Includes brownfield investments and greenfield investments
Private real estate
Includes core, value-added and opportunistic
Includes agriculture and timber, and mining and metals
The diversity of private assets creates a toolkit that investors can draw upon to address gaps in their portfolios.
Private Markets Survey
How are managers tackling value creation in a challenging and uncertain market environment?
In late 2022 we surveyed 32 firms, representing $1.6 trillion in total assets, from across the universe of private markets strategies on key investment themes and where they are finding the greatest opportunities and risks.
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.
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.
Source: Russell Investments Strategic Planning Forecasts, March 2022
How big is the private markets universe?
Growth in the number of funds over the last 20 years2
Private Markets Asset Under Management H1 20213
Commitments to Private Markets over the last 50 years4
How are private markets being used to solve investor challenges?
There is growing inflation impacts from 'slobalization' and pressure on supply situations5 hampered from global pandemics and geopolitical situations. Private assets offer opportunities to support active participation in these mega trends.
Decarbonisation, clean energy and the power to impact are core community-led themes organizations must navigate. Private assets can be used to help provide strategies to address these challenges in uncertain times.
How can investors access private markets opportunities?
Institutional investors, including the world’s largest pension plans, endowments and foundations, have been incorporating alternative investments in their portfolios since the 1980s.6
The key drivers for investing in private assets are diversification and the potential for higher returns. Thus, the inclusion of private assets to a traditional portfolio of stocks and bonds has the potential to generate superior risk-adjusted returns. In a low yield environment and after an extended bull run in public equities, equities, retail investors would be well advised to consider an allocation to private assets.
A total portfolio approach
Expertise in access and sourcing
Robust process for portfolio contracting and administration
Operational due diligence
Selecting a partner with demonstrated experienced in each of these categories is critical to navigating the market.
Ready to take the next step? We're here to help.