your SMSF portfolio can potentially boost returns and provide beneficial diversification. Thanks to Reach Alternative Investments, this exclusive asset class is now accessible to more Australians than ever before. However, as with any investment, it's crucial to fully understand the potential risks and rewards before investing. Always engage in thorough research and due consultation before making this significant decision.
