Private Markets: An opportunity worth exploring

Investing in private markets

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With so many investment challenges to consider these days, it can be beneficial for investors to focus on long-term structural growth opportunities and specifically their exposure to private markets.

Find out more about the importance of private markets and how investors can add them to their portfolios in the current environment.

What are private markets?

Private market investing explained

Private markets are an umbrella term for assets that are not traded on public exchanges. Investors in private markets face a wide menu of options in terms of asset class, investment strategy, or mode of investment.

Private markets are still very much overshadowed by listed assets in scale. Assets under management for private equity are equivalent to roughly 5% of the value of publicly traded stocks. But private markets are gaining in popularity. While private market investments require investors to lock up funds for longer, they have historically been rewarded with higher returns.

Where do we see opportunities in private markets

The recent banking stress raised questions over the implications for alternatives. Private markets continue to offer attractive investment opportunities for investors, but the current environment demands an extra focus on selectivity and diversification across different strategies.

Our preferred approach to investing in private markets, as in public ones, is to diversify. Investors should allocate to both private equity and private debt across geographies, managers, and strategies. In private equity, we currently seek exposure to value-oriented buyout and secondary funds which can take advantage of price dislocations. Secondaries in particular offer good value right now, in our view, with the average pricing declining to more attractive levels.

Here are three reasons why we believe recent developments in some corners of the private market can provide interesting investment opportunities for investors:

  • Lower valuations, market dislocations, and active ownership may drive opportunities for private equity investors.
  • Private debt’s near-term challenges are offset by a growing investment universe and higher yields.
  • We continue to see long-term value in private real estate, as the US banking fallout masks pockets of quality in logistics and multifamily apartments.

Investors should however keep track of the risks inherent to private markets. These include illiquidity, longer lockup periods, leverage, concentration risks and limited control and transparency of underlying holdings. While risks cannot be fully eliminated, it is possible to mitigate them through extensive due diligence and strict manager selection, and by diversifying across vintage years, strategies, and geographies.

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