Private Markets as key driver for any portfolio
A broad range of investment opportunities
Private market investments have long established themselves as a recognized asset class. The spectrum includes private equity, private debt, infrastructure, real estate, and collectibles. This diversity allows investors to allocate capital across different sectors and build broader, more resilient portfolios. For example, there are more than 140,000 private companies worldwide with annual revenues exceeding $100 million, compared to just around 19,000 publicly listed companies in the same revenue range.
Capital for growth and innovation
Private equity and venture capital are primarily used to finance business growth and innovation, while private debt serves as an alternative financing method for companies with limited access to traditional capital markets. By providing targeted growth capital, private markets often offer higher return potential compared to public markets. This is largely due to the so-called illiquidity premium – a compensation for longer holding periods and lower liquidity. Over the past 25 years, private equity and venture capital investments have generated an average annual excess return of about 12.5% over 3-month government bonds.
A steadily growing trillion-dollar market
Private markets are experiencing impressive growth. According to S&P Global, assets under management (AUM) in private markets reached $11.87 trillion in 2023, with forecasts of over $15 trillion by 2025 and more than $18 trillion by 2027. Bain & Company even projects $20 trillion within the next five years. Private equity accounts for over half of total AUM, followed by private debt and real assets such as real estate and infrastructure. McKinsey anticipates an annual growth rate of 15% in private equity alone over the coming years.
Modern portfolio allocation: The 50/30/20 strategy
It’s no surprise that a growing number of investors are replacing the traditional 60/40 allocation model with a more modern 50/30/20 strategy:
• 50 percent equities to benefit from price gains and dividends
• 30 percent bonds for stability and interest income
• 20 percent private markets for diversification and illiquidity premiums
This allocation reflects the increasing importance of private markets as a core component of modern investment portfolios. It offers the potential for long-term value creation in less volatile segments while providing access to the opportunities presented by alternative investments.
Stability and diversification for investors
Private markets offer investments that often have a low correlation to public markets, making them particularly attractive during times of economic uncertainty. They also allow investors to allocate capital to future-focused sectors such as renewable energy, technology, and sustainable infrastructure – combining financial returns with societal impact. Institutional investors such as university endowments and family offices have long allocated significant portions of their portfolios to private markets. For example, the well-known Yale Endowment at one point allocated over 50% of its portfolio to private markets.
Democratization and digitalization
The future of private markets lies in broader accessibility for retail investors. Innovative technologies such as blockchain help make transactions more transparent and efficient, increasing trust and adoption among a wider investor base. Digital platforms like FINEXITY make it possible to invest in private markets with smaller amounts by enabling the trading of tokenized assets. This democratization is supported by regulatory developments and will further accelerate the growth of the private markets.
Private markets offer strong opportunities for informed investors
The future of private markets lies in further opening up to private investors. Blockchain technology increases transparency and efficiency, enabling broader participation. Digital exchanges like FINEXITY allow investors to participate in private markets with smaller capital amounts by making tokenized assets tradable. This democratization, reinforced by regulatory developments, will continue to drive the expansion of the private markets.