Why Diversification Matters in Private Equity.

Private equity is often associated with long-term growth and the potential to generate attractive returns. But investing successfully in private markets is not simply about finding the next high-growth company.

For investors looking to access private equity, diversification can play an important role in managing risk and building more resilient portfolios. Rather than relying on a particular company, sector, geography or point in the economic cycle, a diversified private equity portfolio can spread exposure across different geographies, investment stages, strategies and asset classes.

This is the subject of a series of films we have produced for HarbourVest Global Private Equity (HVPE), exploring how diversification sits at the heart of its approach to investing in global private markets.

Diversification is a familiar principle in traditional investment portfolios. Holding a range of assets and investments can help reduce the impact of any single investment performing poorly. In private equity, however, diversification can operate on several different levels. An investor can diversify by:

Geography – investing across North America, Europe, Asia and other regions
Investment stage – from venture and growth companies through to established buyouts
Investment strategy – including primary funds, secondary investments and direct co-investments
Asset class – extending beyond traditional buyouts into areas such as private credit, infrastructure and real assets
Sector – gaining exposure to different industries and economic drivers
Vintage year – investing across different periods of the private equity cycle

The result can be a portfolio in which individual investments have different growth drivers, risk characteristics and time horizons. That matters because the economic conditions that benefit one part of the private markets may not necessarily benefit another.

Diversification across geography

Economic growth, interest rates, regulation, consumer behaviour and capital markets can vary significantly between regions. A portfolio concentrated in one country or region can therefore be particularly exposed to local economic conditions. Global diversification provides access to a much broader opportunity set.

HVPE’s approach typifies this.  Its portfolio was diversified across North America, Europe, Asia and the rest of the world, with North America representing c.62% of the portfolio, Europe c.23%, Asia 14% and the rest of the world 1%. This global approach means investors aren’t dependent on a single economy or private equity market.

Diversification across investment stage

Private companies can require capital at very different points in their development. A young technology business with significant growth potential presents a very different investment proposition from an established company undergoing a management buyout.

That’s why investment stage diversification can be an important part of private equity portfolio construction. HVPE’s portfolio illustrates this approach. At 31 July 2025, 61% was invested in buyouts, while 31% was allocated to venture and growth equity, with a further 8% in private credit, infrastructure and real assets.

Within those broad categories, investors can gain exposure to companies at different stages of their development. This can help create a portfolio that isn’t dependent on one particular type of private company or growth profile.

Primary, secondary and co-investments

Diversification isn’t just about where you invest or what stage a company has reached. It’s also about how you access private equity investments.

Primary investments involve committing capital to a private equity fund when it is being raised.

Secondary investments involve acquiring existing interests in private equity funds or companies, while direct co-investments can provide investors with exposure to individual businesses alongside private equity managers.

HVPE’s portfolio is diversified across all three approaches: 50% primary investments, 29% secondary investments and 21% direct co-investments as at 31 July 2025. Each strategy can bring different characteristics to a portfolio. Combining them can therefore provide another layer of diversification beyond simply owning a collection of private companies.

Diversification and resilient investment returns

Diversification doesn’t guarantee positive returns, and it doesn’t eliminate investment risk. Instead, the objective is to build a portfolio where no single investment, geography, strategy or stage dominates the outcome. This can become particularly important during periods of economic uncertainty.

Private equity markets move through cycles. Some periods favour growth companies; others may favour established businesses, restructuring opportunities or particular regions. A diversified portfolio has the potential to participate in different parts of that opportunity set rather than relying on being right about one particular market or investment theme.

That is ultimately what makes diversification such an important consideration for investors seeking resilient long-term returns from private equity.

For our latest film with HarbourVest Global Private Equity, we explored the role diversification plays in its approach to global private equity, bringing together the investment strategy, portfolio construction and thinking behind the proposition in a concise visual format.

HVPE’s investment objective is to provide access to a diversified global portfolio of private companies through HarbourVest-managed funds and co-investments.

The film is designed to give investors a straightforward introduction to that approach and to explain why diversification can be such an important component of private equity investing.

Watch the film