Hidden Treasure

Abstract

A veil of mystery still often surrounds private equity as an asset class. After having defined what constitutes a private equity investment, the authors trace the origins of the asset class - venture capital, as it is known today, how it got its start with the authorization of small business investment companies in 1958 - and its evolution through several cycles and significant market events. They discuss the mechanics of private equity partnerships and the performance record of the asset class as a whole. An important element of private equity investment is also identified: their relative tax-efficiency, as returns tend to be predominantly long-term in nature and thus exposed to lower rates of taxation. The authors conclude with the suggestion that individual investors should find private equity investments attractive, if they can deal with their relative illiquidity.