Investing in private markets can deliver premium returns and help with portfolio diversification. While some investors associate private equity with more risk, the asset class is increasingly utilized in a wider swath of portfolios. Clients with long-term investment horizons should consider adding private equity, private real estate and private debt to their portfolios.
What are the different types of private investments?
Private Market Investment Types
Benefits of this investment strategy
Transactions in private companies typically involve a change of control and can take longer to execute than placing a trade in public markets. However, with the sheer number of private companies outweighing the number of public companies, investing in private markets can strengthen portfolios in ways not accessible in public markets. There are more than 17,000 U.S. private companies with annual revenues above $100 million, compared with just 2,600 public companies reaching those same revenue amounts, according to Hamilton Lane. The total number of public companies is also dropping, making diversification even more important.
Through their ownership interests, private equity managers can exert significant influence on a company’s operations, capital structure and business strategy. This dynamic allows them to focus on long-term outcomes and bring their expertise to the business, including:
Setting strategy for introduction/expansion of products, services and geographies.
Leveraging past experiences and deep understanding of business operations to navigate challenging markets.
Partnering with advisors to help bring additional expertise to achieve goals to help grow business.
Private Equity Spectrum
Implementation options
Private Equity Implementation Options
Why you should work with a firm specializing in private markets
With the particular nuances of private markets, investors are highly recommended to work with a financial advisory firm specializing in this strategy. Skilled Advisors can help individual investors take a focused and intentional approach to private markets, where they seek to capitalize on these opportunities.
Common Risks and Considerations
Though private markets can create value for an investor and help cushion their portfolio from volatility, there are risks to consider with any investment option. Often, there is a long duration before an investor can truly realize their return on investment, valuations typically are reported on a quarter delay, and these types of investments require a K-1 statement inserting an administrative requirement.