The Wall Street Journal reports that as hedge funds lose some of their popularity amid poor performance and too many offerings, private equity is becoming more popular with advisers looking for diversification. Joe Dwyer, Portfolio Manager of a Tech Focused Private Equity Fund based in Chicago and an adjunct professor at Northwestern’s Kellog School of Management says "private equity is often a more tangible way to increase alternative investment allocations."
On average, performance by hedge funds trailed the stock market since the financial crisis, as stocks have soared and competition among hedge funds has increased dramatically.
Private equity ownership has a number of important advantages that allow it to create value and realize capital gain in a more repeatable, predictable fashion. Investors typically find private equity investments easy to understand. Many of these investors have been on the receiving end of these transactions themselves while running companies.
The potential company investments for private equity are enormous. They can invest in companies that are at the beginning of their growth cycle and in private hands. They can invest in the less popular divisions of larger corporations or take private those public companies that are under performing in the stock markets.
Private equity firms invest in companies to make them more valuable than selling it to a buyer who appreciates that lasting value has been created. Private equity firms are therefore patient investors, unconcerned with short term performance.