Quick Bite: What are the risks of private equity?

In this quick bite, Dr Joel Shulman from ERShares unpacks the democratization of private equity. What strategic opportunities exist in private markets that have been traditionally off-limits? Why has private equity grown from $1 trillion to $13 trillion and what are the impacts? Plus, insights on the unique valuation dynamics of private investments and why market movements create both risks and opportunities for investors.

This quick bite is from our previous episode 'The ETF that lets you own SpaceX'.For more or to watch on YouTube—check out http://linktr.ee/sharedlunch

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Episode Transcript

Speaker 1 (00:00):
You're listening to a Sheesis podcast. You're all about democratizing
access to private equity. I'm really curious to see why
you're so passionate about that. Well, so, for the last
twenty years, we've seen et aps increase from about one
trillion to about thirteen trillion dollars. In corresponding with that

(00:21):
growth in et apps, we've seen a similar, almost identical
increase in private equity, growing from one trillion to thirteen trillion.
And now so we've seen this parallel path of two
fairly large markets increase in size, considerably increase in size
thirteen acts. But yet we haven't seen any sort of crossover,

(00:42):
no linkage, and so we're excited to provide opportunity for
retail investors to finally access to this private market that
they've been precluded from investing in all these years. What
are the risks though, First and foremost the risk that
investor would have in our funds, which is the same
that they would have, for example, if they invest in

(01:04):
the QQ queues or other growth oriented indices that invest
heavily in tech and healthcare. Is the market movement? So
if interest rates rise tech in other securities which are
considered long duration. Long duration means you get more of
your benefits in the future. Those types of stocks are

(01:24):
going to suffer when interest rates go up, or when
this market volatility, or when markets contract. So you investors
tend to see when when investors, when investors get nervous,
they tend to move more to value, or they tend
to move to cash, or they tend to move to bonds.
When you come to private equities, you'll see it's probably

(01:44):
even more exacerbated in the marketplace like that. So for example,
one of the stocks, and even though the private markets
have been you know, showing with SpaceX, you know, some
of the secondary markets are showing SpaceX you know doing
well and so forth, which you know, we would expect
that you know, to do well based on a lot

(02:05):
of idiosyncratic conditions. Some of the pure benchmarks in this
market are moving. So sometimes you'll see privates not correspond
with those movements because the other public markets are moving
daily and privates may be seeing a stationary They tend
to move in step function. They can move into step
function both up and they can move into step function down.

(02:28):
And as we saw in twenty one and twenty two,
privates you know, we're moving in a step function down
now we're seeing you know, over the last couple of
years markets were more positive, more growth oriented. We saw
privates appreciating during twenty twenty three and twenty twenty four,
early part of twenty twenty five, and we'll see soon.

(02:50):
For example, probably our best litmus test is going to
be one of our holdings, Klarna. We'll see how it
comes up. We bought it an evaluation of market evaluation
twelve billion. Well, it's going to come out to peer
benchmarks like a firm. There's a company in Australia called
after Pay that was bought by Block. You'll we'll see

(03:12):
very soon how the market is valuing these and we
expect our stock to move comparable to these valuations as well.
So we'll have a we'll have a pretty good insight
fairly soon, probably within the next few weeks, how how
that particular private security is holding up or not. When
market information comes out and investing involves risk, you might

(03:34):
lose the money you start with. We recommend talking to
a licensed financial advisor. We also recommend reading product disclosure
documents before deciding to invest.