It is not uncommon for people to associate private equity and private equity investments with silicone valley and the typical start-up environment, says Farhad Khan, Investment Partner at Old Mutual Private Equity, part of Old Mutual Alternative Investments. However, he says, in the case of Old Mutual Alternative Investments, private equity investing happens in the developed private equity space with the intention to deliver consistently good returns.

"We seek out established businesses that have demonstrated a profit and cashflow history," he says, in a recent Asset TV interview, reminding viewers that while it may appear exciting to talk about unicorns that reach a billion-dollar valuation, people don't hear about the hundreds, or thousands, of failures that cost a lot of people a great deal of money.

On the contrary, he says, Old Mutual Private Equity seeks out businesses that would form part of a prudent investment portfolio designed to deliver positive returns. He says that a skilled private equity team has the ability to make great investments, at great prices, by seeking out high-performing management teams of solid companies, amidst a much broader population of potential investments compared to the listed sector. Beyond this, he says, private equity affords investors the opportunity to make a real, and positive, impact.

"Private equity has consistently over the years delivered 3% to 5% alpha above the listed market. A lot of this has to do with active management – a lot of stewardship goes into these assets, which as a result achieves better and responsible outcomes with a greater impact on the real economy.

In the Asset TV episode, Khan said there are a few important traits that successful private equity teams share, and that prudent investors would do well to seek these out.

Teams that have been together for a long time, and have been doing this for a long time, develop pattern recognition. In other words, he says, they develop skills to identify good investments. "Certainly, for us at Old Mutual Private Equity, the secret sauce lies in our experience and honing that skill of being able to recognise patterns. We've seen many movies." he says.

Khan says that the advantage this brings is when market conditions change. He says that when a team has worked together over a long time, various members have seen different economic cycles and have first-hand experience of how various macro factors interplay with investment decisions.

Beyond the value of having been around the block a few times, says Khan, the importance of seeking out teams that value diversity cannot be underestimated. "You don't want a group of people working in a linear fashion," he says. "Different people bring different perspectives and different ways of viewing a set of circumstances or businesses," he says.

Referring to Old Mutual Private Equity, Khan gives an analogy of air traffic control. The value-add, he argues, lies in providing strategic council, of mapping out the best flight path, and then being actively involved in boards and committees, and providing a sounding board. "I speak to my CEs on a weekly basis," he says.

If you'd like to gain a deeper understanding of private equity and the advantages this valuable asset class offers investors, you can register to watch the recorded interview here: https://www.assettv.co.za/video/alternative-investments-private-equity