Private market investments

People invariably start their investing journey with publicly traded securities, like the stocks, bonds and other instruments bought and sold on the world’s famous exchanges every day. The benefits of this are clear, such as investors having a great deal of pricing transparency they can access at a click and the high level of liquidity (i.e., ease of selling) that comes along with the world congregating on the likes of the London Stock Exchange every day.

Yet there is abundant evidence that investors of all kinds and levels of wealth are now turning to private market investment opportunities in ever growing numbers. So, what are these?

Private market investments cover a broad spectrum of investments which are not meant for public trading, and which are available on a limited basis to one degree or another because the companies in question are privately held (there are many reasons why this may be the case, including it being a very a young venture not yet ready for an Initial Public Offering or the owners preferring not to be subject to shareholder control and scrutiny outside of a circle of trust).

Private market investment opportunities span private equity, private debt, direct investments, venture and leveraged buyouts and more. They are often in the fields of real estate and infrastructure, but also increasingly in technology and other esoteric fields – anywhere, in short, where there is potential to invest in either the equity or debt of a corporate structure.

Private markets used to be the preserve of only the very wealthy, in large part due to the substantial “tickets” involved and the difficulty of sourcing opportunities except for those with excellent contacts in a given field (and that goes as much for selling stakes as buying them).

However, the potential for private market investments to improve portfolio diversification and ramp up returns is creating more and more demand at the lower end of the wealth spectrum. And, in response to this demand, financial institutions and technology platforms are getting creative about accessibility and designing fund structures and fractionalised ownership securities which mean that high, as opposed to just ultra-high net worth individuals can get involved.

Private market investments can be exciting additions to portfolios, but investors do need to bear in mind that they can be illiquid and may need to be held for some years (possibly even a decade) before the hoped-for returns can be realised. They should probably not make up a significant proportion of a regular investor’s holdings for those reasons, as with other alternatives.