Investing in the stock of very small listed companies could be a viable alternative to private equity, says Robert Marren, managing director, portfolio manager at Allianz Global Investors Capital.
"Equity investors of a company, whether public or private, do so with the expectation of growth of capital. In an era of vastly underfunded pensions, plans are looking to private equity's historically high return potential to help bridge funding gaps. In light of this activity, investors may be ignoring another asset class with similar potential to enhance their portfolio returns, namely micro-cap equities," he says.
Micro caps are often an overlooked asset class because of lower research coverage and the tendency for small-cap managers to move up the capitalisation spectrum in an expanded small-cap mandate.
Micro caps also offer advantages over private equity in terms of liquidity, transparency, competitive risk-adjusted returns, generally lower fees, no lock-ups, and public data, says Marren.
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