For limited partners

Private equity and venture capital are risky investment categories with high average returns. This makes them an important investment category for institutional investors such as pension funds and insurers, but also for wealthy families and private individuals. About 35 of the largest pension funds in the Netherlands invest in private equity (and in infrastructure, real estate, private debt and other unlisted investments), and occasionally in venture capital. As a rule, these pension funds invest around 5% of their investments in private equity. In addition, (life) insurers also have investments in private equity. A large part of the Dutch population therefore benefits from the returns made by private equity and venture capital firms. Indeed, higher returns mean a good pension can be realised with lower premiums. Private equity and venture capital are generally not directly accessible to private (retail) investors. The minimum investment in a fund in the Netherlands is almost always €100,000. The exception is listed private equity and venture capital.

Advantages
Private equity and venture capital offer investors the opportunity to achieve attractive returns by investing in companies that would otherwise be inaccessible. After all, the shares in these companies are not freely tradeable like on the stock exchange. In most cases, these are companies in the (large) SME sector for which a stock exchange listing is definitely not an option. Thus, being invested in these, sometimes highly specialised, companies offers diversification benefits to the investor.

Disadvantages
Investing in private equity or venture capital is a long-term investment. The term of an investment in such a fund is generally 10 to 12 years, which means that your money is tied up for a long time. And costs are incurred in the run-up period to the first returns on the fund, which is represented in the so-called J-curve. Although the secondary market for fund interests is rapidly evolving, it cannot be compared to that for other financial products. Finding a suitable fund manager can also be difficult. After all, there are a lot to choose from and specific knowledge is required to assess whether a fund manager is a good fit. A solution to this is a fund-in-fund or specialised service provider. For this, please refer to the service providers section.

Risk diversification
The first rule in investing is that high returns almost always come with high risk. Becoming a shareholder in a company is risky and the company may not always be successful or may even go bankrupt. Then shareholders usually lose their money. To reduce this risk, a venture capital firm will therefore put together a diversified portfolio. If one company performs badly, it usually has little effect on the other companies in the portfolio. The general economic cycle (also called beta (β)) does, of course, impact how companies perform, but it impacts certain companies more than others.

Return
Private equity and venture capital generally yield a net return (the return after costs) that is higher than that of other investment categories. Return is usually expressed in terms of "Internal Rate of Return" (IRR), a measure that expresses a cumulative return over time. However, a shortcoming of IRR is that this figure is vulnerable to sales that occur early in the life of the fund. We recommend not only looking at IRR, but also at, for example, an adjusted IRR, money multiple or a comparison with a public market, the "public market equivalent" (PME). For specific studies on return, see the section concerned.