Ten tips for getting started with private markets

With Goldman Sachs predicting dramatically lower growth for stocks over the next decade – it forecasts 3% growth for the S&P500 in the next 10 years, compared with 13% in the past 10[1] – it’s time for keen investors to look beyond the public stock market.

Private market investing offers significant potential for upside and excellent opportunities to diversify and manage risk. These are investments made into companies or private real estate projects that are not publicly traded on stock markets. They can take the form of private equity, private debt or venture capital, for instance. Private market investments are a subset of alternative investments. 

Smart investors take time to understand the options, and typically look to get specialist advice. We’ve suggested 10 tips below to get you started.

1.       Understand your options: Before you invest, become familiar with the basics of private market investing. Read industry publications and consider courses offered by reputable financial institutions, wealth managers or asset managers.

Resources like the Chartered Alternative Investment Analyst (CAIA) Association provide educational materials and certifications specifically focused on alternative investments. Elkstone has also produced useful introductory guides to private market investment such as Diversify for growth and Going global.

2.       Make the most of professional expertise: Given the complexity of many alternative investments, consider working with financial advisors or investment managers with specific expertise in this area. Look for advisors with relevant qualifications, deep local knowledge and experience working with sophisticated investors.

3.       Conduct thorough due diligence: Before investing, thoroughly research the investment strategy, track record, risk management processes and the team behind the investment. For private market investments, this might involve reviewing offering memorandums and analysing past performance.

4.       Understand fee structures: Be clear about all fees associated with alternative investments, including management fees, performance fees and any hidden charges. Understanding the total cost is crucial for assessing potential net returns.

5.       Consider a fund-of-funds approach: For those new to alternatives, a fund-of-funds approach can provide diversified exposure to multiple alternative strategies within a single investment. While this approach adds an extra layer of fees, it can provide access to top-tier funds and professional due diligence and portfolio construction.

6.       Start small and diversify: Begin with a small allocation to alternatives and diversify across different types to spread risk. You might start with a 5–10% allocation to alternatives, spread across different strategies like real estate, hedge funds and private equity.

7.       Be mindful of liquidity: Understand the liquidity terms of any alternative investment and ensure they align with your overall portfolio liquidity needs. For example, if you're considering a private equity investment with a 10-year lock-up period, ensure you won't need that capital for other purposes during that time or look for an option with a 2-year or 3-year lock-up period instead.

8.       Monitor and rebalance: Regularly review your alternative investments in the context of your overall portfolio and be prepared to rebalance as needed. This might involve committing to new funds as older investments mature or adjusting your allocation based on changes in your financial situation or market conditions.

9.       Stay informed about tax implications: Alternative investments can have complex tax consequences. Stay informed about the tax treatment of different alternatives and consider working with a tax professional.

10.    Be patient: Many alternative investments require a long-term perspective. Be prepared to give your investments time to work and avoid the temptation to judge their performance over short time frames. Private equity investments, for instance, often experience a ‘J-curve’ effect, where returns may be negative in early years before potentially delivering strong performance later.

[1] https://www.irishtimes.com/your-money/2024/10/27/goldman-warns-of-lost-decade-for-us-stocks/

Interesting in getting started with private market investing? Elkstone is Ireland’s leading alternative investments firm, specialist in private markets. We offer you a gateway to diversified wealth expansion through unique access to global and local investment opportunities.

Our expert team specialises in non-traditional market investments such as real estate, venture, private equity, private credit and global hedge funds.

Contact Elkstone 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.