Private equity funds have spent decades wooing pensions, universities, and other big-ticket investors. Now they have a new pool of untapped capital in their sights: mere millionaires and even ordinary savers in workplace retirement plans.
Private equity firms use debt to buy out businesses—everything from hotel chains to doctor’s offices to restaurants—and overhaul them before taking them public or selling them. They also run funds that invest in real estate and loans to companies. Part of their success comes from the steady flow of cash they receive from large investors willing to lock up their money, giving buyout managers the flexibility to take on deals that could require years to pay off.
Private equity funds run almost $5 trillion and are constantly on the lookout for more capital to put to work—and earn management fees from. Their fundraising has gone global, expanding to Asian sovereign wealth funds and Japanese insurers. The next frontier is wealthy households. According to a recent report from Capgemini SE, households around the world with investable assets above $1 million controlled $74 trillion in 2019, up from $46 trillion as recently as 2012. About 44% of that wealth—more than $30 trillion—is in the hands of “millionaires next door,” those with $1 million to $5 million.
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