Is Private Equity Really Diversifying Your Portfolio?
Private equity is often positioned as a smart way to diversify beyond public markets. And in some cases, it can be.
However, not all private equity investments offer the diversification many investors assume. In fact, without careful evaluation, adding private equity to your portfolio may increase concentration risk, reduce liquidity, or create unintended overlap with your existing holdings.
In this article, we’ll explore:
- Common myths about private equity diversification
- Where private equity fits into risk management
- How Smith Bruer assesses alternatives to public markets
Myth 1: “Private Equity Automatically Means Diversification”
Not all private equity investments are created equal.
Many funds focus on similar industries or geographies (e.g., tech, healthcare, private credit) – the same sectors you may already hold through public equities or ETFs.
Without due diligence, you may end up doubling down on exposure rather than spreading risk.
Better question to ask: How does this specific private equity opportunity behave relative to the rest of my portfolio?
Myth 2: “Private Equity Reduces Volatility”
It’s true that private equity returns often look smoother than public markets, but that doesn’t always mean they are less volatile.
Why? Because private equity valuations are updated less frequently (typically quarterly), their ups and downs aren’t as visible. This reporting lag and opaque accounting techniques can create a false sense of stability.
Understanding the difference between actual market volatility and how it’s reflected in reporting is essential for informed decision-making.
Myth 3: “Private Equity Delivers Outsized Returns Across the Board”
Some private equity funds have generated impressive returns, but those results are not guaranteed. Access to top-tier funds is often limited to institutional or ultra-high-net-worth investors.
Many private equity options available to individual investors charge high fees, offer limited transparency, and lock up capital for many years.
Where Private Equity Can Add Value
When thoughtfully integrated, private equity may offer:
- Access to non-public companies and early-stage growth
- Exposure to niche sectors not represented in public markets
- A potential long-term return premium for investors who can tolerate illiquidity
The key is alignment with your overall goals, time horizon, and liquidity needs…not just chasing alternatives for alternatives’ sake.
A Fee-Only Approach to Evaluating Alternatives
At Smith Bruer, we help clients evaluate private equity and other alternatives to public markets through an independent, fiduciary lens.
That means:
- No commissions or kickbacks from product providers
- Objective analysis of risk, liquidity, and potential overlap
- Integration into a broader asset allocation strategy
Bottom Line: Diversification Isn’t Just a Label
Private equity might offer diversification, but only if it truly behaves differently from what you already own.
We believe that diversification should be measured, not assumed. Alternatives should serve your broader strategy, not distract from it.
Let’s Talk About the Role of Private Equity in Your Plan
Whether you’re considering your first alternative investment or already have private equity exposure, we’re here to help you evaluate it through the lens of long-term strategy, risk management, and liquidity needs.
Start a conversation with Smith Bruer → https://smithbruer.com/contact
Serving Clients in Tallahassee, Colorado Springs, and Nationwide
Smith Bruer provides fiduciary financial planning and investment advice for professionals, business owners, and families with complex needs. From Tallahassee to Colorado Springs and across the U.S., we help clients navigate public and private markets with clarity and confidence.
