Private Markets

An opportunity worth exploring

Introduction to private markets
Private markets investment opportunities
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Introduction to private markets
Private market assets refer broadly to investments that are not traded on public exchanges. Private market investments include, for example, investments in privately held companies at any stage of development, private loans, real estate, infrastructure, and other real assets. Private market investments can help diversify portfolios by providing alternative sources of return not available in the public markets. Investors have a variety of private market strategies to choose from, from private equity to private debt to private real estate and infrastructure investments.
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Introduction

In a lower prospective return environment, investors need to review their wealth plan to ensure their portfolios are prepared to achieve their long-term goals.

We explain why it is worthwhile to look beyond listed companies and how investors can integrate private markets investments into their portfolios.

What are Private Markets?

Private Markets is a broad term for assets not traded on public exchanges. Investors in private markets have a broad range of asset classes and investment strategies at their disposal.

Private equity assets under management represent approximately 5% of the value of publicly traded stocks. Although much smaller than their publicly traded counterparts, private markets are gaining in popularity. While private market investments require investors to lock up funds for longer, investors have historically been rewarded with higher returns.

Why investing in Private Markets?

Historical returns for various asset classes

Source: CAPE Global Private Equity Index, Cliffwater Direct Lending Index, Cambridge Real Estate Index, MSCI All Country World Index, Barclays Global Aggregate, UBS, October 2023.

Historically, private markets have performed significantly better than publicly listed markets. These additional returns can provide investors opportunities for greater wealth accumulation or to finance ongoing expenses. The outperformance of private markets is set to continue due to key catalysts such as the restrictive, exclusive access to this illiquid marketplace, the value created by private markets fund managers themselves and the use of financially sophisticated practices and stringent due diligence in the private markets selection and portfolio management processes.

Private markets are becoming an increasingly important asset class as they provide access to opportunities that are not readily accessible to investors in publicly listed markets. It is becoming increasingly difficult for investors to participate in the upside of high-growth and innovative companies if they are limited to the publicly traded markets.

The outlook for private market investments

Key investment takeaways

Private assets can play a key role in a long-term investment plan with benefits both in terms of potentially better risk-adjusted performance over traditional asset classes and enhanced diversification. In today’s market, we see good entry points across private market strategies.

In private equity, we would seek exposure to value-oriented buyout and secondaries funds, and themes such as software, health, education, and climate-related solutions, while leaving pure AI exposure to venture investors.

In private credit, pricing and yields look attractive, and return prospects for direct lenders have improved. We continue to see good potential for both direct lending and distressed/special situation funds.

Finally, we stay selective in private real estate while we continue to like infrastructure given government support and the asset class’ stable return and inflation-hedging properties.

Overview of Private Market assets

Leveraged Buyout

Buyout managers utilize leverage to take a controlling position in mature companies with the aim of growing earnings through value-add initiatives.

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Growth Equity

Growth equity funds target companies that have high organic growth rates where unit economics have been established. Attractive targets exhibit potential for scalable, repeatable growth.

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Venture Capital

Venture capital managers finance startup companies that they deem to have the potential for disruptive innovation.

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Private real estate

Real estate investing consists of receiving rental income and capital gains from the purchase and ownership of a piece of land or a building. The tree main private real estate strategies include core, value-add, and opportunistic.

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Direct Lending

The strategy consists of originating loans directly to companies. Such loans are typically senior secured, floating and not traded on public exchanges.

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Distressed Debt

Managers leverage their legal expertise in debt restructuring, legal expertise, and operational execution to identify, value, and monetize on distressed assets.

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Infrastruktur

Infrastructure strategies target investments in utilities, transportation, energy, communication, and social infrastructure sectors. Infrastructure managers leverage their expertise in deal sourcing, repositioning, development, and operational execution to identify, value, and monetize on infrastructure assets.

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Non-Traditional Assets

Non-traditional asset classes are alternative investments that include hedge funds, private equity, real estate, and managed futures (collectively, alternative investments). Interests of alternative investment funds are sold only to qualified investors, and only by means of offering documents that include information about the risks, performance and expenses of alternative investment funds, and which clients are urged to read carefully before subscribing and retain. An investment in an alternative investment fund is speculative and involves significant risks. Specifically, these investments (1) are not mutual funds and are not subject to the same regulatory requirements as mutual funds; (2) may have performance that is volatile, and investors may lose all or a substantial amount of their investment; (3) may engage in leverage and other speculative investment practices that may increase the risk of investment loss; (4) are long-term, illiquid investments, there is generally no secondary market for the interests of a fund, and none is expected to develop; (5) interests of alternative investment funds typically will be illiquid and subject to restrictions on transfer; (6) may not be required to provide periodic pricing or valuation information to investors; (7) generally involve complex tax strategies and there may be delays in distributing tax information to investors; (8) are subject to high fees, including management fees and other fees and expenses, all of which will reduce profits.

Interests in alternative investment funds are not deposits or obligations of, or guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Prospective investors should understand these risks and have the financial ability and willingness to accept them for an extended period of time before making an investment in an alternative investment fund and should consider an alternative investment fund as a supplement to an overall investment program.

In addition to the risks that apply to alternative investments generally, the following are additional risks related to an investment in these strategies:

Private Equity: There are risks specifically associated with investing in private equity. Capital calls can be made on short notice, and the failure to meet capital calls can result in significant adverse consequences including, but not limited to, a total loss of investment.

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Private Markets

Introduction to private markets

Introduction

Key investment takeaways

Overview of Private Market assets

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