Private Equity Insights

A simplified way to access private equity

Private equity markets – which have historically been only available to institutional and high-net-worth investors – are now even more accessible through 40-Act tender funds.

While private equity has historically been available primarily to institutional and high-net-worth investors, the market has been undergoing a significant transformation. The recent emergence of tender offer funds, under the Investment Act of 1940 (“40 Act”), provides individual investors with greater access to private equity as well as other alternative investments. Lower investment minimums, simplified tax reporting and potential for liquidity are just some of the key features.

Tender funds provide simplified access to private equity

Table showing the difference between traditional private equity fund and tender fund.

1 As defined in the Investment Company Act of 1940.

2 As defined in the Investment Advisers Act of 1940.

3 The strategy expects to offer investors limited quarterly liquidity through a tender offer process. Under normal market conditions, the Adviser expects to recommend that the Fund repurchase 5% of its outstanding shares at their net asset value. No assurance can be given that such tender offers will be approved by the board. If a tender offer is oversubscribed, investors may be subject to pro rata reduction in the shares ultimately repurchased by the Fund. All terms of each tender offer will be publicly disclosed.

Investing in an “evergreen” tender offer fund eliminates the need for continuous capital contributions, meaning investors can stay invested in the market and not worry about cash flow management. Investors deploy their entire investment up front in an initial subscription versus periodic capital calls during the life of a traditional private equity fund. Distributions are automatically reinvested – unless requested otherwise – so that investors benefit from the effects of automatic compounding.

Private equity tender offer funds may appeal to a variety of investors, including:

  • Individual investors seeking access to private equity for the first time
  • High-net-worth individuals looking for a simplified structure and improved liquidity
  • Institutional investors leveraging the fund as a portfolio construction tool, enabling them to add private equity exposure while benefiting from a simplified structure and potential for improved cash flow management

Building a diversified private equity portfolio

Constructing a diversified private equity portfolio requires knowledge of and access to a broad array of private equity investment opportunities – across strategies, geographies, industries and vintage years –available through three main types of investments:

  • Primary investments are investments in private equity funds managed by general partners (GPs), providing diversified exposure to various sectors through multiple underlying portfolio companies.
  • Co-investments provide exposure to a single portfolio company alongside a GP, who typically offers co-investment opportunities to current and prospective limited partners (LPs).
  • Secondary investments represent acquiring existing interests in a private equity fund, whereby sellers obtain liquidity through the secondary market and buyers achieve diversification through investing in a more mature portfolio of identified assets.

Investment selection is key

Investment selection is the most crucial element for achieving return enhancement through private equity. As illustrated below, the average dispersion of returns within private equity is over 1,800 basis points. Due to this dispersion, proactive sourcing, active management and portfolio implementation are as important (or more important) than the decision of how much to allocate to private equity. 

Manager dispersion of returns for global private equity

Based on returns over a 10-year window

201-charts-2024-final-jb-01

Source: Burgiss, Lipper, NCREIF, PivotalPath, J.P. Morgan Asset Management. Global private equity is represented by Burgiss Private iQ. Manager dispersion is based on annual returns, represented by the 10-year horizon internal rate of return (IRR) ending 3/31/24. Data is based on availability as of September 19, 2024. Past performance is not indicative of future results. All investing involves the risk of capital loss. Investments made in connection private equity investing are subject to a variety of special risks, including the risk that the acquiring company has paid too much for the acquired business, the risk of unforeseen liabilities, the risks associated with new or unproven management or new business strategies and the risk that the acquired business will not be successfully integrated with existing businesses or produce the expected synergies. 

In the quest to generate attractive private equity returns, relationships and sources of deal flow are more critical than in the public markets, as there are no perfect sources of information about private companies or private equity opportunities.

Due diligence is critical

The importance of an in-depth due diligence process cannot be overstated. In order to meet the objective of return enhancement, it is critical that a private equity investor invest with the highest quality firms on a consistent basis. Unless the requisite skills and resources are available in-house, this means joining forces with a manager that has longstanding relationships with top-performing GPs, a due diligence process to identify high-conviction opportunities and a selective and disciplined approach to investing. Longstanding networks, existing portfolio data and, in some cases, existing board seats can strengthen relationships with the most talented GPs, thereby fostering deeper understanding, transparency and dialogue. This approach creates a virtuous cycle whereby GPs view the manager as a strategic partner and look for additional ways to work together.

Experienced private equity managers apply partnership- and company-level due diligence across strategies and geographies to evaluate both individual company investments and the embedded portfolios of funds and companies in the secondary market. These skills include analysis of a GP’s track record and capabilities as well as a company’s market, operations, labor resources, facilities, equipment and asset base, customers, capital structure and sources/uses of proceeds.

Understanding market segments

Additionally, an experienced private equity manager needs to understand the entire spectrum of companies comprising the private equity market, from the largest to the smallest companies. For example, in the J.P. Morgan Private Equity Group (PEG), we focus on small and mid-market companies, which represent a broad opportunity set with attractive risk/return potential.

The exhibit below shows that the small and mid-sized buyouts occupy the “sweet spot” in the private equity ecosystem. They represent the largest addressable market with the lowest entry valuations and have exhibited more attractive performance in comparison to their large-market counterparts.

