Why you should include private equity and VC in your portfolio

Portfolio Diversification into Private Equity

The recent equity market selloff caused by the expanding Covid-19 virus and the OPEC Russia initiated oil price reduction, has impacted everyone. The impact of Corona is, especially in Europe, currently changing the everyday routines of many people. The anxiety in the population and the drastic measures initiated by governments combined with the uncertainty of how long this will continue, brings even basic changes to many people.

The equity volatility has been massive and the question where and when do I reinvest my money is one of the questions which are very difficult to answer.

The basic argument of portfolio diversification is key to maintain the value of your portfolio and will minimize the impact of market meltdowns. This is key in keeping the overall risk on your portfolio within limits and at the same time be invested in companies with innovative products on the long-term. Not by any means will it keep you out of trouble when financial markets go into panic mode, it will only mitigate your losses. The basic asset classes are equity and fixed income. Additionally, you can invest in derivatives and alternative investments covering a lot of different possibilities.

Unlisted stock in mature start-up companies is one of many diversifiers available to investors. For a long time, the asset class private equity, has only been available to institutional investors. MEGATREND INVEST is among a number of companies offering investments in sustainable private equity to family offices and private investors. The benefit of private equity is that correlation with listed equity is low. Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other.  One of the main reasons that private equity is less correlated is that liquidity is much lower. Contrary to listed equity you do not have access to real-time quotes on private equity as well as an abundance of company information to influence pricing.

Data Source: Bloomberg
Correlation is a measure that describes the linear relationship between, in this case, two asset classes. The closer to value one the two asset classes are, the more simultaneous they move.

The numbers above are sourced over a 10- year period ending in December 2019.

The availability of mature growth companies with established cash-flows are spread across many sectors.  We concentrate on companies with a proven concept and investing in these companies promotes ideas, which will bring our world forward during the next decade.

If you compare the performance of private equity and listed equity across a 5-year, 10 year and 20-year period, private equity comes out on top. The annualized performance averages between 9,8% and 13,1% between MSCI World Index and the Global PE index.


The optimal portfolio construction between listed equity, fixed income securities and private equity/venture capital measured in relation to risk/return (standard deviation 10%) would be 30% fixed income, 60% listed equity and 10% private equity/venture capital. History indicates many reasons why investors should include private equity/venture capital into their portfolio and yet only a minority does so. 

In order to purchase private equity/venture capital, you must be categorized as an accredited investor fulfilling demands setup by the FSA in any investors home country. There is a significant risk when investing in private equity such as limited liquidity and longer tie-up periods. 

MEGATREND INVEST is a Copenhagen based well consolidated provider of capital between investors looking for alternative investments and start-ups and growth companies seeking capital. Our investment companies must conduct a responsible and sustainable business based on 9 leading megatrends in the world. This benefits the company and the society and contributes to an investment in the future focused on sustainable products and solutions.

Søren Rytoft, Senior Investment Advisor