What are private markets?
Power through every market cycle
What is private market investing?
Private markets refers to the investment in the capital of privately owned companies versus publicly traded companies.
Here are some examples of asset classes within private markets:
Private credit
Includes private lending and special situations
Private equity
Includes buyouts, secondaries, and growth equity
Venture capital
Includes early- and late-stage financing
How is infrastructure evolving in today’s economy
How can investors tap into current opportunities
3 reasons to invest in private markets
1. Inflation hedging
Private market investing can offer potential inflation hedging benefits, particularly for select infrastructure, real estate and natural resources strategies.
2. Reduced volatility
Valuations for private assets typically happen less frequently than for public assets, usually quarterly, so they don't tend to experience the same market volatility as public markets.
3. Return potential
Private capital markets have historically outperformed public assets over the long term, tapping into non-economic risk premia (e.g., illiquidity premium).1
Why private markets?
Private market investments provide a range of exposures depending on the risk/return, cash flow and correlation characteristics investors are seeking. Therefore, it is important to consider the role of private markets within your total portfolio:
How do private markets work in portfolios?
New return sources
The investable opportunity set in private markets is substantially larger than in public market. There are approximately 95,000 private companies with over $100 million in annual revenues. In contrast, there are only 10,000 public companies of the same size. This makes the investable universe of private companies 850% larger than that of public companies.
Income supply
Private credit can help generate income from private loans, secured by a company's cash flow or assets. In addition, loans are typically floating rate, which can benefit investors in periods of rising interest rates. Private real estate also expands income opportunities through rental income.
Reduced risks from diversification
Diversification in private assets can help manage downside risk and reduce overall volatility.
Provide inflation protection
Most infrastructure assets have an explicit link to inflation through regulation, concession agreements or contracts. In real estate, cash flows from periodically resetting contractual rent payments adjust to rising price levels. Also in an inflationary environment, replacement costs increase, therefore boosting the value of existing buildings.
Investing in private markets has traditionally offered higher potential returns with lower volatility than that experienced by more traditional listed asset classes.
What should private market investors look for in a strategic partner?
There are five key capabilities investors should demand from a strategic partner:
1
A total portfolio approach
2
Expertise in access and sourcing
3
Robust process for portfolio contracting and administration
4
Risk management
5
Operational due diligence
Selecting a partner with demonstrated experienced in each of these categories is critical to navigating the market.
How can institutional investors access private markets?
Institutional investors can seek to manage independently across investment managers or partner with a third-party investment solutions provider. This can include an experienced OCIO (outsourced chief investment officer) provider. This reduces the burden on internal investment teams and allows the organisation to focus on its core business competencies.