Private Markets: Investment Opportunities in a Private Asset Class

Private Markets cover non-listed holdings in private equity, private debt, real estate and infrastructure. Investors commit capital over terms that usually run for several years and, in return, take on an elevated illiquidity and loss risk. For a long time, this asset class was reserved for institutional investors because of high minimum investments. Today, specialised providers are opening up access to private investors as well.

Private Markets offer investment alternatives to traditional, exchange-traded financial markets. However, access was long restricted for private investors, as there is no direct trading on a stock exchange and minimum investments of several million Swiss francs were common. This article explains the main Private Markets asset classes, the access routes as well as the minimum investments, the illiquidity and the risks.

The world of Private Markets is changing. New providers and digital asset managers make it possible to enter with significantly lower minimum investments. This makes the asset class accessible to a broader investor base. It is worth finding out about the opportunities and the risks involved.

The most important facts in brief

• Private Markets are non-publicly traded investments in which investors provide capital.
• Investments are made in private companies, real estate or infrastructure projects.
• The four main segments are private equity, private debt, real estate and infrastructure.
• Historically, mainly institutional investors with high minimum investments had access to this asset class.
• Specialised providers are increasingly opening up the market to private investors with lower minimum investments.
• In return for the low liquidity and the long investment horizon, there is an elevated risk of loss.

Private Markets: definition and explanation of the asset class

Private Markets, also known as private market investments, refers to investments in the equity and debt capital of companies and projects that are not listed on a stock exchange. The “private” in the name comes from the fact that these investments are not publicly traded. In return, investors typically receive an illiquidity premium, an additional return opportunity that compensates them for tying up their capital over a long period. There is no guarantee of this premium.

Compared with the public market, which is characterised by stock exchange listings, Private Markets often show less visible fluctuation in their valuations. This is partly because private market investments are valued less frequently, often only on a monthly or quarterly basis. Lower reported volatility therefore does not necessarily mean lower actual risk.

A key difference between private and public markets is liquidity. Investments in Private Markets require longer investment horizons, as they cannot be traded as easily as listed equities. In return, investors can gain access to younger and smaller companies that may have higher growth potential than established listed companies. This potential comes with a correspondingly higher risk of loss.

Private Markets investments are often offered only to a small circle of investors, who usually enter with several million Swiss francs. By investing, investors participate in the potential growth of promising companies and diversify their portfolio at the same time. Through specialised asset managers or investment banks, units can also be bought or sold on the secondary market. This involves existing investor commitments to corresponding funds.

Reading tip: Family office: definition, services & for whom it is worthwhile

These types of investments are offered by Private Markets

Private capital has grown in importance in the global economy. According to McKinsey’s Global Private Markets Report 2024 (based on Preqin data), assets under management in Private Markets worldwide reached around USD 13.1 trillion as of 30 June 2023, an increase of roughly 12 percent year on year. Over the past years, the asset class has grown considerably.

The asset class is diverse, with different opportunities and risks in each segment. Private Markets include the following areas:

• Private Equity
• Private Real Estate
• Private Debt
• Private Infrastructure

Private Equity

Measured by assets under management, private equity is the largest segment of Private Markets. It is divided into the categories buyout and venture capital. In a buyout, existing, often long-established companies are acquired from their owners and developed further. With venture capital, capital flows into newly founded companies or start-ups in order to finance research, development and marketing. In between lies so-called late-stage venture capital or growth equity, which focuses on companies in a development phase between venture capital and buyout.

Private Equity Real Estate

This area covers the new construction and conversion of real estate in the residential as well as the industrial and commercial segments. The following strategies are distinguished:

• Core: Purchase of existing properties with the aim of generating stable rental income. The purchase is made exclusively with equity.
• Core Plus: Also the purchase of existing properties, but debt capital is also used for financing.
• Value Added: Existing properties are upgraded through renovation measures and then resold.
• Opportunistic: This strategy covers the planning, development and marketing of new buildings in all segments.

Private Debt

In contrast to private equity, private debt does not involve an acquisition but rather the provision of debt capital to companies. The funds often serve to finance expansion plans. Such growth financing is also known as mezzanine, an intermediate form of equity and debt. The terms of the loans are usually six to ten years, and the interest rate is often variable.

Private Infrastructure

With this segment, Private Markets finance infrastructure assets. These include, for example, airports, energy providers, water supply, waste disposal as well as schools or hospitals. Existing infrastructure assets are often characterised by comparatively stable earnings, as the use of a water treatment plant, for example, is relatively constant.

Reading tip: Investing money in Switzerland: investment strategies and the 1×1 of investing

Private Markets: opportunities for the portfolio

Private Markets give investors the opportunity to diversify their portfolio and to participate in growth companies and less accessible sectors. Investors thereby invest in companies and areas that are often hard to reach through the stock exchange. Because of the historically lower reported fluctuations in some cases and the lower correlation with public markets, Private Markets are seen as an interesting diversification instrument. An excess return is not guaranteed, however.

Through specialised asset managers, investors with comparatively lower minimum investments can also invest in Private Markets. The main opportunities can be summarised in three points:

• Access to private growth: Private Markets make it possible to invest in young, high-growth companies that are not listed on the stock exchange. Because of their lower correlation with traditional asset classes, they can serve as a diversification building block.
• Investment in otherwise hard-to-reach areas: Private Markets provide access to infrastructure projects, growth sectors and other areas that usually remain closed to private investors. In private equity, holdings are often taken on before an initial public offering (IPO).
• Return opportunity relative to risk: Those who are prepared to tie up capital over a long period and to bear a higher risk have the prospect of an additional return opportunity. This is not guaranteed, and the risk of low liquidity in particular must be taken into account.

