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Opinion Private credit
In private equity, a US-only allocation is not a compromise — it’s a strategy
by Randy Schwimmer
Randy Schwimmer
Vice chairman
Churchill Asset Management
40 Act Funds, BDCs and ETFs enable a broad spectrum of investors to participate in private equity
Diversification is an important consideration for any portfolio and can come in many forms. In public markets, geographic diversification is often treated as a default best practice. However, in private equity, there is a compelling case for concentrating exposure exclusively in the US rather than spreading capital across international markets.
The US remains the deepest, most efficient and most transparent private equity market in the world. US buyout dominates global PE, accounting for more than half of all deal activity, with unparalleled depth across sectors, strategies and company sizes. The US also benefits from the deepest pools of debt capital, the most competitive lending market and robust M&A activity — translating to more attractive targets, more seasoned managers and more natural buyers at exit.
Performance supports a US-centric approach as well. Possessing the strongest and most durable global economy, its PE base mostly outperforms non-US peers. While certain international vintages or regions occasionally shine, consistent manager selection and repeatable alpha generation are more achievable here.
Currency fluctuations can wipe out gains
Global reach introduces meaningful complexity. Currency fluctuations can overwhelm operational gains — a 10% depreciation in local currency can erase performance improvements. Political instability, evolving regulations and inconsistent legal frameworks add further uncertainty. In emerging economies, accounting standards and corporate governance may lack the rigour investors expect, creating due diligence challenges that are independent of and additive to company-level risk.
There is also value in portfolio simplicity. PE naturally introduces a spectrum of risks, including illiquidity, leverage, operational changes and ownership transitions. Confining exposure to a single, well-understood market allows investors to evaluate manager quality without introducing global economic variables. Given the strength of the US economy, the maturity of its PE ecosystem and the familiarity of its regulatory environment, a US-only allocation is not a compromise — it is a deliberate and defensible strategy.
Accessing that strategy, however, has not always been straightforward. For most of its history, private equity was built for institutions — pension funds, endowments and sovereign wealth funds. Individual investors were largely limited to the ultra-wealthy who could write large cheques, tie up capital for a decade and navigate complex limited partnership structures. New vehicles have since emerged that allow a broader set of investors to participate, each with its own trade-offs among liquidity, complexity and directness of exposure.
40 Act Funds are offered under exemptions to the Investment Company Act of 1940. They are designed to work within a regulatory framework familiar to retail investors, while still investing in illiquid assets. Many are structured as interval or tender offer funds, providing periodic — often quarterly — redemption opportunities. They offer low minimums, simplified Form 1099 tax reporting in place of Schedule K-1s, and an evergreen structure that eliminates capital calls, allowing investors to deploy capital upfront and participate in compounding from day one.
Indirect exposure to major players
Some ETFs invest entirely in publicly traded PE firms such as Blackstone, Carlyle and Apollo. By holding companies whose business models revolve around private market investing, these ETFs offer easy access, daily liquidity and low minimums — making them one of the simplest entry points into private markets, though exposure remains indirect.
A third option is the business development company (BDC). Created by Congress under the 40 Act, BDCs encourage investment in small and mid-size companies through fixed income securities that support leveraged buyouts. Dividend yields play a central role given the private credit underpinning, and BDCs can be exchange-traded or distributed through wealth management platforms.
Each vehicle involves trade-offs. 40 Act funds offer the most direct access to private equity portfolio companies, but limited liquidity. PE ETFs provide simplicity and public market liquidity, though exposure is indirect and prices can be volatile. BDCs suit investors seeking current income through the PE financing ecosystem. Taken together, these options have opened private markets to a far wider audience — bringing strategies once reserved for the largest institutions within reach of individual investors.
