For most of the history of modern finance, private markets — investments in companies, credit, or assets that are not traded on public exchanges — were accessible only to very large institutional investors (pension funds, endowments, sovereign wealth funds) and ultra-high-net-worth individuals. The minimum investment levels were prohibitive for everyone else; the regulatory complexity was significant; and the products were simply not distributed through the channels available to ordinary investors.
This is changing. New regulatory structures — the Long-Term Asset Fund (LTAF) in the UK, the European Long-Term Investment Fund (ELTIF) in the EU, and various other vehicles — are opening private market access to a broader universe of investors. Understanding what these markets offer, what the genuine risks are, and how to access them appropriately is increasingly relevant for high-net-worth individuals and those with investment portfolios of £100,000 and above.
What private markets actually are
The term "private markets" covers a range of asset types that share the common characteristic of not being traded on a public exchange:
Private equity — investments in companies that are not listed on a stock exchange. This includes buyout funds (which acquire established companies, typically using leverage, with the aim of improving them and selling at a profit), growth equity funds (taking minority stakes in expanding companies), and venture capital funds (investing in early-stage companies). The investment is in equity — ownership stakes — and returns come from eventual exits: trade sales, IPOs, or sales to other private equity buyers.
Venture capital — a subset of private equity focused on early-stage or start-up companies with high growth potential and correspondingly high risk. Many venture investments return nothing; a small number generate exceptional returns. VC is the highest-risk, highest-potential-return segment of private markets.
Private credit — lending to companies outside the public bond markets, typically at floating interest rates. Encompasses leveraged loans, direct lending to mid-market companies, mezzanine financing (subordinated debt with equity-like upside), and speciality finance. Returns are yield-based rather than capital-growth based, making private credit attractive to income-oriented investors.
Private real estate — property investments through funds rather than direct ownership, covering commercial real estate (offices, logistics, retail, residential) and sometimes more specialised sub-sectors (student accommodation, healthcare facilities, data centres). Returns come from rental income and eventual property value appreciation.
Infrastructure — investments in physical infrastructure assets: roads, ports, airports, energy networks, renewable energy installations, water treatment facilities. Returns tend to be stable and inflation-linked (many infrastructure assets have regulated or contracted revenues tied to inflation), making this an attractive asset class for income-oriented or liability-matching portfolios.
The illiquidity premium
The central rationale for investing in private markets — accepting that you cannot sell your investment freely on a daily basis — is that this illiquidity should be compensated by higher returns than equivalent public market exposures. This compensation is the "illiquidity premium".
The evidence for the illiquidity premium is empirically strong for private equity and private credit over the long run. Academic research and industry data consistently show that:
- Private equity has historically outperformed public equity by approximately 2–5% per year on an annualised basis over long periods, though this gap varies by manager and vintage year, and the comparison is complicated by the private equity industry's use of internal rate of return (IRR) rather than time-weighted return
- Private credit typically pays 1–4% above equivalent public credit, compensating for illiquidity, complexity, and the absence of a secondary market
- Infrastructure typically generates stable returns of 6–10% per annum from a combination of income and growth, with low correlation to listed equities
However, several important caveats apply:
These are historical averages across the industry. The distribution of outcomes is wide. Top-quartile private equity managers have historically delivered exceptional returns; bottom-quartile managers have delivered worse returns than equivalent public markets. Manager selection is therefore far more important in private markets than in public markets (where passive investing is often optimal). Investing in an undistinguished private equity fund with high fees and poor selection can deliver worse outcomes than a simple index fund.
The lock-up period is real. Typical private equity and private credit funds have investment periods of 3–5 years and total fund lives of 7–15 years. During this time, you cannot access your money. This is not merely inconvenient — it means private market allocations must genuinely be money you can afford to lock away.
Valuations in private markets are not marked to market daily. This creates an appearance of lower volatility that is partly illusory — the assets may be declining in value, but the decline is not reflected in the reported NAV until the assets are realised or independently valued.
Fees are high by public market standards. The traditional private equity fee structure of "2 and 20" (2% annual management fee plus 20% of profits above a hurdle rate) is expensive. Total fee drag over the life of a fund is substantial. Even at top-quartile performance, fees take a meaningful share of returns.
Access routes for £100,000–£1,000,000 investors
Long-Term Asset Fund (LTAF): the UK regulatory structure introduced to allow pension funds and some retail investors access to private markets within a regulated fund structure. LTAFs must provide liquidity at least quarterly. Access depends on the specific fund's eligibility criteria — some are restricted to sophisticated or institutional investors.
European Long-Term Investment Fund (ELTIF): the EU equivalent, recently reformed to allow broader access to retail investors (ELTIF 2.0, implemented from 2024). Some ELTIFs are available to retail investors with minimum subscriptions as low as €10,000.
Listed private equity (closed-end funds): companies listed on a public exchange that invest in private equity. Daily liquidity through the stock market; discount to NAV often available (listed PE frequently trades at a discount to its stated asset value). Examples include 3i Group, Pantheon International, HarbourVest Global Private Equity, and Chrysalis Investments. The disadvantage is higher correlation to public equity markets, particularly during stress events.
EIS (Enterprise Investment Scheme) and VCT (Venture Capital Trust): UK tax-incentivised structures providing access to early-stage UK companies. EIS offers 30% income tax relief on investment up to £1m per year; VCTs offer 30% income tax relief and dividend tax exemption. Both carry high risk — the underlying investments are early-stage companies with high failure rates. The tax relief partially compensates for this risk but does not eliminate it.
Private equity fund of funds: pooled vehicles investing across multiple private equity managers, providing diversification and reduced minimum commitments. Higher total fees (management fee at FoF level plus underlying fund fees) but lower minimum commitment and reduced single-manager risk.
Sizing a private markets allocation
Given the illiquidity, the long time horizon, and the genuine risks outlined above, the appropriate sizing of a private markets allocation for most investors is:
- 5–20% of the total investable portfolio — enough to access the return premium materially, not so much that liquidity constraints become a practical problem
- The allocation should be money genuinely surplus to any foreseeable liquidity need over 10+ years
- Build the allocation gradually over several years (known as "vintage diversification") — committing to different fund vintages reduces the risk of concentration in a single market cycle
- Do not make private market investments on the basis of the headline IRR alone — understand the fee structure, the manager's track record across full cycles, and the exit assumptions built into return projections
Private market investments are not suitable for all investors. Returns are not guaranteed, capital is at risk, and investments may be illiquid for extended periods. Past performance of private market funds is not a reliable indicator of future results. This article does not constitute personal financial advice. Always seek independent professional advice appropriate to your circumstances.
How Global Investments can help
We advise clients on private market allocation strategies, including access to funds not typically available through retail channels. Our focus is on appropriate sizing, fee transparency, and manager quality — ensuring that private market exposure genuinely adds value to your overall portfolio. Contact us to discuss your investment objectives.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.