Private equity sweet spot: Small to mid-market buyouts

Top quartile net IRR by fund size as of 3/31/24 (vintage years 2010-2020)

201-charts-2024-final-jb-02

Source: Burgiss Private iQ. Universe of North American and European buyout funds. Performance as of 3/31/24. Aggregate performance of funds with vintages 2010-2020. Top quartile defined as funds with performance in the 75th percentile or better within the specified fund size range. Based on private equity pooled industry performance aggregated by Burgiss. The performance is net of fees and expenses charged by managers. Performance represents Time Weighted Returns as calculated using the Modified Dietz methodology, which is a money-weighted return that takes into account the timing of cash flows by using a weighting factor. The weighting factor of a cash flow is calculated as the difference between the date of the cash flow and the date of the end of the periods divided by the number of days in the period. Pooled results are calculated using the composite transaction (cash flow and valuation) activity of the underlying funds after being converted to a common currency, known as the Pooled Results Currency, which is defined within the Parameters tab of the Analysis toolbox. No additional weighting is applied to the underlying funds; the amount of the full fund transactions and their associated full fund valuations are used in calculations. Underlying funds with larger fund sizes may naturally have larger transaction and valuation amounts, thus having a larger impact on the pooled results. For the avoidance of doubt, the performance shown is not reflective of PEG's historical performance and does not reflect PEG's investment strategy or the investment strategy of a specific fund. Past performance is no guarantee of future results, and there can be no guarantee the performance shown will be achieved for investments that are not fully realized.

Because performance dispersion is wider at the smaller end of the market, manager and asset selection are crucial to capturing value. This underscores the importance of working with a manager like PEG who employs a time-tested diligence process implemented by a team with decades of experience investing in small and mid-market private equity opportunities. 

A thoughtfully constructed portfolio that is diversified across managers, styles and geographies is critical to successfully investing in private equity. As more “evergreen” tender offer funds become available and the private equity investor base widens, it is important to recognize that private equity remains a long-term investment. Accordingly, both investors and their financial advisors need to possess a thorough understanding of this asset class.

Democratized access to private equity means improving transparency, upgrading client-facing infrastructure and increasing investor education – trends that have the potential to shift the industry as a whole.
 

About the J.P. Morgan Private Equity Group

J.P. Morgan is a global leader in investment management with $3.1 trillion in assets under management (as of June 30, 2024) across equities, fixed income, liquidity and alternatives. Led by a global team of over 60 professionals operating from New York, London, Hong Kong and Mumbai, the J.P. Morgan Private Equity Group (PEG) manages $33 billion of assets on behalf of a diverse group of leading institutions and individual investors. Founded in 1980, PEG is one of the longest-standing platforms in the industry. Over the past 40+ years, PEG has cultivated a deep network of general partner (GP) relationships and sits on over 200 advisory boards. PEG’s collaborative partnerships with top-tier GPs and continued participation in primary investments also make it a preferred strategic partner for co-investment and secondary opportunities.

09s0231509205233

Copyright 2025 JPMorgan Chase & Co. All rights reserved.

This website is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that take into account all of the particular facts and circumstances of an investor's own situation.

 

Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.

 

INFORMATION REGARDING INVESTMENT ADVISORY SERVICES: J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. Investment Advisory Services provided by J.P. Morgan Investment Management Inc.

 

INFORMATION REGARDING MUTUAL FUNDS/ETF: Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund or ETF before investing. The summary and full prospectuses contain this and other information about the mutual fund or ETF and should be read carefully before investing. To obtain a prospectus for Mutual Funds: Contact JPMorgan Distribution Services, Inc. at 1-800-480-4111 or download it from this site. Exchange Traded Funds: Call 1-844-4JPM-ETF or download it from this site.

 

J.P. Morgan Funds and J.P. Morgan ETFs are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA FINRA's BrokerCheck

 

INFORMATION REGARDING COMMINGLED FUNDS: For additional information regarding the Commingled Pension Trust Funds of JPMorgan Chase Bank, N.A., please contact your J.P. Morgan Asset Management representative.

 

The Commingled Pension Trust Funds of JPMorgan Chase Bank N.A. are collective trust funds established and maintained by JPMorgan Chase Bank, N.A. under a declaration of trust. The funds are not required to file a prospectus or registration statement with the SEC, and accordingly, neither is available. The funds are available only to certain qualified retirement plans and governmental plans and is not offered to the general public. Units of the funds are not bank deposits and are not insured or guaranteed by any bank, government entity, the FDIC or any other type of deposit insurance. You should carefully consider the investment objectives, risk, charges, and expenses of the fund before investing.

 

INFORMATION FOR ALL SITE USERS: J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

 

NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

 

Telephone calls and electronic communications may be monitored and/or recorded.

 

Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://www.jpmorgan.com/privacy.

 

If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.

 

READ IMPORTANT LEGAL INFORMATION. CLICK HERE >

 

The value of investments may go down as well as up and investors may not get back the full amount invested.

 

Diversification does not guarantee investment returns and does not eliminate the risk of loss.