For decades, institutional investors have been reaching beyond traditional asset classes such as bonds and equities and have been incorporating private markets investments into their portfolios as a powerful tool to enhance diversification, generate stronger returns, and reduce portfolio volatility. We wanted our clients to have the same advantage.
We introduced an exclusive suite of private market solutions in 2018, based on our strong conviction that including private assets enhances the potential for portfolio success.
Private market investments are broadly defined as debt and equity investments that are not listed on a public exchange or traded through the bond or commodities market. Private investments are made directly into private companies and are customized to meet the unique capital requirements of each business or project.
Investing in private markets gives your portfolio a lot of potential:
Private markets broaden the range of investments available to investors, since they represent nearly 90% of investments globally. Now that’s a diversification opportunity!
Private markets investors are compensated for holding assets that are not immediately tradable. This “illiquidity premium” provides an advantage that can result in higher long-term returns compared to public markets. Additionally, active management in private markets, such as hands-on operational improvements in private equity or underwriting in private credit, may offer additional opportunity to increase returns.
Private markets are not subject to day-to-day price fluctuations of public markets, which can mean lower overall portfolio volatility and potentially more stable performance in volatile markets. Moreover, the highly customized nature of private market investments often results in more beneficial investment terms to protect capital, leading to greater downside protection. Finally, they have low correlation to traditional asset classes such as public equities and bonds, adding potential portfolio stability in fluctuating markets.
An allocation to private markets can balance the potential for higher returns while also managing risk mitigation. This can improve portfolio resilience during challenging market conditions.
Investing in private markets also involves potential risks, including limited liquidity, longer investment horizons, and less regulatory oversight compared to public markets. It’s essential to confirm that any private market investments are aligned with the risk profile, investment objectives, liquidity needs, and time horizon outlined in your Know Your Client (KYC) questionnaire to ensure they are suitable for your individual financial situation.
