By: Michael Christian, CFA®, CAIA®, Founding Partner at EverPar
Key Takeaways:
- Private equity has historically outperformed public markets and can help preserve wealth over time.
- Family stewards can access a broader universe of investment opportunities beyond public markets for true portfolio diversification.
- Private equity’s tax-efficient capital gains help preserve generational wealth.
- The long-term private equity investment approach aligns naturally with families’ thinking in generational terms.
For over two decades, I’ve had conversations with family stewards who often ask me the same fundamental question: How might we preserve and grow generational wealth while potentially minimizing what we lose to taxes and fees? Our clients, who typically manage family foundations, trusts, and businesses, understand that relying solely on public markets may not provide the diversification and tax efficiency that could help build lasting legacies across generations.
This is one reason why we often consider incorporating private equity into our wealth management approach. Despite its complex reputation, private equity can be relatively straightforward to understand. It involves investing in companies not traded on public stock exchanges. Through our private equity investments, EverPar clients have had the opportunity to gain exposure to companies like SpaceX, Coinbase, and Airbnb.
What makes private market investing compelling for the families we serve is its potential to deliver performance that exceeds inflation and provide the steady, long-term growth essential for generational wealth building.
The benefits of private equity
Private equity offers compelling advantages for our clients’ portfolios, delivering benefits unavailable in traditional public markets.
Performance
Historically, private investments have outperformed public companies. While stocks have generated 8.2% in annual returns over 25 years, private equity has delivered 12.7% over that same period.[1] Historical outperformance (while not guaranteed) reflects the active management and operational improvements that private market fund managers bring to their portfolio companies.
Tax efficiency
Private equity investments often generate gains through long-term capital gains rather than ordinary income. Long-term capital gains rates typically run lower than income tax rates, potentially meaning a more favorable tax treatment for the families we serve. These positions may also enhance after-tax returns compared to income-generating investments.
Diversification
In the United States alone, there are over 17,200 private companies with revenues greater than $100 million, compared to fewer than 4,000 public companies total.¹ For context, 87% of all US companies with revenues over $100 million are privately held.² The number of public companies has declined significantly from over 7,000 in 1996 to fewer than 4,000 as of 2020, while the private market has continued to expand.³
If we want to give our clients the best opportunities, why limit them to investments only in public markets? Private firms may offer diversification not typically found in public markets and often include businesses that could have strong fundamentals, low volatility, and more paths to value creation. Private equity has historically delivered strong performance, with the CA US Private Equity Index showing 15.0% annualized returns over 10 years compared to 13.0% for the S&P 500.⁴
Many investors achieve diversification by spreading their holdings across different sectors within the stock market. However, for families looking to maximize diversification opportunities, limiting investments only to public markets may not capture the full range of available investments. Expanding beyond public markets can provide access to a broader universe of companies and investment strategies that may complement a well-diversified public market portfolio.
[1] Return data for the 25-year period ending June 30, 2024 https://www.cambridgeassociates.com/private-investment-benchmarks/#current-benchmark-statistics
Private equity strategies
At EverPar, we utilize three core strategies to help many of our clients access this asset class. Each strategy is designed to potentially optimize returns while helping to manage risks.
Primary fund investments
We partner with proven private equity firms like Blackstone, Oaktree, and Apollo. The capital we provide helps our partners acquire a stake in private companies on our clients’ behalf. Using a rigorous due diligence process, we choose managers with strong track records and expertise to execute value-creation strategies.
Secondary market
We purchase existing fund interests from other investors looking for immediate liquidity, often at a discount to net asset value, helping provide immediate benefit from the discounted value and access to future appreciation.
Co-investment
Our longstanding partnerships with fund managers and our ability to meet investment minimums enable us to co-invest directly in specific companies alongside our partners. Co-investing gives our clients targeted exposure to individual businesses rather than broad fund portfolios. Since co-investors typically avoid standard management fees and carried interest charges, this strategy often results in a more cost-effective fee structure for our clients.
