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Key takeaway
Private-market investments, which are becoming more accessible to individual investors through new investment strategies and vehicles, have the potential to improve portfolio returns, volatility, and diversification.1
What are private markets?
The global investment landscape can broadly be divided into public and private markets. Public markets primarily operate on widely accessible exchanges, where securities are traded openly and frequently. Private markets, by contrast, involve financing nonpublic companies and other privately held assets through negotiated transactions.
A common misconception is that private-market investing is limited to private companies. In reality, private companies represent just one part of a broader universe that spans several asset classes. The four most common include:
Private equity
Private equity funds invest in non-publicly traded companies, from early-stage startups to large enterprises.
Private credit
Private credit funds invest in or issue corporate loans and other credit instruments from outside the traditional venues of banks and public markets.
Private real estate
Private real estate funds invest in privately held properties across sectors like logistics, housing, and data centers.
Private infrastructure
Private infrastructure funds invest in privately held assets that support essential services, like utilities, pipelines, renewables, data centers, and airports.
Although private-market investments come with risks, including lower liquidity than their public counterparts, the opportunity set is large and growing. Not only are companies increasingly relying on both public and private funding markets to meet their complex needs, but private markets are also becoming more accessible to individual investors through new investment strategies and vehicles.
Why consider private-market allocations?
Investors may consider complementing their traditional asset allocation to public securities with private-market allocations in pursuit of:
- Potential return enhancement ― Private markets may offer differentiated return opportunities compared to their public peers. What’s more, because private investments are typically less liquid than publicly traded assets, investors may earn an illiquidity premium. This refers to the additional return potential investing in less-liquid assets offers in exchange for committing capital for longer periods of time.
- Potential diversification beyond public markets and traditional investments ― The four most common private asset classes outlined above are just the beginning. There are myriad substrategies on offer for investors to choose from. This spectrum of options gives investors the opportunity to tailor their portfolios across risk, return, duration, and sector preferences with greater precision. Additionally, some of the exposures available in private markets aren’t possible on the public side, creating additional opportunities.
What are the risks?
While private markets offer a broad opportunity set, investors should carefully consider potential risks, including:
- Liquidity ― Private investments require longer holding periods, meaning investors’ ability to access capital quickly is limited.
- Valuation ― Pricing is typically less frequent and relies on appraisal or modeling rather than continuous market trading.
- Manager selection ― Outcomes can vary widely based on sourcing, underwriting, structuring, and ongoing management.
- Complexity ― Legal, tax, and operational considerations may be more complex for private investments compared to public.
Understanding these factors is critical to aligning private-market allocations with investors’ individual portfolio objectives and constraints.
The bottom line
With an opportunity set so broad, where do investors begin when it comes to private markets? It’s important to maintain a holistic view of portfolio objectives, accounting for individual investment goals, time horizon, liquidity needs, and risk tolerance when determining whether private-market allocations fit within an investor’s diversified portfolio.
1Diversification does not ensure a profit or guarantee against loss. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. There can be no assurance private equity funds will achieve higher returns than public equities.
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Disclosures
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. There can be no assurance private equity funds will achieve higher returns than public equities. Private equity strategies are subject to different investment risks and are generally illiquid. They will experience equity-like volatility at times and are a portfolio of illiquid/private companies. The return of invested capital to limited partners is dependent on the success of the companies held in the portfolio, and the timing of such liquidity is uncertain.
For financial advisor and institutional use only. Not for use with the public. All investing involves risk. Diversification and active investment do not ensure profit or protection against losses. This is for educational and informational purposes only. Nothing herein constitutes investment advice or a recommendation and should not be relied upon as a basis for making an investment decision. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any security or instrument, or a solicitation of interest in any Wellington vehicle, account, or strategy. Opinions expressed reflect the opinions of the author(s) as of the date indicated and are based on the author’s opinions of the current market conditions, which is subject to change. Past events and trends are not necessarily indicative of future events or results. Forward-looking statements should not be considered as guarantees or predictions of future events. While any third-party data used is considered reliable, its accuracy is not guaranteed. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management.