The Private markets sector has grown significantly over the last 20 years, increasing in value from below $1tn to over $13tn to the end of 2024.
While this is comparatively still smaller than global stock markets (around $124tn), private markets are expanding at a much quicker pace. Past performance is not a guide to the future.
More money is now flowing into private companies, instead of those listed on stock markets (public markets), as they choose to remain unlisted for longer, attracted by the flexibility and focus available outside the public eye.
These markets can put experienced investors at the forefront of trends shaping our future, where ground-breaking innovation and early-stage disruption often start. Whether it’s the latest breakthroughs in AI or developments in the energy transition, private markets can offer access to the growth stories driving tomorrow’s economy.
Institutional investors have enjoyed this performance for a long time, and now individual investors are getting the chance to tap into it too.
It’s all thanks to the launch of new fund structures like the Long-Term Asset Fund (LTAF).
This article isn’t personal advice. If you’re not sure whether an investment is right for you, please seek advice. Private markets are considered high-risk investments, and the value of your investment will rise and fall, so you could get back less than you put in.
Private markets versus public markets – what are the differences?
Private markets are investments in assets that aren’t listed or traded on public exchanges, like buying a FTSE 100 share on the London Stock Exchange.
Unlike buying shares in publicly-listed companies, private market investments are typically direct stakes in private companies or projects.
As valuations are updated less frequently, it means prices don’t tend to change as much as they do on stock exchanges.
However, with private markets investments, it can take longer to access your money compared to public markets.
How easy it is to access your money is referred to as liquidity.
You might see terms like illiquid (hard to access) or semi-liquid when reading about private market assets, but ultimately the more liquid an asset is, the easier it is to access your money.
While quick access to your money isn’t possible, the private markets trade-off is it can offer the potential to growth wealth by accessing investments in sectors that you can’t normally invest in through public markets.
This, in turn, could help diversify your portfolio. The FCA suggest that private markets assets should not make up more than 10% of a well-diversified retail portfolio.
What are some of the main private asset classes?
Private equity – investments in private companies – everything from small start-ups to large-scale mature businesses.
Real assets (including real estate and infrastructure) – tangible investments like commercial property, logistics centres, wind farms and solar parks.
Debt instruments – lending directly to private companies or projects.
How can individual investors now invest in private markets?
Today experienced individual investors can get involved in private markets in ways they couldn’t before.
New regulations, government support and structures like the Long-Term Asset Fund (LTAF) are designed to make it easier to access private markets with the aim of achieving enhanced long-term returns.
Changing rules to allow them in more mainstream investment vehicles, like Stocks and Shares ISAs, will open up far more investment. But at the same time existing FCA rules will help make sure private market investments only make up an appropriate part of experienced investors’ wider portfolios.
With an LTAF, investors can access their money at set intervals (usually quarterly), and their money is typically put to work straight away.
This is different to some traditional private market funds where investors can have to wait a while before their money is fully invested.
But that doesn’t mean investors can pull their money out whenever they like. It’s still important to consider private markets as long-term investments – that’s at least five to seven years or longer.
Right now, many individual investors have a very small allocation to private assets, showing they’re starting to add this major part of the investment universe to their traditionally public markets portfolios.
How should private market investors approach risks?
Private markets are sometimes seen as higher-risk than public markets, but they both come with a broad spectrum of risks and returns, so there’s no one-size-fits-all.
Much of the private markets’ riskier reputation comes down to illiquidity, the assets taking a long time to buy and sell.
So, when thinking about private markets, think about how long you’re comfortable having your money invested and whether you might need quick access to your funds. Time horizon and personal circumstances are just as important as the nature of the investment itself.
Deciding how much to invest in private markets depends on your goals, investment experience and how much risk you’re happy taking.
The FCA suggests retail investors put no more than 10% of their total net assets in high-risk investments. Those prepared to invest for a longer period (typically five to seven years) could consider traditional, less-liquid private market options.
With a range of private markets products now available to investors, including VCTs and LTAFs, it’s certainly worth learning more about the individual products and their potential use cases.