What are private markets?

Private markets refer to investments in assets that are not publicly traded on a stock exchange. These types of investments are made directly into private companies, usually with the goal of increasing the value of the company through operational changes, growth initiatives, technology improvements, and enhanced management teams. Private market investments include private equity, venture capital, private credit, real estate, and hedge funds. Key differences between private markets and public trading.

Key differences between private markets and public trading

One of the key differences between private markets and public trading is the level of information available. Since private investments do not trade on public exchanges, there is less publicly available information about these investments, making them less transparent.

Additionally, private market investments are typically less liquid than publicly traded stocks and bonds, as they have longer holding periods. A private equity investment typically ranges from 7-9 years. However, private markets also provide unique investment opportunities. These opportunities can include access to investments in high-growth, private companies, and access to investments in assets such as real estate and infrastructure. For many investors, private markets provide a differentiated source of returns in their investment portfolios.

Additionally, private markets can offer a higher potential for returns compared to public markets, which are often influenced by broader economic conditions and market sentiment. In short; what does this mean?
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Historically, these types of opportunities were only accessible to large institutional investors. However, with the advent of technology and regulatory changes, private markets are becoming more accessible to individual investors as well. Thus, professional investors can now obtain the access to private markets through intermediaries, while being equipped with the tools and resources to build and manage a diversified portfolio of private market assets.

Why private markets

One of the main reasons to invest in private markets is the potential for excess returns. Private markets have historically outperformed global public markets over several decades. The outperformance can be attributed to several factors. One of the most cited factors is the illiquidity premium. Private markets investments are less liquid than publicly traded stocks and bonds, which can result in higher returns for investors who are willing to commit to holding assets for longer periods.

Another reason for the outperformance of private markets is the active involvement of fund managers. Unlike public markets, where investors rely on the market to determine the value of an asset, private markets fund managers are active investors who exert control over the companies in which they invest. This allows them to drive operational decision making and potentially improve the performance of the investment.

Finally, private markets investors and fund managers are well aligned, as fund managers only reap performance incentives if the investments they make become profitable enough to generate positive cash returns for investors. What to consider when investing in private markets When considering investing in private markets, investors should consider the level of information access, the expected hold period, liquidity, and the potential return profile of the different investment strategies. This will help them create a balanced portfolio that meets their specific investment goals.

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What to consider when investing in private markets

When considering investing in private markets, investors should consider the level of information access, the expected hold period, liquidity, and the potential return profile of the different investment strategies. This will help them create a balanced portfolio that meets their specific investment goals.

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