Investing in such funds makes sense if you want more risk and illiquidity — and are willing to pay for it.
Low interest rates can lead people to rationalize all sorts of bad ideas: investing in companies that will never make a profit, financing share buybacks with debt, spending billions on terrible streaming content, to name a few. But maybe the most irrational belief encouraged by a low-rate environment is the notion that private equity provides diversification for your investment portfolio.
It’s possible, of course, that it could, especially if your portfolio doesn’t have many publicly traded stocks to begin with. But even if that’s the case, there are cheaper and more efficient ways to get diversification.
Continue reading the entire piece here at Bloomberg Opinion (paywall)
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
Photo by Torsten Asmus/iStock
