Truist-Perspectives-AUGUST_2021

Insights: Investing
considerably in the last 10 years.” Thus, PE offers
opportunity for additional diversification across
the portfolio. 4
Second, PE is, by nature, a long-term investment.
Historically, this has meant its returns
have been taxed at the rate of long-term capital
gains, which has been lower than that of shortterm
gains. Its duration also makes it a possible
vehicle for the transfer of wealth. “Private equity
is one way to put money into family limited
partnerships,” says Elena Vasilescu, senior vice
president and investment manager for Truist
Advisory Services (TAS). “Because PE is a longterm
investment and this is a long-term goal, it
just makes sense.”
Finally, private equity investing offers a sense
of giving back. “Private equity firms bring
expertise and contacts to these companies to
help them grow faster and improve cash flow,”
says David Rakestraw, senior managing director
and financial advisor for the Private Client Group
of Truist Wealth. “You’re not just investing in
a stock; you’re helping a business to grow.
That’s in the best interest of all stakeholders,
including the employees, the customers, and the
community.”
Why isn’t private equity investing in
every portfolio?
Most of the downsides of PE are linked to the
size of investment coupled with its illiquidity.
In short, they tie up a great deal of money for
a lengthy period of time. While it is possible to
divest oneself from PE assets, it’s not an easy
exit, and it typically involves selling below fair
market value. Getting in the door can also be
problematic: Many fund managers won’t work
with people they don’t know and trust. And
due to the lack of a reliable “index” or even
observable market prices, it can be difficult for
investors to make an informed decision about
individual options.
For these reasons, it’s recommended that investors
work with a trusted PE advisory service
when exploring this asset class. Truist has
certain eligibility requirements to protect clients
whose portfolio cannot tolerate the unique risks
of private equity investing, and Truist works with
fund managers with a demonstrated record of
strong performance.
"The difference between
returns from the best
manager and the worst
manager can be 40%,”
says Vasilescu. “Our due
diligence in finding the
right managers is part of
the process, and unlike
many institutions, we don’t
charge a fee for that."
Elena Vasilescu, senior vice president
and investment manager, Truist Advisory
Services (TAS)
This relationship is a two-way street: Because of
Truist’s reputation, fund managers may welcome
Truist clients more readily and with a smaller
total commitment. (For example, a fund that
normally requires $5 million for entry might only
ask $250,000.)
Is PE right for you—and are you right for it?
That’s a conversation for you and your advisor,
but it may be one worth having. “Even though
the time horizon for private equity investing
requires more patience—and a higher tolerance
for risk,” says Rakestraw, “the potential for
strong returns may appeal to clients who want
to diversify their portfolio with the goal of
long-term growth.”
The risk profile of private equity investment is higher than that of other asset classes and is not suitable for all investors. There are inherent risks in investing in private equity
companies, which encompass financial institutions or vehicles whose principal business is to invest in and lend capital to privately held companies. These risks include a longterm
investment horizon, rigid liquidity restraints, and high bankruptcy rates among portfolio companies. Generally, little public information exists for private and thinly traded
companies and there is a risk that investors may not be able to make a fully informed investment decision. Past performance does not guarantee future results.
1. “Kids do better on the marshmallow test when they cooperate,” Greater Good Magazine,
February 24, 2020.
2. “Cognitive and attentional mechanisms in delay of gratification,” APA PsycNet.
3. “ A year of disruptions in the private markets: McKinsey’s Private Markets Annual
Review 2021,” McKinsey & Company, April 2021.
4. “Approach to private equity Q2 2021,” Truist Advisory Services Inc.
Additional Sources:
“ S&P 500 returns to halve in coming decade—Goldman Sachs,” S&P Global, July 15, 2020.
“ The NBA’s private equity plan is in motion and it’s betting on the allure of sports ownership,” CNBC,
January 25, 2021.
“ Private equity’s favorite tax break may be in danger,” The New York Times, April 23, 2021.
" Private investing for private investors: Life can be better after 40(%)," Cambridge Associates,
February 2019.
“ 2021 long-term asset class outlook and capital market assumptions,”
Truist, November 2020.
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