Private investments

Private markets encompass investment opportunities in privately-held companies and non-public assets that are not traded on stock exchanges. This includes private equity, venture capital, real estate, infrastructure, and private debt. In these markets, investors acquire ownership stakes or invest in assets that are not easily accessible to the public.

Benefits

Private Equity

Venture Capital

Definition

Private equity is capital invested in an established company or other entity that is not publicly listed or traded
Venture capital is funding given to startups that show potential for long-term growth

Types of companies

Stable, established companies across a wide spectrum of industries that are performing well
Early-stage companies that have very high growth potential, such as some companies in high/information technology and biotechnology

Size of investment

Typically, larger than venture capital investments but can range from several million to billions of dollars depending on the target company
Typically smaller than private equity and initially between $1 and $10 million

Structure of investment

A combination of equity and debt
Cash and equity investment or convertible debt that turns into equity

Ownership profile

Control investments, typically in excess of 50%
Minority investments often among a group of minority investors

Return profile

More stable return profile with less volatility than venture capital
Higher risk investments with a broader set of outcomes - from “home runs” to total loss of investment

Risks & liquidity

Private equity and venture capital investments entail certain risks and considerations. They are influenced by market conditions and economic fluctuations, and typically have longer liquidity timelines. It is crucial for investors to carefully evaluate these factors before engaging in these investment types.

The performance of these investments is closely tied to individual company success and management effectiveness.

These investments require a long-term horizon and success hinges on effective management execution. Minority shareholders in venture capital face limited control and face competition from other start-ups and established companies, impacting returns.

Venture capital investments carry even higher risk compared to traditional investments. Start-ups are volatile, often resulting in capital loss. Liquidity can be limited, particularly during market downturns.

Regulatory changes can significantly impact private equity investments, especially in regulated sectors.

Investing in private markets can provide the potential for higher returns and diversification benefits, but also comes with longer investment horizons and less liquidity compared to public markets.

The lack of liquidity is one of the main characteristics of private market investments and it's important for investors to be aware of this and plan accordingly. Some private market investments have been structured to provide modest liquidity throughout the holding period, but the majority of private market investments have limited liquidity.

Private equity and venture capital funds investing in privately held companies typically have a lock-up period, which means that investors cannot sell their shares for a certain period of time, usually several years. This makes it difficult to liquidate these investments quickly.

While investing in private markets can result in longer-term income and capital gain opportunities, investors should be aware that past performance is not a guarantee for the future.