Private equity for small investors

Without six-digit amounts, private equity remains closed to many investors. If you don’t have that much, you have detours that lead you closer.

Those who don't have enough for a KKR private equity fund can still buy the stock.

IIn the era of the lowest interest rates, bonds are not very attractive as an investment. Last but not least, many investors switch to private equity, the direct participation in companies. But usually nothing goes below a six-figure sum. So it will be difficult for small investors. It is true that there are occasionally so-called “feeder funds”, especially in the United States, which invest the money collected from investors in individual private equity funds and only require small minimum investment amounts. But because they are non-public funds, these are only open to “accredited investors” with an annual income of more than $ 200,000 or a net worth of $ 1 million.

For a time, private equity funds of funds flourished in Germany. But their use is controversial. On the one hand, the administration causes additional costs, on the other hand, many of these funds of funds have been running for a very long time, some for more than 20 years. This significantly reduces income and tends to erode the premium that investors receive over stocks for foregoing liquidity.

Private equity stocks are stocks too

An alternative are shares in private equity companies and listed index funds (Exchange Traded Funds; ETF) on them. That was not a bad investment: In the long term, the performance outperformed the stock market by 1.5 to 3.5 percentage points on an annual average. The past three years have been particularly good. The shares of individual companies have developed very differently. While the share price of the Swiss Partners Group rose an average of almost three percentage points more than the Swiss stock index SMI over the past five years, the stock of the American Carlyle lagged the S&P 500 index by an average of around 2 percentage points. In the end, however, stocks or equity fund investments are just that and not private equity. Here investors are more directly invested.


Another alternative are specialists for secondaries, i.e. the purchase of existing fund shares or investments from a long-running private equity fund, such as the Swiss Matador Private Equity. “The business with secondaries is more lucrative insofar as you avoid the J-curve effect of primaries,” explains Florian Dillinger, Chairman of the Board of Directors. “You only get on board when the problems are known and the costs are manageable.” There are plenty of buying opportunities. The market is fed by the need to streamline portfolios. After all, 10 percent of the investments made went into resale.

You can also invest directly in companies via crowdfunding. But this should not be confused with private equity. On the one hand, the offer is essentially limited to start-ups and growth companies. On the other hand, equity investments have only recently returned to Germany after the legislation for small investors initially practically only allowed loans. In the meantime, the Companisto GmbH platform offers holdings or shares for amounts between 1,000 and 25,000 euros, with which investors participate either directly or through a special purpose vehicle. But the crowd is not about influencing companies. Thus it is in fact a less liquid security-like investment. Especially internationally, many platforms are again turning to “qualified investors”, not least because this makes things much easier.

Unknown world market leader

But there is movement in the market. “It is hard to understand that returns of more than 10 percent are reserved for institutional investors and semi-professional investors,” says Thomas Sonntag, Managing Director of Sonntag Corporate Finance. The company has been specializing in succession planning in small businesses for more than 15 years. Now they want to expand the business model with the support of the crowdfunding platform Seedmatch. To this end, the subsidiary Kapitalkontor was founded, which should enable investors to invest in a “risk-diversified portfolio of brilliant medium-sized companies” with Sonntag Corporate Finance. In a certain analogy to crowdfunding, investments should be made in companies that come from the area that Sonntag calls the “nano-segment”: companies with annual sales of 3 to 5 million euros.

“There are companies here with pre-tax margins of 20 to 30 percent, unknown world market leaders in their niches,” he says. There is, for example, the company that manufactures explosion-proof switches. “These are the smallest batch sizes and cannot be scaled. But it brings a pre-tax return of 50 percent. ”Or the quilt manufacturer, which produces on request and constantly earns 30 to 40 percent before taxes. But investors still have to wait, because the type of investment is not yet firmly established.