Is private equity the best choice right now?

A wealth manager explains why she encourages private equity investment and how she makes her investment decisions

Is private equity the best choice right now?
Optimism continues to spread through the markets on the back of scant details on fiscal policy from the Trump administration. Yes, increased infrastructure spending sounds great, but is it really going to happen? Yes, a tax reform would help boost corporate earnings, but what exactly are the details? Uncertainty and chaos continue to reign from a political perspective, but the markets are only seeing the positives. Private Wealth Manager at DFS Private Wealth Jennifer Black uses one key word to describe how she is navigating the current landscape: caution.

“Although I don’t think we’re at the complete high yet, we know that the market is going to correct at some point,” Black says.  “We work with our clients to protect their assets while also aiming to position them for growth. If markets do correct - and if it happens quickly - clients will be protected if they’ve been cautious.”

In an attempt to add some protective layers to her clients’ portfolios, Black seeks out solid private equity investments. “Those private equity investments enable us to make a return for clients, who don’t have to worry about that portion of the portfolio being tied to the market,” Black says. “Parts of the portfolio are tied to the markets and other parts are not; that provides the type of diversification that protects investors when a market correction happens.”

When identifying private equity opportunities, Black’s first step is to complete a due diligence process that helps her determine the fundamental quality and long-term strength of the potential investment. Although Black does consider herself a value driven investor, fundamentals always override value. “That is essentially what reduces risk,” she says. “Running both calculations is important but it’s no use getting value without quality. There is always a reason that a company is available at a discounted price.”

When suggesting private equity investments, Black often receives a range of questions from curious clients. She has found that making sure each client fully understands the process she follows and the investments they hold is a good way of minimizing any uncertainty. “The majority of those investments are in pooled private equity, so there is exposure to a number of different companies and income streams,” Black says. “That gives clients comfort; they’re not just invested in one company that could go sour.”

Black takes the time to explain the thinking behind her private equity strategy and the value of it. “Looking at those who are wealthy today, assuming they didn’t inherit their money, that person probably made money from private equity. It’s unlikely they only invested in the stock market,” Black says. “Clients need to understand that private equity plays an important role in a portfolio and why.”

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