Private Markets: New opportunities in the asset class for exclusive investments

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Private markets offer promising investment alternatives to traditional financial markets. However, for a long time, access to these markets was severely restricted for private investors, as no direct trading takes place on the stock exchange. Furthermore, high minimum investment amounts of several million Swiss francs blocked access for many investors.

But the world of private markets is changing: new start-ups and digital asset managers make it possible to enter this exclusive investment area with significantly lower minimum investment amounts. This makes these attractive investment opportunities accessible to a broader investor base. It is therefore worthwhile to find out more about the opportunities. This article helps to enter the world of these exclusive investments.

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.
• Early entry into growth projects enables high performance of the investments.
• Historically, only institutional investors with high minimum investments had access to this type of investment.
• Innovative providers are opening up the market to private investors with manageable minimum investment amounts as well.

Private Markets: definition and explanation of the asset class

Private Markets translates as private market investments. These are investments in 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 they are not publicly listed and traded. This asset class allows investors to receive a type of risk premium for the illiquidity of their investment.

Compared to the public market, which is characterized by stock exchange listings, private markets generally exhibit less volatility. In the past, they have been able to generate above-average returns of over 14 percent in some cases.

A key difference between these private and public markets is liquidity. Investing in private markets requires longer investment horizons, as they cannot be traded as easily as listed equities. However, this provides opportunities, including giving investors access to younger and smaller companies that have higher growth potential than established listed companies.

Private markets investments are often only offered to a small circle of investors. These usually enter with several million Swiss francs. By investing, investors benefit from the potential growth of promising companies and diversify their portfolios at the same time. Shares can also be bought or sold on the secondary market via specialized asset managers or investment banks. This involves existing investor commitments to corresponding funds.

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These types of investments are offered by private markets

Private capital has a significant impact in today’s global economy. Private investment funds have more than $12 trillion in assets. The volume has doubled in the period from 2005 to 2021 alone.

The asset class is very diverse, with different opportunities and risks in each segment. Private markets include:

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

Private Equity

Accounting for around two-thirds of the market volume, private equity is the largest segment of the private markets. It is divided into the categories buyout and venture capital. In a buyout, existing companies are bought from their owners and developed further. These are long-established companies. With venture capital, capital flows into newly founded companies or start-ups in order to finance research, development and marketing. In between, there is also so-called late-stage venture capital or growth equity, which focuses on companies that are between VC and buyouts in their development.

Private Equity Real Estate

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

• Core: Purchase of existing real estate with the aim of generating stable rental income. The purchase is made exclusively with equity.
• Core Plus: This also involves 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 project planning, development and marketing of new buildings in all segments.

Private Debt

Compared to private equity, this strategy does not involve acquisitions, but rather the provision of debt capital to companies. The funds are often used to finance expansion plans. This 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 usually variable.

Private Infrastructure

Private Markets covers the financing of infrastructure assets. This includes, for example, airports, electricity companies, water supply, waste disposal, schools and hospitals. Existing infrastructure facilities are characterized by stable earnings, as the use of a water treatment plant, for example, is quite constant.

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Private markets: exceptional opportunities

Private markets offer investors extraordinary opportunities and possibilities to diversify their portfolio and to profit from growth companies and interesting sectors. In doing so, they invest in companies and sectors that are otherwise difficult to access. The asset class is particularly attractive compared to public markets due to its historically high returns and lower volatility.

Through innovative asset managers, investors with comparatively lower minimum investments can also invest in private markets and benefit from their advantages.

The main opportunities can be summarized in three points:

• Opportunities for investors: Private markets allow investors to invest in young, high-growth companies that are not listed on the stock exchange. By investing in such companies, investors benefit from their growth and thus achieve above-average returns. Due to their low volatility and correlation to traditional asset classes, private markets serve well as diversification tools.
• Investment in attractive sectors: Private markets provide access to investments in infrastructure projects, growth sectors and other areas not usually accessible to private investors. Investments can be made in promising companies at an early stage. Lucrative acquisitions take place in the private equity sector, especially before the initial public offering (IPO).
• Opportunities for returns depending on risk appetite: Investors have the prospect of returns of up to around 15 percent, depending on their risk appetite. This shows that private markets are an attractive investment option for investors who are prepared to take a higher risk in order to achieve potentially higher returns. Above all, the risk of low liquidity must be taken into account here.

