An increasing number of mutual funds are turning to private-equity investments as new avenues to raise revenues, the Wall Street Journal reports.
Mutual funds tend to limit their holdings to stocks and bonds. But as private financiers including hedge funds and buyout firms, are wielding more and more impact in the realm of corporate finance, a growing number of mutual funds are finding private equity investments attractive.
Some mutual funds managers say the risk associated with these investments often pale in comparison to the possibilities of bringing in higher returns.
A flurry of high-profile – and high-value – investments lately, such as Kohlberg Kravis Roberts & Co.’s planned $21.3 billion buyout of the HCA hospital chain, has sparked a deluge of institutional investors getting involved in the private-equity world.
The US Private Equity Index, a measure of private-equity funds’ performance as tracked by Cambridge Associates, increased by 27% last year, a steep rise when compared to the 5% increase in the Standard & Poor’s 500-stock index.
But some investors are discovering the downside to private equity investments: when companies turn south, as many fledgling companies often do, options become limited because it is hard to unload holdings, and many investors have seen their investment vanish when a company’s stock suffers.