Private market assets—such as private debt, real estate, and infrastructure—are attracting more attention from investors seeking alternatives to traditional stocks and bonds. 2024 global private debt alone reached $1.19 trillion, highlighting the sector’s rapid growth.
These off-market assets are gaining popularity for their potential to generate income, offer diversification, and hedge against volatility. While private investments can be complex, working with a financial advisor can make understanding the risks and opportunities easier.
Key Takeaways
- Private market assets like debt, real estate, and infrastructure can offer diversification and yield potential, but also come with unique risks.
- Due diligence is critical, as these assets are less liquid, less regulated, and harder to sell than public securities.
- “Private credit” is another term for “private debt,” which involves loans made to companies that don’t trade on public markets.
- Private real estate and infrastructure can provide steady income streams but require longer investment horizons and careful vetting.
- A financial advisor can help align private market investment with your long-term goals and risk tolerance.
Understanding Private Market Assets
Private market assets are investments in companies or projects not traded on public stock exchanges. Instead of buying shares on the open market, investors work directly with private businesses or funds. These assets typically fall into three main categories:
- Private equity: Investing in private companies with the goal of making a profit as the company grows and increases in value. Investors may earn returns when the company is sold or goes public.
- Private debt: Similar to a loan, private debt gives companies access to funding without using public markets. In return, investors earn interest over time.
- Real assets: Tangible assets like real estate, infrastructure (such as highways, airports, or energy grids), and natural resources. These assets can generate income and may appreciate in value over time.
Private market assets have become more popular in recent years. But they come with trade-offs. For example, these investments are usually long-term and illiquid, so you can’t easily sell them whenever you want. You may have to wait years before seeing a return.
On the upside, private markets give businesses access to funding they might not receive from banks or public investors. For investors, they offer a way to diversify their portfolios and find new opportunities, especially when public markets are unpredictable.
Private Debt (aka Private Credit)
After the 2008 global financial crisis, traditional banks made it harder for small or risky businesses to borrow money. They tightened their rules and focused more on lending to large, established companies. This left a gap in the market—and private debt filled it.
Private debt is when non-bank lenders—like private equity firms or investment funds—loan money directly to businesses. These loans aren’t traded on public markets and are often tailored to meet the borrower’s specific needs, with flexible terms for interest rates and repayment.
Private debt comes in multiple forms:
- Direct lending: Loans made directly to small and mid-sized businesses that may not qualify for traditional bank financing. Lenders take on higher risk in exchange for potentially higher returns.
- Distressed debt: Investing in the debt of financially troubled companies, aiming for high returns if the business recovers or restructures.
- Mezzanine debt: A mix of debt and equity used in larger deals like buyouts. It’s riskier than senior debt (which must be paid off first in case of bankruptcy) but offers higher potential returns.
- Venture debt: Loans made to early-stage startups, usually backed by venture capital. Used to extend a growth runway for companies between funding rounds, with higher risk and more flexible terms.
Note
Private debt performance is forecast to grow to an average of 12.0% from end-2023 to 2029, with distressed debt expected to remain higher.
Private Real Estate and Infrastructure
Going beyond stocks and bonds is key to building a strong investment portfolio. Private real estate and infrastructure are two common alternative assets that appeal to investors seeking stability, particularly during periods of market volatility. Here’s a closer look at each:
Private Real Estate
Private real estate involves direct investment in physical properties, including residential homes, commercial office buildings, and industrial facilities like warehouses and distribution centers. Unlike publicly traded real estate investment trusts (REITs), private real estate is accessed through non-public funds or REIT-like structures, typically available to accredited or institutional investors.
These investments pool capital to acquire, manage, and develop property portfolios. Returns come primarily from rental income and potential property appreciation over time. As a tangible, income-generating asset, private real estate is often viewed as a stable option during periods of market volatility.
Infrastructure
Infrastructure investing focuses on essential physical and digital assets, such as roads, bridges, utilities, airports, and data centers. These assets often generate long-term, stable cash flows, particularly when supported by government contracts or regulated pricing structures that may adjust for inflation. Due to their scale, infrastructure projects are typically capital-intensive and illiquid.
Investors can access infrastructure through private equity funds, public-private partnerships, or listed infrastructure companies.
Accredited investors usually invest via private infrastructure funds or direct ownership, which require large capital commitments and long holding periods. Retail investors can gain exposure through listed infrastructure funds, ETFs, or REITs, though these may not fully reflect the features of private investments.
Key Risks and Considerations
1. Your Money Could Be Tied Up for 7-10 Years
Private market investments are not easily bought or sold. Unlike stocks, which can be traded daily, assets like real estate loans or private equity stakes often have multi-year holding periods and no secondary market. This means you may not be able to access your money for 7-10 years, even in an emergency. Before investing, ask yourself: Can I afford to leave this money untouched for several years?
2. Harder To Track Performance
Public investments like stocks are priced daily, but private assets are not. Without a clear daily market value, tracking your investment’s performance in real-time can be challenging. Instead, valuations might be based on internal estimates or periodic third-party appraisals, which can be annually or quarterly. This lack of transparency can make managing your overall portfolio risk harder.
3. Large Upfront Commitments
Minimum investment requirements vary by asset type, but private market investments typically demand significant upfront capital. Real estate funds often require minimums between $25,000 and $100,000, while private equity funds may call for commitments ranging from $250,000 to several million dollars.
These high thresholds limit access to accredited investors and can lead to concentration risk if a large portion of your portfolio is tied to a single investment. It’s important to assess whether you’re maintaining proper diversification.
4. Regulatory Gaps
Private market investments are not subject to the same regulatory scrutiny as publicly traded assets. This means fewer reporting requirements, fewer frequent disclosures, and fewer investor protections. As a result, it’s crucial to do your own due diligence and stay up to date with local and federal regulations that may affect your investment, especially in areas like real estate development or lending.
What’s the Difference Between Private Credit and Traditional Bonds?
Private credit involves loans to businesses that aren’t traded on public markets. It offers higher returns but less liquidity. Traditional bonds are publicly traded, more regulated, and easier to sell.
Are Private Real Estate Investments Better Than REITs?
Private real estate can offer higher returns and more control, but it’s less liquid and has higher minimum investment requirements. REITs are easier to buy and sell, but returns may be lower.
How Do I Know if I Qualify To Invest in Private Market Assets?
You typically need to be an accredited investor, which means meeting specific income or net worth requirements. Some newer platforms offer lower entry points.
What Are the Risks of Private Market Investing?
Illiquidity, higher default risk, and less transparency make these investments difficult to exit, so they’re best for long-term investors.
The Bottom Line
Private market assets aren’t a silver bullet, but can be a valuable strategy for certain investors. For investors with sufficient capital and a high tolerance for risk, private markets offer the potential to generate income, diversify a portfolio, and provide a hedge against public market volatility. However, they generally have low liquidity and thus require a long-term perspective. Before you commit, make sure these investments align with your financial goals and that you’re comfortable with the associated risks.