An Introduction to Private Equity by Djamina Grimm

In discussions with wealth managers, one question often comes up very early on: Why tie up capital for years when stock market investments remain available at any time? This line of thinking is understandable, but it judges private equity by the standards of liquid markets. On the stock market, prices react daily to market expectations and sentiment. In private equity, investors directly finance unlisted companies in the real economy, which undergo transformation over several years. These companies enter new markets, modernize their technologies, strengthen their management teams, or acquire other companies. These strategic transformations require time and capital that remains available over the long term. This is why pension funds, insurers, sovereign wealth funds, and family offices have been investing in private equity for decades. They knowingly accept this long-term horizon because they see attractive return prospects with a different risk profile. For a long-term portfolio, the focus is therefore less on liquidity and more on the growth of companies free from the constant pressure of short-term valuations.