"One of the best kept secrets in the investment world"

David Chan: For me, private equity is one of the best-kept secrets in the investment world. It's generated some of the strongest risk-adjusted returns through the cycle, in my opinion. And yet historically it's really only been accessible by very high net worth investors and institutional investors. But now the market's opened up and retail investors can now access this growing and very important asset class. 

LW: Why should someone consider private equity when there are public options that are far more accessible?
David Chan: For a long time, I think most Australians have really invested only in the listed markets and within that concentrated on a couple of big name banks and resource companies. But today, a lot of companies want to stay private longer. 

They don't want to have quarterly reporting cycles to the market, and there's such a growing pool of private equity capital available to support these businesses. 

LW: What is the single biggest risk investors should consider?
David Chan: I think the biggest risk that people need to be aware of is that fundamentally it's an illiquid asset class. So historically, it was the realm of institutions that invested millions of dollars and locked up their capital for at least 10 years. 

Now with products like MLC's Global Private Equity Fund that we just launched for the retail market, investors with as little as $20,000 can invest and have limited monthly liquidity accessible and so it's opened up private equity to a whole new range of investors. 

But that said, it's not an asset class like public equities that you should be trading in and out of. It's more an asset class you want to be patient with your capital and invest regularly for the long term because we found that the best way to generate sustained and strong long-term returns is to be in the market, both for good times and bad.

LW: How have valuations been impacted in this environment?
David Chan: There is some correlation to the public markets, and so while valuations have been affected at the margin, the outperformance of private equity really still has been there and we've seen it in our own portfolio where at MLC private equity has been one of the key sources of Alpha for the overall programme delivering over 18% returns on a 10-year basis. (As at the time of recording for the period ending 30 June 2022. The 10-year return to 30 September 2022 is 17.7% p.a.)*. 

Even in the last correction where we've seen public market companies and in many cases in tech and healthcare fall 50, 60, or 70%. Our programme has been very stable and has actually not lost capital over the last year.

LW: Are you concerned deals activity will continue to slow given the headwinds?
David Chan: There's definitely a lot of both real risk and perceived risk in the market at this point, but I think that's actually a very healthy dynamic. And historically, as we analyse our own portfolio at MLC, we've seen these types of periods to be some of the best times to be investing to generate great long-term returns. 

And the reason is that while overall deal flow moderates, companies are more fairly priced and you suddenly see some higher quality companies come to market that may not have considered taking on private equity capital or selling in the past, but now they see those challenges ahead. 

They want really strong partners with deep operational expertise and other parts of their toolkit, which they can leverage to help these companies become market leaders, take over competitors, and really cement their leading market position over the coming cycle.

* Please note past performance information is not indicative of future performance.