Private equity firms should not shy away from investing in United States-based businesses as they are buying into companies not countries, according to an international chief executive.
Epoch Investment Partners chief executive Bill Priest said the time is right for Australian private equity firms to take US equity stakes, particularly with the strength of the Australian dollar.
“If you were a private equity firm and you could invest in [Australian] dollars or [Canadian] dollars or Euros, America is a bargain,” Priest told an adviser briefing in Sydney yesterday.
“Instead of looking to buy companies in Australia, if you’re in private equity, you should look to the United States because you’re dollar is going to go a lot further.
“You can buy a good company at a reasonable price and if you are really concerned by the currency you can hedge it away.”
He predicts there will be a “huge amount” of merger and acquisition activity in the US in the near future.
Australian investors may have a home-bias, however, global opportunities can offer greater diversification, according to Priest.
He said financial advisers with clients considering investment opportunities in the US need to create a three-tier income stream that is diversified.
“What you really need is an equity income stream, you need a fixed income stream and you need a real asset income stream. You might have more than three products but you have three buckets you have to address,” he said.
“You have to look at the individual, maybe they can’t afford equities at all, they just can’t afford any downside so you just have to move them in to the other two buckets.
“But once you start to use the equity bucket you really need something that’s reliable from an income standpoint, and it needs to be global. It needs to be diversified. Diversification is the best friend of the investor.”
