Bain & Company, a top management consulting firm, notes that over the past 30 years, private equities have generated average net returns of 13.1%, compared with 8.1% for public equities, based on the Long-Nickels public market equivalent. “Exposure to small- and mid-sized companies—especially technology companies experiencing significant growth—is often only available through private investments,” noted Susan Long McAndrews, partner at Pantheon, a leading global private markets investor. “Retirees can’t really afford to leave 40 basis points annually on the table over a 35-year investment horizon.” Arguments in Opposition to Private Equity in 401(k) Plans However, not all that glitters is gold. Many of the long-standing arguments against 401(k) investments in private equity are based on concerns over fees, performance and liquidity. Fees for 401(k) plans have come down significantly over the years, and today
include low-cost options from the likes of Fidelity and Vanguard. There are even ultra- low or no fee exchange traded fund (ETF) options for investors. In contrast, private equity managers typically charge 2% or more of the fund’s assets in annual fees, and can take up to 20% of the profits. Two percent of a $6.2 trillion 401(k) industry represents a potential of $180 billion in profits per year for the private equity industry. While proponents cite statistics that prove private equity funds outperform the overall market, others are more skeptical. As the investment word to the wise goes, “Past performance is no guarantee of future results.” The same Bain & Company report referenced above, which demonstrates private equity has outperformed public equities over the past 30 years, also states that when the time frame is shortened, over the past decade, private and public equity returns have been virtually the same, around 15%. This trend has continued into 2020. In fact, listed private equity funds from Goldman
Sachs, Invesco and BlackRock are all trailing the S&P 500 by 13% as of early June. And while the year-over-year numbers for these private equity funds are more in line with the S&P 500, parity is not what private equity investors pay for. Fees and performance notwithstanding, the biggest problem for private equity may be the lack of liquidity. Investors participating in private equity usually sign contracts that lock up their funds for years, based on the assumption that professional managers will generate extraordinary value by turning a struggling company around or preparing it for public offering. This model makes it difficult to physically sell an interest in private equity and makes it even more challenging to accomplish allocation targets many investors have in place for their 401(k) plan. If you have any questions about investing in private equity funds, or are interested in starting up a 401(k) program for your agricultural operation, please contact Matt Lewis at mlewis@wga.com.
H-2A Services
LET US INTRODUCE YOU TO THE PERFECT TEAM. We are the H-2A agent Western Growers members turn to for turnkey H-2A solutions. At Western Growers, we provide comprehensive H-2A solutions for any agricultural operation. From paperwork to placement, we handle the logistics of securing a legal, dependable, and productive labor force. To learn more, call 877.942.4529 or visit www.wga.com/services/labor-services
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JULY | AUGUST 2020
Western Grower & Shipper | www.wga.com
A couple of thoughts: Instead of “GROW your resources ” (which I think is vague), how about “GROW your workforce ”?
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