What to look for in private equity
By Andrew McAuley After a period of good returns from equities and bonds and with the official cash rate at 1.0 per cent, many investors are looking for ways to reduce risk and diversify their portfolios. Adding alternative investments such as private equity is one way to do this. Alternative investments are any asset other than stocks, bonds, and cash, and which can act as building blocks to diversify portfolios. Hedge funds, commodities and real estate are all considered part of the alternative investments universe, as is private equity. Investors should aim to build a self-financing private equity portfolio that has sufficient distributions to cover future capital calls. Private equity funds take equity stakes in companies or assets that are not publicly traded and work closely with the management teams to increase their value to be able to sell again at a higher price. Thus, by their nature they are less correlated with equity and bond markets as...