Private equity can play an important role in an investor’s portfolio, offering strong return potential, increased diversification, and expanded investment opportunity. But a key step to the success of these investments is selecting the right manager.

Advisors and their clients who seek to take advantage of the potential rewards of private equity investing should understand the performance dispersion between top- and bottom-performing managers, a factor that heightens both the risk and opportunity. Since private equity investments are designed to be long-term investments where capital can be locked up for years, getting the manager selection wrong can be a vexing obstacle to success.

Investors and their advisors have become more open to allocations to private investments in recent years as they seek improved risk-adjusted returns and diversification benefits.

Where have all the publicly held companies gone? As companies increasingly choose to remain private, new opportunities emerge for investors.