Information for advice professionals only.
Private market assets can be considered an extension of traditional assets such as stocks and bonds but differ in that they are not publicly traded on an exchange. As a consequence, private market assets may be less liquid than their traditional counterparts and typically require a longer investment period before returns are realised.
Explore each definition of the asset classes within private market investments:
Private Equity: Capital invested in private companies in exchange for equity or ownership. Investment will be in existing private companies that are not publicly traded or listed on a stock exchange or, may involve the acquisition of public companies by a private investment fund or investor.
Venture Capital: Capital invested in start-ups with high growth potential.
Private Debt: Investment in corporate entities in the form of debt as opposed to equity. The term 'private debt' is typically applied to debt investments that are not financed by banks, nor traded or issued in an open market.
Real Estate: Acquisition, financing, and ownership of real estate assets by private investment vehicles, funds, or firms. The asset class covers three main property types – residential, commercial, and industrial.
Infrastructure: Investment in services and facilities considered essential in the economic development of a society. It includes sub asset classes such as energy, logistics, telecoms, transportation, utilities, and waste management.
Natural Resources: Investment in the development, enhancement, or production of various types of natural resources (i.e. materials or substances that occur naturally on earth). Sub asset classes include agriculture, renewable energy, timberland, water, and metals.
Traditional investments are typically defined as publicly traded investments in stocks, bonds, or cash. The traditional method of investing is via public markets, where companies issue shares to the general population via stock exchanges, such as the ASX and NYSE. These types of investments are typically regulated by financial authorities and offer investors a higher degree of transparency.
Private market investments can be complex and not as heavily regulated. Furthermore, private markets are notoriously opaque compared to public markets. For example, private companies are not necessarily required to reveal earnings or financial information, or report to shareholders, which means that information on these types of assets can be hard to find. For this reason, most private market asset investments have historically been held by institutional investors or accredited, high-net-worth individuals.
An illiquid asset is one that is difficult to sell or exchange for cash compared to publicly traded stocks and bonds, which can be sold on the open market with relative ease. Private market funds generally impose limitations on withdrawals ('lock-up periods' – discussed below) and have traditionally had higher minimum investment thresholds, with few investors willing or able to purchase part, or all, of the asset at any given time.
Private Market investment funds will usually stipulate a lock-up period, during which the invested capital cannot be liquidated. Lock-up periods for traditional closed-end private market funds can be 10 years or more. There are two main types of lock-ups:
Private market product structures continue to innovate and evolve. Semi-liquid, open end funds offer investors some liquidity, often on a monthly or quarterly basis. This liquidity is subject to gating, typically capped at a percentage of the unit trust’s net asset value (e.g. 5%). Moreover, their open-end structure offers liquidity on entry, meaning new investors are not constrained to hard close dates unlike traditional private market fund structures. Investment minimums are typically lower making investing into private markets more accessible, particularly for private wealth investors. Before investing in any private market strategy, it is important investors fully understand the liquidity terms of the fund and the processes applied when a fund is subject to gating.
Information current as at June 2024. This content was produced by Preqin Ltd and adapted with permission by BT Financial Group. This document may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, the Westpac Group and Preqin accept no responsibility for the accuracy or completeness of, nor does it endorse any such third party material. To the maximum extent permitted by law, we intend by this notice to exclude liability for this third party material. The content is based on the best data readily available at the time of creation, however the accuracy, completeness or timeliness of such data is not guaranteed. Content may include general financial information and examples; however, these are for illustrative purposes only, and may not be applicable to your personal circumstances or needs. The content does not constitute financial or investment advice and the content hereunder should not be considered as a substitute for professional advice. Any projections or forecasts presented may involve risk and uncertainty, and actual results may differ materially from those presented, projected or forecast. Past performance is not a reliable indicator of future performance. This communication has been prepared for use by financial planning professionals only. Except as permitted by the copyright law applicable to you, you may not reproduce or communicate any of the content on this website, including files downloadable from this website, without the permission of the copyright owner.