A private market is a way for companies to raise capital and offer investors an opportunity to share in the growth of a company. It differs from public markets in terms of how it is operated, who invests in it and the types of assets invested in.
Private equity (private capital) and private debt are two common asset classes found within a private market. These alternative investments often deliver higher returns than those available in a typical public market, and can be useful for diversifying a portfolio. This is particularly important as market volatility has increased in recent years, and can help mitigate the impact of volatile public markets on a portfolio’s overall risk.
Generally speaking, investing in private markets is only open to qualified investors who meet the definition of an accredited investor. This typically includes ultra-high net worth individuals, large institutions and professional investors like family offices or pension funds. The private market can also play a key role in enabling startups to get access to funding and mentoring in exchange for an equity stake in the company.
The benefits of adding private markets to a portfolio are numerous. They can provide an opportunity to target superior returns, improve diversification and bolster yield prospects in the face of declining public market returns. However, as with all investment opportunities, private markets can carry greater risks than their mainstream counterparts, and require careful evaluation and due diligence as well as a suitable risk appetite and investment timeline.