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Private Markets: the risks

When it comes to the risks associated with investing in Private Markets, the question arises especially when compared to other financial products that are publicly traded.

Lack of regulation and transparency

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

Investment expertise and valuation

It is often difficult for private consumers to assess the risk of investing in private markets. Valuing investments in this segment requires in-depth expertise, as many factors need to be considered, such as the business model, management, and competitive landscape. In contrast, equities and other financial products are generally easier to value because they are traded on public markets and easily accessible information is available.

Higher risks

As with any form of investment, there is a risk of loss with private markets. The performance of private companies can be affected by a variety of factors, including the economic environment, the industry, and general market sentiment. Often, investments are made in a future prospect for which no concrete company figures are yet available, as in the case of venture capital. This is a significant difference from, for example, investing in traditional large companies with substance, as is the case with buyouts. Therefore, it is important to have a diversified portfolio to minimize risk.

Liquidity risk

Another risk associated with investing in private markets is the typically low liquidity. Since the shares are not traded on public exchanges, it can be difficult to sell them. This can be particularly problematic when liquidity is needed in the short term. In contrast, stocks and other publicly traded financial products are usually easy to trade and offer investors greater flexibility.

Long investment horizons

Investments in private markets are often associated with an investment horizon of 10 to 15 years.

Accessibility more difficult

Since there is no single marketplace for any segment, access is difficult. Even if investors are suitably qualified, many markets are not available to private investors.

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Investments in private markets require in-depth expert knowledge

Investments in private markets offer high return opportunities and diversification possibilities, but also represent an increased risk. In order to manage these risks and find the optimal investments, sound expert knowledge is required.

The variety of products in Private Markets

Private markets encompass a wide range of investment products, from private equity and private debt to infrastructure and real estate. Due to the large number of products, it can be difficult for non-experts to identify the best investment opportunities. Experts have the expertise to evaluate the various products and select those that best fit the investor’s investment objectives and risk profile.

Complex and non-transparent fee structures

Fee structures in private markets can be intertwined and opaque, making it difficult for investors to understand the true cost of their investments. Experts help decipher fee structures and ensure investors are getting a fair deal and not overlooking hidden costs.

Differences in investment style and fund strategies

In private equity alone, the opportunities of a buyout (acquisition of companies) and those of venture capital (growth financing) must be evaluated in a completely differentiated manner. Only experts with proven expertise are in a position to make a sound assessment of the differences in opportunities and risks. Professionals can help understand the different approaches and identify those that best fit the investor’s individual goals and requirements.

The role of experts in analysis and pre-selection

As described earlier, investments in private markets are much more difficult to access compared to publicly traded financial products. At the same time, this means that the research and evaluation of the necessary data is only accessible to a limited circle of experts . Private investors therefore need to take advantage of this know-how. They can draw on their expertise to ensure, as investors, they invest in the right products that match their goals and risk appetite.

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Digital wealth advisors open up return opportunities in private markets to broad groups of investors

Private markets, such as private equity, private real estate, private debt and private infrastructure, have long been the exclusive domain of large institutional investors and high-net-worth individuals. But thanks to technological innovations and digital wealth advisors, these attractive investment opportunities are now opening up to a broader range of investors. Startups such as Everon enable investments in these segments from as little as CHF 10,000, allowing private investors to benefit from expanded investment opportunities with potentially high returns.

Digital wealth advisors as new enablers for private markets

Digital wealth advisors combine professional expertise with a high degree of automation to cost-efficiently create investment recommendations for their clients and provide them with support. By using these technologies, private investors can also gain access to private markets investments that are otherwise difficult to access.

Opening up private markets to a broad range of investors

The minimum investment amount for private market investments is often in the six- or seven-figure range. This excludes many private investors from these attractive investment vehicles. However, startups such as Everon have recognized that there is a great need for access to private markets and, as a consequence, offer investment opportunities from as little as 10,000 Swiss francs. Digitization and the innovative power of young providers have thus opened the door to private markets for broader investor circles.