Modern portfolios are largely shaped around public markets, which are influenced by public sentiment as much as underlying fundamentals. However, most US businesses are privately held and accessible only through private equity. The merits of PE as an asset class are manifold, including benefits beyond returns. This week we discover why private equity is an essential element in any private wealth portfolio.

First, there’s diversification and reduced portfolio volatility. Unlike public equities, whose valuations jump with every news headline, PE values are marked quarterly based on performance. PE returns depend more on manager skill and business fundamentals than macros. Instead of daily price swings, expect gradual shifts reflecting revenue and cash flow growth. This characteristic has a stabilizing effect on a portfolio, particularly during periods of public market turbulence. Diversification is heightened in the short and medium term.