Most experienced analysts agree that the typical portfolio should contain a healthy dose (10 -15%) of private equity as a mainstream asset class. It is also well worth understanding the discomforting truth that the public markets of the world are not as good as everyone thinks they are!

The worlds stock markets are facing four seemingly unmanageable problems:

     1.Very large numbers of inactive shareholders.

     2.Very large blocks of shares held by various funds and

       institutions whose managers deem “instant performance” 

       more valuable than long term investment.

     3.Exorbitant compliance costs in corporate social

       responsibility, reporting and public relations activity.

     4.Free cash flow dispersion.

More and more often, the managers of public companies, when generating what is seen as excessive profits, are holding on to the cash and diversifying into new fields and industries which are well beyond their field of expertise instead of returning the cash to the shareholders! Seemingly, this current trend of the dispersal of cash flow motivated by selfish corporate interests has led to the rise of the under-performing conglomerate. Corporate America in particular, seems to have forgotten the hard learned lessons of the junk bond era.

What private equity financiers and investors do is to take an “active investor” role which was probably best defined by James Goldsmith as; “An active investor is not a manager, not a particularist, he is not a man who thinks he can double-guess management, he is not a man who thinks he can do a better job than management than the management he can hire. An active investor has to ensure that the right management is in place, the right management is properly motivated, the right management properly motivated, then runs the company according to a reasonable strategy and doesn't chase industries it knows nothing about. That is the job of an active investor. If he doesn't consider the management is right, he fires it and replaces it.”

Most can see that investing in private equity is much more refreshing than having a couple of fund managers on your back and that the resurgence of private equity is the right and proper claim of capital to reassert itself against ever-increasing onslaught of political and regulatory distraction. The critics of private equity seem to totally ignore the fact that as long as there is free competition and the law is obeyed, companies need only be accountable and responsible to their owners ie: shareholders and private equity has been doing this for a very long time, far better than any public company.