Foundational companies are the cornerstone of portfolio construction
Foundational companies have traditionally served as the steadfast threads in the weaves of a nation’s economic and societal stability. These businesses characterized by consistent positive earnings, stable growth trajectories, and palpable socioeconomic contributions, historically, confirmed this hallmark achievement through an Initial Public Offering (IPO), cementing their stature.

Traditionally, investment portfolios anchored around these pillar companies, given their instrumental role in shaping and advancing economic infrastructure, often hand in hand with governmental entities, reflecting an equal impact on stable portfolio returns.

The evolution of private equity
However, the modern landscape paints a contrasting picture. In the U.S., roughly 40% of businesses on public markets struggle with generating sufficient cash flows, resorting to external funding to maintain operations. Simultaneously, only around 1 in 10 businesses being listed were profit generating, contrasting to the IPO of yesteryear.

Today, as foundational companies are increasingly found in private equity, professional investors are increasing their allocations significantly, reaching up to 50% allocation in certain portfolios. In face of a changing economic landscape, the evolution of investment strategies is inevitable.

The significant shift from public to private markets, especially in the realm of foundational companies, underscores the need for adaptability among investors and while the relevance of public markets remains, it is evident that future cornerstone investments are increasingly found on the private side. As a result, private equity has become the new traditional asset class.