A Beginner’s Guide to Investing in Private Markets

Private market investments have been growing in popularity, especially as investors seek ways to diversify their portfolios and potentially earn better returns than traditional listed investments. In this blog post, we’ll dive into the world of private market investments, why they’re becoming a popular choice, and how you can access these opportunities.

What Are Private Market Investments?

Private market investments involve putting money into assets that are not listed on public exchanges. These investments typically cover a variety of alternative asset classes, including:

• Private equity: Investing in later-stage private companies
• Venture capital: Supporting early-stage startups
• Real estate: Residential, commercial, and mixed-use properties
• Private debt: Lending to private companies or property projects
• Infrastructure: Investing in equity or debt related to infrastructure projects, such as energy and telecoms

Why Are Private Market Investments Gaining Popularity?

Private markets have seen substantial growth in recent years. According to PwC, assets under management (AuM) in private markets are expected to grow significantly, potentially reaching $13.7 trillion by 2025. While institutional investors have historically dominated private markets, more private investors are now jumping on board, increasing their exposure to these types of investments.

Why Invest in Private Markets?

There are several compelling reasons why investors turn to private markets:

1. High Potential Returns: Private investments often offer the chance for higher returns compared to traditional stocks and bonds.
2. Hedge Against Inflation: With the rising concerns about inflation, private market investments are seen as a way to protect wealth and provide inflation-beating returns.
3. Diversification: These investments help diversify portfolios, offering assets that behave differently from publicly traded stocks and bonds.
4. Social Impact: Many private equity and venture capital investments focus on fostering innovation, creating jobs, and generating positive social or environmental impacts, providing an opportunity to invest with a purpose.

Moving Beyond the Traditional 60/40 Portfolio

Traditionally, many investors have followed the 60/40 rule, with 60% of their portfolio in equities and 40% in bonds. However, private market investments offer a way to diversify beyond this structure. By adding alternative assets, investors can access opportunities with higher return potential and less volatility, making them an attractive option for those looking to hedge against market fluctuations.

Risks and Returns in Private Market Investments

Investing in private markets can offer attractive returns, but it’s important to understand the unique characteristics of these assets:

• Liquidity: Private market investments are generally less liquid than public stocks or bonds. Investors should expect to hold their investments for longer periods before being able to exit.
• Transparency: Unlike public companies, private market investments may not offer regular reporting. However, many established private equity, venture capital, and real estate funds provide detailed performance reports.
• Potential for Loss: Like any investment, private market assets come with risks. While some asset-backed investments (e.g., property or infrastructure) may offer lower risk, private equity and venture capital are inherently riskier.
• Returns: To compensate for the higher risk, private market investments typically target high returns. For example, private equity investments often target returns of 3x-5x the investment over 3-5 years, while venture capital can aim for returns exceeding 10x over a 5-10 year horizon.

How to Access Private Market Investments

Accessing private market opportunities can be more difficult than traditional investments due to high minimum investment thresholds. However, there are several ways to gain exposure:

1. Private Equity Funds: Managed by professionals, these funds typically require investments ranging from £100,000 to £1 million.
2. Single Deal Investments: Private equity or venture capital deals structured on a case-by-case basis, often accessible with investments as low as £25,000.
3. Venture Capital Funds: Similar to private equity funds but focused on startups, with minimum investments typically between £100,000 and £1 million.
4. Real Estate Funds: Managed property investment funds, often with minimum subscriptions around £25,000.
5. Infrastructure Funds: These funds focus on large infrastructure projects, with typical minimum investments of £1 million.
6. Crowdfunding Platforms: These allow retail investors to access early-stage investments or property deals, often with minimum investments as low as £10 to £5,000.
7. Private Market Platforms: These platforms cater to experienced investors, offering opportunities starting at £25,000, depending on the asset class.

The most appropriate option for you will depend on your investment goals, the amount you wish to invest, and your risk tolerance. It’s important to understand the specific details of each investment before committing.

Private Market Investment Platforms

The rise of online platforms has made it easier for individual investors to access private market opportunities. These platforms offer a range of options, from equity crowdfunding to direct investments in real estate or infrastructure. As more private investors turn to these platforms, the volume of online transactions has steadily increased.

Conclusion

Private market investments provide a great opportunity for portfolio diversification and the potential for high returns, especially for high-net-worth individuals and experienced investors. With the right knowledge and understanding, private markets can complement traditional investment strategies, offering access to unique opportunities with different risk and return profiles.

If you’re considering adding private market investments to your portfolio, be sure to do thorough research and consider consulting a financial advisor to ensure that these assets align with your financial goals and risk appetite.