Five Reasons to Invest in Private Markets
With private market investments growing annually by close to 20% since 2018[1], smart investors are taking the time to examine this potential upside.
Private market investments are any investments made into companies or assets that are not publicly traded – they’re a subset of alternative investments.[KR1] These types of investment can include real estate, venture, private equity, infrastructure, private credit, and global hedge funds.
Not only do they offer diversification from traditional investments such as listed equities and bonds, but they can also enable investors to harness the potential for higher returns from innovative, high-growth companies, funds, developments and projects.
Here are five compelling reasons to consider including private market options in your portfolio.
1. Avail of potentially higher returns
Of course, past performance never guarantees future results. Investors can’t ignore, however, the historical outperformance of private equity over public markets. Over 25 years, for example, the Cambridge Associates Private Equity Index[2], which tracks global private equity performance, generated annualised returns of 13.1%, compared with 8.6% for the S&P500.
Usefully, private markets also tend to outperform during market downturns. While European and US public markets faltered under inflationary and interest rate pressure in 2022, private equity held up well and outperformed on many fronts. Likewise, private credit, infrastructure and real estate also performed well across this period.
2. Gain exclusive access to invest where others can't
From venture capital-backed tech startups to investing in large-scale infrastructure projects, private market investments can be difficult if not impossible for the average investor to access. The right advisors and network, however, can open doors and lead to excellent opportunities to generate returns away from traditional asset classes.
Elkstone's partnership with Harrison Street to develop over 1,500 student accommodation beds across Ireland is a prime example. Such projects offer high net worth and institutional investors the chance to invest at an early stage in tangible assets with strong growth potential.
3. Benefit from access to private funds
While private market investing can involve direct investments in projects or high potential businesses, private funds are also available. Fund investing gives you access to a diversified portfolio of investments rather than making a single direct investment.
If you haven’t invested in private markets before or want to curtail your risk exposure to an extent, diversified funds or a fund-of-funds can be a good place to start. You benefit from diversified holdings and the expertise of the fund managers, meaning these options can be lower risk than direct investments. There are no guarantees in investing, of course.
4. Protect against future inflation risk
The surge in inflation in recent years – with the rate in Ireland peaking at 9.3% in October 2022[3], underscored the need for investors to have well-diversified portfolios. Inflation can erode the value of bonds, for example.
‘Real' assets such as property can serve as an effective hedge against rising prices because as cost-of-living increases, so do property values and rental yields, particularly in cities and towns.
While inflation has levelled off for now, it’s smart to plan and protect your wealth from the corrosive effects of any future rapid rise in prices.
5. Diversify to protect your wealth
When interest rates and inflation increased in 2022, stocks and bonds declined in value as both were hammered by the same macroeconomic pressures. This highlighted the need for more diversified strategies to better manage risk.
You can manage your risk exposure and smooth out your portfolio returns over time, particularly to black swan events such as the pandemic, by shifting some of your portfolio to private market options. Their performance tends to have a low correlation to that of traditional asset classes.
While commercial property values and yields were dented by the pandemic, for example, infrastructure remained broadly resilient as it typically is across economic cycles.
How to get started with private markets investing
Consider your appetite for risk
Private market investments can be more complex than traditional asset classes and may come with higher fees and less liquidity. Doing your due diligence is vital and that includes understanding how private investing aligns with your overall risk tolerance and investment goals.
Assess your portfolio
Review your investment portfolio and identify areas where private market investing could enhance your diversification or return. Regularly review your alternative investments and rebalance your portfolio to maintain your desired asset allocation within the liquidity constraints that often accompany private market investments.
Get expert advice and introductions
Private markets investing is rarely a do-it-yourself option. It’s vital to get advice from investment specialists with expertise in rapidly evolving market trends, regulatory changes and new opportunities.
Elkstone’s specialist team creates and curates private market asset portfolios, empowering high net worth individuals, corporations and institutions to broaden their investment horizons and diversify their wealth to an institutional gold standard quality.
[2] Cambridge Associates, 2023
[3] The Irish Times, 2024
Elkstone is Ireland’s private markets investment specialist, offering a gateway to diversified wealth expansion through unique access to global and local investment opportunities. We specialise in non-traditional market investments such as real estate, venture, private equity, private credit and global hedge funds.
Contact us today for a consultation tailored to your needs and investor profile.
Warning: Past performance is not a reliable guide to future performance.
Warning: Benefits may be affected by changes in currency exchange rates.
Warning: The value of your investment may go down as well as up.
Warning: If you invest in these funds you may lose some or all of the money you invest.
Elkstone Private Advisors Limited (trading as Elkstone, Elkstone Wealth, Elkstone Private and Elkstone Ventures) is regulated by the Central Bank of Ireland.
Warning: This is a marketing communication. This document is not a contractually binding document and has been prepared for information purposes only. It is not intended as and does not constitute a personal recommendation. Please do not base any final investment decision on this.