As investors look beyond traditional public markets, private markets have become an increasingly compelling way to access long-term growth and diversify investment portfolios. Private markets encompass various asset classes including private equity, private debt, private real assets, and infrastructure. For Americans living abroad, however, gaining access to these investments can involve additional cross-border tax and regulatory complexities.
Private equity (PE) is an alternative asset class that involves investing in privately owned companies rather than businesses listed on public stock exchanges. Investments can be made directly or made through professionally managed funds, where investors commit capital alongside other investors (limited partners), while the fund manager is responsible for sourcing opportunities, managing the investments, and ultimately exiting the underlying businesses. These funds often specialise in particular sectors, regions, stages of company growth, or even alternative areas such as private debt.
A key attraction of private equity is the ability to invest in businesses earlier in their growth journey before they become publicly traded. Many of today’s most innovative and disruptive companies are privately owned, meaning a significant proportion of value creation takes place outside public markets. Furthermore, many companies are choosing to stay private for longer. Private equity can therefore provide investors with access to opportunities that may not be available through traditional listed equities alone.
Unlike public markets, where share prices can be heavily influenced by short-term sentiment and day-to-day market volatility, private equity managers are able to take a longer-term and more hands-on approach. Managers often work closely with company leadership teams to improve operations, drive efficiencies, support expansion plans and create long-term strategic value. As a result, returns are generally driven by the underlying growth and development of the businesses themselves rather than by short-term market sentiment and capital flows.
For investors, this can provide meaningful diversification alongside traditional equity and bond portfolios. While past performance is not a guide to the future, private equity has historically proved that it is capable of delivering attractive long-term returns1, making it an increasingly important potential component of a well diversified multi-asset portfolio.
It’s important to note however, that private equity is generally considered to be a higher risk investment and therefore not suitable for all investors. Investments are typically illiquid, with capital often committed for long periods - commonly 10 years or more. However, for investors comfortable with the longer time horizon, additional risks and relevant experience, private equity can be a valuable addition to a diversified portfolio.
For Americans living outside the US, gaining access to private equity investments can be more complicated.
Most non-US domiciled funds are classified by the IRS as Passive Foreign Investment Companies (PFICs), which can result in highly punitive US tax treatment and often makes them impractical for US investors. At the same time, many US-based private equity funds restrict access for individuals residing overseas due to regulatory, compliance, and custody considerations.
Tax reporting is another important consideration. Most US private equity funds are structured as partnerships and issue Schedule K-1s to investors, outlining their share of the fund’s income, gains, and losses for US tax purposes. These reports are often issued relatively late in the year, which can complicate filing requirements - particularly for American expats attempting to coordinate both US and local tax reporting obligations across differing tax-year ends.
Given the challenges outlined above, gaining access to private equity offerings as a US expat typically requires careful structuring and specialist guidance.
At LGT Wealth Management US, we work closely with LGT Wealth Management’s Private Markets team to provide our clients with access to a range of private equity and private credit opportunities. The team conducts extensive research and independent due diligence on underlying managers and investments, with a focus on quality, governance, and long-term return potential. Through LGT’s institutional relationships, and by aggregating client participations, we are generally able to access funds with significantly lower minimum investment thresholds than would typically be available to individual investors investing directly.
Importantly, we help clients navigate the cross-border complexities of investing as a US person living overseas - including custody arrangements, tax reporting and ensuring private market investments align with their broader financial planning objectives and overall investment strategy.
For suitable investors, private equity, in our view, can provide exposure to a wider opportunity set beyond traditional public markets, offering the potential for enhanced diversification, long-term capital appreciation and access to some of the world’s most dynamic private businesses.
If you would like to learn more about how private equity opportunities may complement your wider investment portfolio, please contact your Wealth Manager or the LGT Wealth Management US team here.
[1] Hamilton Lane Data, Bloomberg, 2023
This content has been written for US connected audiences and may not be suitable for those without US financial regulatory requirements.
This communication is provided for information purposes only. The information presented is not intended and should not be construed as an offer, solicitation, recommendation or advice to buy and/or sell any specific investments or participate in any investment (or other) strategy and should not be construed as such. The views expressed in this publication do not necessarily reflect the views of LGT Wealth Management US Limited as a whole or any part thereof. Although the information is based on data which LGT Wealth Management US Limited considers reliable, no representation or warranty (express or otherwise) is given as to the accuracy or completeness of the information contained in this Publication, and LGT Wealth Management US Limited and its employees accept no liability for the consequences of acting upon the information contained herein. Information about potential tax benefits is based on our understanding of current tax law and practice and may be subject to change. The tax treatment depends on the individual circumstances of each individual and may be subject to change in the future.
All investments involve risk and may lose value. Your capital is always at risk. Alternative investments, including private equity investments, are complex, illiquid, and high-risk investments that may not be suitable for all investors. Any investor should be aware that past performance is not an indication of future performance, and that the value of investments and the income derived from them may fluctuate, and you may not receive back the amount originally invested.
LGT Wealth Management US Limited is a registered Company in England & Wales, registered number 06455240. Registered Office: 14 Cornhill, London EC3V 3NR. LGT Wealth Management US Limited is Authorised and Regulated by the UK Financial Conduct Authority and is a Registered Investment Adviser with the US Securities and Exchange Commission.