What to know before investing
Before incorporating private equity into your family’s portfolio, there are several key differences from traditional investments that are essential to understand:
- Liquidity: Traditional private equity funds typically lock up investor capital for 7-10 years with limited liquidity options, making committed capital generally unavailable for other opportunities or unexpected needs during the investment period. However, we provide families access to both traditional PE structures and certain private equity solutions that may accept monthly subscriptions and offer quarterly tender opportunities, subject to fund terms and conditions. These alternative structures may allow participation in private equity while potentially maintaining greater flexibility over capital access. We help families evaluate how different PE approaches might fit within their overall asset allocation, considering their liquidity needs and investment objectives.
- Valuations: Unlike stocks that fluctuate daily, fund managers typically value private companies quarterly or even less frequently. These less frequent valuations create smoother yield patterns with less apparent volatility, but don’t provide real-time valuations like you do with stocks. The reduced volatility can be psychologically easier for some investors, but the underlying business risks still exist; they’re just not reflected in daily price movements.
- Due diligence: Private markets don’t have the same reporting requirements and analyst coverage as public businesses. Information is less readily available, making thorough research and professional guidance essential. Our experience in private markets means we know what questions to ask and how to identify potential red flags that might not be apparent to individual investors.
- Value creation: Private investments often show flat or even negative returns in the initial years due to management fees, carried interest structures, and the time required to implement operational changes. However, patient investors may realize substantial growth in later years as portfolio companies mature and managers execute exit strategies. Understanding this effect is crucial for setting appropriate expectations and maintaining confidence during an investment’s early years.
- Investor qualifications: Private equity investments are typically limited to qualified clients who meet specific financial thresholds. These requirements are designed to ensure investors can withstand the risks and illiquidity that come with private market investments. We work with clients to evaluate whether they qualify for these investments and if they align with their overall financial situation and goals.
Public vs. private market comparison
| Feature | Public market investment | Private market investment |
| Liquidity | Daily trading, immediate exit available | Monthly entry, quarterly liquidity options available |
| Minimum investment | As low as $1 per share | Typically $250k-$1M+ |
| Valuation | Real-time, continuous pricing | Quarterly or less frequently |
| Volatility | Daily price fluctuations | Less frequent pricing reduces perceived volatility |
| Information availability | Extensive public reporting and analyst coverage | Limited disclosure and reporting of information |
| Exit strategy | Sell anytime during market hours | Dependent on the fund manager’s exit strategy and timing |
Take the next step in generational wealth building
Private equity represents just one component of our comprehensive wealth management approach, which we bring to every client relationship. As your forever partners, we understand that each family’s situation is unique, and we tailor our private equity recommendations to align with your specific goals and timeline.
If you’re new to EverPar and curious about how private equity might fit into your family’s generational wealth strategy, schedule your Foundation Session today. We’ll walk you through how EverPar can help you navigate the complexities of generational wealth while exploring investment strategies designed to build a legacy that lasts.
Michael Christian, CFA®, CAIA® is a Founding Partner at EverPar
¹ Morgan Stanley, “The Growing Opportunity in Private Markets,” based on search results showing over 17,200 private companies in the US with annual revenues greater than $100 million.
² Advisorpedia, “Number of Public Companies v. Private: U.S.”
³ Tuck School of Business at Dartmouth, “Where Did All the Public Companies Go?“
⁴ Cambridge Associates, “Private Investment Benchmarks,” periods ended June 30, 2024.
EverPar Advisors LLC (“EverPar”) is a registered investment advisor. Diversification does not ensure profit or guarantee against loss. Past performance shown is not indicative of future results, which could differ substantially. An investment in the private investments involves significant risks and is suitable only for those persons who can bear the economic risk of loss of their entire investment and who have limited need for liquidity in their investment. There can be no assurance that the investment will achieve its investment objective. An investment in the private investment carries with it the inherent risks associated with the underlying investments. Each prospective investor should carefully review the Confidential Offering Memorandum and Limited Partnership Agreements before investing. The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.