The Rise of Private Equity: A Prime Investment Opportunity

Private Equity, the act of investing in private companies by purchasing shares of the company, is where calculated risk meets long-term vision. It’s a practice that has gone through many different evolutions over hundreds of years.

According to Financial Poise, the concept of private equity goes back to the colonizing of America. The Massachusetts Bay Company raised funds for English settlers to establish colonies and build up the economy (Source: FinancialPoise.com).

Whereas Vault indicates J.P. Morgan’s purchase of Carnegie Steel Co. In 1901 as the key starting point (Source: Valut.com)

The true beginning might be debated, but most agree Kohlberg Kravis Roberts & Co. (KKR) revolutionized and institutionalized private equity. The pioneering private equity firm was founded in 1976. (Source: Jacobin.com)

Originally known as Leveraged Buyout Firms, due to the practice of using a significant amount of borrowed money to purchase a controlling stake in a company (Source: Investopedia.com). This was a high risk, yet high reward tactic that allowed KKR to purchase companies with less upfront capital. By purchasing more shares than they’d otherwise be able to afford, they’d earn exponential profits if the company became successful.

This was a calculated risk. If the company went bankrupt, they’d lose big time. However, this wasn’t just a guessing game, they’d seek out undervalued and underperforming companies. Then they would take an active role in managing the company to turn the business around. It was a very hands-on approach to investing.

KRR’s involvement in the private equity landscape transformed it from an investment strategy used by high-net-worth individuals to an industry made up of institutional investors like pension funds, hedge funds, and multi-family offices.

Private Equity Today

According to the Wharton School of the University of Pennsylvania, as of 2019, U.S. PE firms own about 8,000 companies and generate over 5% of the GDP (Source: knowledge.wharton.upenn.edu)

KKR, still alive and well today, view PE as a great investment strategy for investors who might be concerned about inflation (Source: KRR.com) They go on to claim: “In high inflation periods, for example, PE has generated returns in excess of about 6% above public stocks. Interestingly, Private Equity’s excess returns are actually greatest when Public Equities deliver low returns.”

While PE deals might be down from the exponential heights of 2021, analysts at PitchBook claim dealmaking is now on its way up (Source: PitchBook.com/Q2_2024_US_PE_Breakdown).

The report notes that US private equity dealmaking in H1 2024 increased by approximately 12.0% year-over-year in both count and dollar terms, reaching more than $415.0 billion across over 4,000 deals. This uptick in activity indicates a strong recovery and renewed interest in private equity investments, suggesting that the market conditions are becoming more favorable.

PitchBook’s Q2 2024 US Public PE and GP Deal Roundup report, states that private equity remains the top-performing asset class on a 10-year and 15-year basis (Source: PitchBook.com/Q2_2024_US_Public_PE_and_GP_Deal_Roundup)

This supports private equity as a compelling investment opportunity for those seeking higher returns and are willing to accept the trade-offs, such as illiquidity and longer investment horizons.

Number One Asset Class of Family Offices According to 2024 Family Office Insight series by Deloitte, private equity now makes up 30% of the average family office portfolio vs 25% invested in public markets. The long-term advantages of PE align well with the patient capital strategy of family offices.

There also appears to be a preference for direct investments over private equity funds. This reflects a desire for control, customization, and cost efficiency, allowing family offices to actively participate in value creation and strategic decision-making. As family offices continue to seek ways to grow and preserve wealth for future generations, private equity stands out as a prime investment opportunity that caters to their unique needs and investment philosophies.

Advantages of Private Equity With its focus on long-term value creation, strategic control, and adaptability in different market conditions, private equity offers several compelling advantages. Here are some of the key benefits that make private equity an attractive option:

• Higher Returns: Private equity has historically delivered higher returns compared to public markets, especially over long investment horizons. Empirical evidence shows that private equity consistently outperforms public markets. Cambridge Associates’ 2016 US Private Equity Index reported a 25-year annualized return of 13.22%, over 500 basis points higher than the S&P 500’s 8.19%. Similarly, CalPERS achieved a 12.3% annual return from private equity over 20 years, compared to 8.2% from public equity, a 400 basis point difference (Source: FundRise.com).
• Diversification: It can diversify an investment portfolio by adding exposure to private companies across various industries, sectors, and geographies. By adding this asset class to your portfolio, you’ll reduce risk by spreading investments beyond traditional public equities and bonds.
• Long-Term Focus: Private equity typically involves holding investments for several years, allowing for strategies that can generate significant value over time, such as restructuring a company or driving growth through acquisitions.
• Less Market Volatility: Private equity investments are not marked to market in the same way as public equities, meaning they are less susceptible to short-term market volatility. This can result in a smoother return profile over time.

