Investors tend to be drawn to private markets for two key reasons: higher potential returns and diversification.
Capital invested in private markets tends to take a medium to long term view, typically translating to a so-called “illiquidity premium” relative to investments made in public market equities or debt.
Private market investments may therefore potentially provide a source of uncorrelated returns relative to listed equity or debt held elsewhere in portfolios.
A surge of interest in private markets has driven both investor demand and manager supply over recent years, with considerable fundraising driving structural growth in the industry and massive expansion of the number of strategies across the private markets universe.
This expansion has opened up investor choice, competition and access to high-quality managers, as well as providing potential opportunity for diversification within individual asset classes.
Innovation in the form of new evergreen and semi-liquid structures, in some cases allowing for quarterly drawdowns, has also helped democratise private markets to a broader set of investors.
While the rapid growth of the private markets universe presents the opportunity for enhanced diversification and, potentially, returns, it also makes identifying the best opportunities more complex – often requiring strong relationships with managers to access them.