Introduction
Private equity (PE) has long been a cornerstone of institutional and high-net-worth investing. In 2025, it’s more accessible than ever, with platforms and funds opening opportunities to smaller investors.
This guide covers everything UK investors need to know about private equity — from how it works and the types of funds available to potential returns, risks, and tax considerations.
What is Private Equity?
Private equity refers to investments in companies that are not publicly traded on a stock exchange. PE firms raise capital from investors, buy stakes in private companies, and aim to grow these businesses before eventually exiting — often through a sale, merger, or initial public offering (IPO).
Unlike buying shares on the stock market, private equity involves a long-term, illiquid commitment with higher potential rewards — but also higher risk.
How Private Equity Works
- Capital Raising
- PE firms raise money from investors (known as Limited Partners or LPs).
- Acquisition/Investment
- The firm uses that capital to acquire or invest in private businesses.
- Value Creation
- Operational improvements, scaling, or restructuring to drive growth.
- Exit Strategy
- Selling the company or taking it public, distributing profits to investors.
Types of Private Equity
| Type | Description | Typical Investors |
|---|---|---|
| Buyout Funds | Acquire controlling stakes in established companies, often restructuring them for efficiency. | Institutional investors, HNWIs |
| Venture Capital (VC) | Early-stage funding for start-ups with high growth potential. | Angel investors, VCs, retail crowdfunding |
| Growth Equity | Investments in mature businesses looking for capital to scale. | PE funds, growth funds |
| Distressed/Turnaround | Acquire underperforming companies to restructure and resell. | Experienced investors |
| Fund of Funds | Invests in multiple private equity funds for diversification. | Smaller investors seeking broad exposure |
Benefits of Private Equity
| Benefit | Explanation |
|---|---|
| High Return Potential | Successful PE deals can return 2–3x the original investment. |
| Diversification | Returns often uncorrelated with public stock markets. |
| Access to High-Growth Companies | Exposure to businesses before they list publicly. |
| Active Value Creation | Firms actively improve operations, management, and strategy. |
Risks of Private Equity
| Risk | Details |
|---|---|
| Illiquidity | Capital is locked up for 5–10 years. |
| High Minimums | Many funds require £100,000+ to participate. |
| Complexity | Requires careful due diligence to assess risks and performance. |
| Valuation Uncertainty | Assets are not priced daily, making valuations less transparent. |
| Regulatory Risk | Changes in tax rules or regulation can impact returns. |
How to Invest in Private Equity (UK)
1. Direct Investment
High-net-worth individuals or institutional investors can invest directly in private equity funds through firms like Blackstone, Carlyle Group, or HgCapital.
Typical Requirements:
- Minimum £100,000–£1 million investment
- Accredited investor status
2. Private Equity Platforms
For smaller investors, platforms like:
- Moonfare
- SyndicateRoom
- Seedrs (for early-stage VC)
offer fractional access to institutional-grade PE deals starting from £5,000–£10,000.
3. Listed Private Equity Funds
Easier entry for retail investors through London-listed funds such as:
- HarbourVest Global Private Equity (HVPE)
- Pantheon International (PIN)
These are traded on the LSE and accessible via regular brokerage accounts or ISAs.
4. Venture Capital Trusts (VCTs)
VCTs are UK government-supported vehicles that invest in early-stage UK companies.
Tax Benefits:
- 30% upfront income tax relief
- Tax-free dividends
- No CGT on disposal
Expected Returns
| Strategy | Average Annual Return | Risk Level |
|---|---|---|
| Buyout Funds | 12–15% | Medium-High |
| Growth Equity | 10–14% | Medium |
| Venture Capital | 20%+ (but high failure risk) | High |
| Listed PE Funds | 8–12% | Medium |
| VCTs | 6–9% (plus tax perks) | Medium |
Tax Considerations for UK Investors
| Investment Type | Tax Treatment |
|---|---|
| Direct PE Fund | CGT on gains (up to 20%), income tax on distributions. |
| Listed PE Funds | Dividends taxed at standard rates; CGT on share sales. |
| VCTs | Up to 30% income tax relief, tax-free dividends, and CGT exemption. |
| ISAs/SIPPs | Gains and income from listed PE funds can be tax-free. |
Who Should Invest in Private Equity?
Private equity is best suited to investors who:
- Have a long-term horizon (5–10 years).
- Can afford to lock away capital.
- Understand high-risk/high-reward dynamics.
- Already have a diversified portfolio of public equities and bonds.
Steps to Get Started
- Assess Your Risk Profile – Ensure you can handle illiquidity and volatility.
- Set an Allocation – Typically 5–20% of your total portfolio.
- Research Funds and Platforms – Check track records, fees, and regulatory status.
- Use Tax Wrappers – Invest via ISAs, SIPPs, or VCTs where possible.
- Monitor Performance – Though updates are quarterly or annually, review reports carefully.
Performance Snapshot
| Index/Benchmark | 10-Year Annualised Return |
|---|---|
| MSCI World Index | ~9% |
| Cambridge Associates Private Equity Index | ~13% |
| Cambridge Associates Venture Capital Index | ~17% |
Pros and Cons Summary
| Pros | Cons |
|---|---|
| High return potential | Illiquid (5–10 years lock-in) |
| Portfolio diversification | High minimum investment |
| Access to private markets | Complex and less transparent |
| Tax-efficient via VCTs and ISAs | Requires expertise and due diligence |
Final Thoughts
Private equity is a powerful tool for diversification and growth, but it’s not for every investor. With high potential returns come complexity and illiquidity.
For most UK investors, starting with listed PE funds or tax-efficient VCTs is a prudent entry point before exploring direct investments or specialist platforms.