Reading tip: Investment strategy in focus: the power of income strategy

Private Markets: the risks

Anyone who invests in Private Markets takes on specific risks. These become particularly clear when compared with publicly traded financial products.

Lower regulation and transparency

A key difference between private and public markets is that Private Markets are less regulated. Publicly traded financial instruments are subject to numerous regulations and disclosure requirements, while private markets are subject to less stringent rules. This can lead to a lack of transparency and make it harder for investors to make informed decisions and to assess the quality of an investment. In addition, private market investments are often valued only on a monthly basis, which makes performance measurement more difficult.

Demanding valuation

It is often difficult for private investors to assess the risk of investing in Private Markets. The valuation requires sound expertise, as many factors have to be taken into account, such as the business model, management and competitive environment. Equities and other exchange-traded financial products are generally easier to value, as they are traded on public markets and more readily accessible information is available.

Risk of loss

As with any form of investment, there is a risk of loss with Private Markets, up to the total loss of the capital invested. The performance of private companies depends on factors such as the economic environment, the industry and general market sentiment. Often, investments are made in a future prospect for which no reliable company figures are yet available, as in the case of venture capital. This distinguishes such investments from holdings in established, substance-rich companies, as is usual with buyouts. A broadly diversified portfolio helps to cushion individual risks.

Liquidity risk

A further risk is the typically low liquidity. As the units are not traded on public exchanges, a sale can be difficult. This can become a problem particularly when liquidity is needed at short notice. Equities and other listed financial products, by contrast, can usually be traded easily and offer greater flexibility.

Long investment horizons

Investments in Private Markets are often associated with an investment horizon of ten to fifteen years. Capital that is needed elsewhere during this period should not flow into such investments.

More difficult access

As there is no single marketplace for the individual segments, access is more difficult. Even with appropriate investor qualification, many markets are not readily available to private investors.

Reading tip: Stock market crash: markets at the bottom, how should you react?

Investments in Private Markets require sound expertise

Investments in Private Markets offer diversification possibilities but come with elevated risks. To put these risks into perspective and to identify suitable investments, sound expertise is required.

The variety of products in Private Markets

Private Markets encompass a broad range of investment products, from private equity and private debt to infrastructure and real estate. Because of the large number of products, it can be difficult for private investors to identify suitable investment opportunities. Specialists can classify the various products and select those that match the investor’s investment objectives and risk profile.

Complex fee structures

Fee structures in Private Markets can be intricate and opaque. This makes it harder for investors to understand the true cost of an investment. Specialists help to decipher these structures so that investors do not overlook hidden costs.

Differences in style and fund strategy

In private equity alone, the opportunities of a buyout (acquisition of companies) and those of venture capital (growth financing) differ considerably. Both have to be assessed separately. Specialists with proven experience can classify the different approaches and identify those that fit an investor’s individual goals and requirements.

The role of specialists in analysis and pre-selection

Investments in Private Markets are harder to access than publicly traded financial products. Research and assessment of the necessary data are accessible only to a limited circle of specialists. For private investors, it is therefore worth drawing on this expertise in order to invest in products that match their goals and risk capacity.

Reading tip: Asset management mandates: definition, meaning & advantages

Digital asset managers open up Private Markets to broader groups of investors

Private Markets such as private equity, private real estate, private debt or private infrastructure were long reserved for large institutional investors and very wealthy private individuals. Thanks to technological innovations and digital asset managers, these investment opportunities are increasingly opening up to a broader range of investors. Providers such as Everon enable investments in individual segments from as little as CHF 10,000, so that private investors can participate in these investment opportunities too.

Digital asset managers as enablers for Private Markets

Digital asset managers combine professional expertise with a high degree of automation in order to implement investment solutions cost-efficiently and to support clients. By using these technologies, private investors too can gain access to Private Markets investments that are otherwise hard to reach.

Opening up Private Markets to broader groups of investors

The minimum investment for Private Markets investments is often in the six- or seven-figure range. This excludes many private investors. Providers such as Everon enable entry into individual segments from as little as CHF 10,000. Digitalisation and the innovative power of young providers have thus opened the door to Private Markets for broader groups of investors. Which solution fits in a given case depends on the investment horizon, risk capacity and personal situation. This article does not constitute investment advice.

Frequently asked questions about Private Markets

What are Private Markets? Private Markets are investments in the equity and debt capital of companies and projects that are not traded on a stock exchange. They include private equity, private debt, real estate and infrastructure. Investors commit capital over terms that usually run for several years and, in return, take on an elevated illiquidity and loss risk.

Which asset classes belong to Private Markets? The four main segments are private equity (holdings in non-listed companies, for example through buyouts or venture capital), private debt (debt capital provided to companies), real estate (property projects) and infrastructure (assets such as airports, energy or water supply). Each segment has its own profile of opportunities and risks.

How high is the minimum investment for Private Markets? Traditionally, minimum investments were in the six- to seven-figure range, which is why this asset class was long reserved for institutional investors. Specialised providers now sometimes allow entry from considerably lower amounts. The specific terms differ depending on the fund, the structure and the provider.

What are the risks of Private Markets? The key risks are low liquidity, long investment horizons that often run from ten to fifteen years, lower transparency than on public markets, and the general risk of loss. A broad spread and a sound assessment of each investment are therefore particularly important.

Are Private Markets suitable for private investors? That depends on the individual situation, in particular on the investment horizon, risk capacity and the share that can be tied up over a long period. Private Markets are mainly suited as a complement within a broadly diversified portfolio. This article does not constitute investment advice.