Disadvantages of Private Equity While there are some significant advantages to private equity as an investment, there are 2 factors to be mindful of.

• Risk: Private equity involves investing in companies before they go public, often when they are in their early stages. This can lead to a higher chance of failure. Additionally, there is less information available about private companies because they are not subject to the same regulations as public companies.

Therefore, thorough due diligence and risk mitigation strategies, such as diversification, are crucial.

• Lack of Liquidity: Due to the long-term commitment of capital, lack of a secondary market, complex valuation processes, limited exit opportunities, and regulatory restrictions. There’s also a smaller pool of buyers due to the accredited investor qualification. See qualifications here: SEC.gov | Accredited Investors These factors collectively make it more challenging to quickly buy or sell private equity investments, reducing their overall liquidity compared to public market investments.

How Konzortia Capital Can Help My company is developing products that will make private equity an even more valuable asset by lessening its disadvantages. Konzortia Hub: A platform that will mitigate risk by leveraging technology for better investment outcomes. At the heart of this platform is our proprietary artificial intelligence (AI). Not only will it make finding investment opportunities easier by sourcing deals based on your criteria, but it’ll also help you evaluate them. Konzortia Hub will provide you with real-time data, benchmarking tools, and automated AI analysis.

Konzortia Markets: A secondary market for quick, secure transactions, allowing smooth investor exits. This enables the trading of digitized assets, providing liquidity options from the early stages of a deal. This feature sets us apart by offering a complete end-to-end solution in the private capital markets.

Konzortia Capital: an Investment Opportunity

I started these ventures because of my first-hand experiences as an entrepreneur and an investor. I knew there had to be a better way to raise capital, I knew there had to be a more efficient way to find investment opportunities. Now that technology has caught up to my vision, we can seize a new era in Private Capital Markets.

Interested in evaluating an opportunity to invest in Koznortia Capital?

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Schedule a Zoom meeting to discuss this opportunity here.

Do you want to be a part of this industry disruption?

We know there is a need for our platform, we know our technology will solve this need, and we expect our company’s value to soar once investors and founders use it.

However, what we are offering is so much more than an investment opportunity. We value your expertise and insights. Which is why we are extending an invitation to join our Founder’s Circle Program.

Founder’s Circle Program

I’m honored to invite you to our Founder’s Circle. The program is an opportunity for you to test out the Konzortia Hub platform. We want you to become a beta tester!

Program Goals:

• Build a collaborative community of early adopters.
• Learn insights to identify and address potential issues.
• Optimize user experience.
• Refine features for a successful market launch.

Incentives for Participation:

• Free Access: As a reward for your contributions, get 1 year of free access to the platform post-beta.
• Premium Support: Priority support and troubleshooting assistance.
• Recognition: We’ll feature you in Konzortia Hub’s marketing materials, case studies, and press releases.
• Networking Opportunities: Access to events or forums for you to connect and share insights.
• Continued Collaboration: Invitation to join an Advisory Board or ongoing User Group to continue contributing to platform development.

Interested in joining?

Get some more details here. To discuss the program, schedule a meeting with me here.

References:

1. FinancialPoise.com
2. Valut.com
3. Jacobin.com
4. Investopedia.com
5. knowledge.wharton.upenn.edu
6. KRR.com
7. PitchBook.com/Q2_2024_US_PE_Breakdown
8. PitchBook.com/Q2_2024_US_Public_PE_and_GP_Deal_Roundup
9. Deloitte “Family Office Insight series” 2024
10. FundRise.com

About Konzortia Capital:

Konzortia Capital is a pioneering holding company and FinTech consortium dedicated to transforming the Private Capital Markets industry. We offer solutions for matching issuers with allocators, digitizing securities, and trading over-the-counter securities. We aim to create a more efficient, transparent, and accessible market for all stakeholders.

At the forefront of our innovative efforts is Konzortia Hub, our flagship product. Konzortia Hub is a game-changer, leveraging cutting-edge technologies such as Artificial Intelligence (AI), Machine Learning (ML), and Distributed Ledger Technologies (DLT). Through Konzortia Hub, we are reshaping the landscape of deal sourcing, evaluation, and execution processes within Venture Capital, Private Equity, and Mergers and Acquisitions (M&As). This transformative approach ensures a more efficient, accurate, and dynamic investment process for all stakeholders, enhancing the potential for successful investments.

To learn more about investment opportunities with Konzortia Capital and explore becoming part of our cap table, follow this link.

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