Private market investing is a ubiquitous theme in wealth management today, and for good reason. The author of this essay takes us on a tour of the terrain.

The rise of private market investing is so widely reported now that it is difficult to imagine when this wasn’t the case. But while the argument for such investing is much discussed these days, it appears that private clients are still only holding, on average, single-digit percentages of these assets in their portfolios. (Averages conceal cavernous variations, it must be admitted.) A decade-plus of ultra-low interest rates, a secular shift from public markets, and other forces, have made private equity, credit, forms of real estate and infrastructure staples of discussion. 

Access to private markets is evolving and, along with this, the term “democratisation” is being thrown around a good deal. Another topic regularly referred to is data and client reporting: Getting net asset value updates, or notification of exits and capital calls, is a whole new ball game compared with the way listed equities are reported. Technology plays an important part here.

In this broad tour of the market, our guide is Alastair Baker, a portfolio manager in the multi-asset side at Sarasin & Partners, in the UK. The editors are pleased to share these thoughts; the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com if you have comments.

McKinsey estimates that private markets were valued at about $13.1 trillion as at 30 June 2023, having grown at an annual rate of 20 per cent since 2018 (1). Private markets, which cover a wide range of investments such as private equity, private debt and venture capital, have a long history.

Regulation can have a meaningful impact on how financial markets operate. For example, the regulatory response to the 2008 global financial crisis has led to a safer banking system where stringent rules attempt to ensure that banks are not taking excessive risks and have sufficient capital to withstand a large economic shock. This strategy has successfully helped the banking sector to navigate both the impact of the global pandemic and an abrupt change in interest rate policy following the subsequent inflationary shock.

However, with banks now having less flexibility to hold a wide range of investments, many opportunities have either failed to secure funding or have had to find other sources of capital to support them, creating an opportunity for long-term investors to fill the void. Companies and their management teams have also increasingly chosen to fund their growth from the private markets rather than by an initial public offering with the associated burden of regulatory, reporting and governance costs. These changes in financial regulation, combined with the increased accessibility of private markets and a broadened investment opportunity set, have caused substantial growth over the last 15 years. In addition, private markets investments have delivered strong returns which have attracted large capital inflows.

The impact on public markets
Private markets are still small compared with public: global equities represented by the MSCI All Country World Index have a market capitalisation of $98 trillion and bond markets represented by the Bloomberg Global Aggregate Index are valued at $66 trillion as at 31 December 2024. However, since 2018 these indices have grown in size at a rate of only 6 per cent per annum, significantly below that of private markets (2).

This is having a marked impact on public exchanges, with companies staying private for much longer: the median age at which a company becomes listed had risen from six years in the 1980s to 11 years by 2021. Between 1980 and 2000 there were 6,500 initial public offerings in the US, but from 2001 to 2022 there have been less than 3,000 (3). Databricks, an AI and data analytics business, raised $10 billion in December, the largest single private markets fundraising of 2024; according to Databricks, investors tendered double that figure. 

This is not just a story about capital-light companies such as software providers. Take Elon Musk’s rocket-launching SpaceX business as a prime example. SpaceX is a privately funded company with a valuation of about $350 billion at its last funding round in November when it raised an extra $1.25 billion (4). To set that in context, AstraZeneca, the largest company listed on the London Stock Exchange, has a market capitalisation of around $200 billion and had a weight of 8 per cent in the FTSE 100 at the end of December 2024 (5).

Most private companies are much smaller than SpaceX, of course, and the majority of activity is in a valuation range of $100 million to $10 billion. We can see the impact of this within the UK market where last year 88 companies delisted from the London Stock Exchange, with a major driver being acquisitions by private equity firms; by contrast, only 18 new firms were listed in the UK via IPOs (6).

Evolving access to private markets
Traditionally, the wealth management sector has gained access to private markets opportunities via closed-ended quoted vehicles such as investment trusts. While these vehicles offer a degree of liquidity in normal market conditions, dealing conditions can also deteriorate rapidly. Closed-ended vehicles holding unquoted assets typically trade at very significant discounts to their published net asset values when there are more sellers than buyers for their shares in the market. Hence it is important to explore other avenues for accessing private investment markets.

Taking a more illiquid approach can be advantageous for genuinely long-term investors. In periods of economic change and market volatility, the long-term capital funding model of these vehicles remains in place, allowing them to take advantage of attractive valuation opportunities thrown up by short-term fluctuations in market sentiment. 

With the expectation that private markets will continue to grow in size and importance, the inclusion of unlisted private assets within an investment portfolio’s allocation to alternatives can significantly enhance longer term risk-adjusted returns, as many leading academic institutions and charitable endowments have been able to demonstrate in recent years. The challenge now is to develop suitable means of accessing the exciting opportunities available in unquoted markets for private investors and charities.

Footnotes
1, https://www.mckinsey.com/industries/private-capital/our-insights/mckinseys-private-markets-annual-review
2, Bloomberg and Sarasin & Partners calculations, January 2025
3, https://www.nasdaq.com/articles/as-companies-stay-private-longer-advisors-need-access-to-private-markets
4, https://www.bloomberg.com/news/articles/2024-12-10/spacex-share-sale-is-said-to-value-company-at-about-350-billion
6, Bloomberg and Sarasin & Partners calculations, January 2025
7, https://www.ft.com/content/aef053ce-c94d-4a72-8dce-bdbf56dd67e1