Soaring inflation and rising interest rates have plunged risky asset and bond prices, enduring the start of one of the worst years since the Great Financial Crisis, urging unconventional investments and an entirely new anti-inflationary strategy. Here is your new guide to the world of Officially democratized investments for everyday investors to finally get a piece of the action.
A private market is an investment in a privately held company that may issue shares and have shareholders, but is not publicly traded through an exchange or stock market.
There are several key factors that distinguish private and public markets, most notably the types of investments they offer and the investors who have access to private market funds.
Private markets, also known as closed-end funds, include investment funds within private equity (PE) and private debt, private credit (PC), venture (VC) and growth capital (GC). , and real assets such as real estate, infrastructure, commodities, agricultural land and natural resources.
Key differences between private and public market investments include long lockup periods and less liquid (illiquid) investments. Investors include institutional investors, accredited investors and high income or net worth individuals with longer investment horizons than short term. By placing non-traditional investments in retail investors, public markets, in a negative correlation, increasing the potential for diversification and the opportunity to use leverage for greater returns, specifically VCs. Provides greater ownership and control through minority stakes in high-growth potential start-ups within Inflation proof investments offered through real estate, farmland, etc.
Funds available in the private capital markets have their own advantages and opportunities to hedge systemic risks compared to listed investments, but both pose their own risks and challenges to investors based on their risk tolerance. bring.
Examples of privately held companies in today’s private capital markets include companies such as Bloomberg, Deloitte, IKEA, hedge funds, Tiger Global, and promising growth startups such as Greenhouse.
Private market investments within the private capital market are known as closed end funds.
The private market includes a variety of funds known as non-traditional investments. These include VCs, GCs, PEs, PCs and real assets such as real estate, commodities and infrastructure.
The main differences between private and public markets are limited liquidity, longer time horizons, and investors include sophisticated accredited investors, sovereign wealth funds, insurance companies, pension funds and endowments. The inclusion of large entities, including gold and/or high-income or net-worth individuals of interest. Private markets are less regulated than public markets given the lack of retail investors, high barriers to entry and the availability of private securities.
Opportunities to invest in private capital market funds include negative correlation to the stock market, hedging or beating the market, additional diversification, and potentially Includes investments with high alpha, anti-inflation, and unavailable to investors. general public.
Given illiquid lockup periods such as farmland and PE, high management and performance fees paid to VCs and PEs, additional betas and minimum investment thresholds, private markets have traditionally Open only to accredited investors or high-income eligible clients. or individuals with net worth, institutional investors such as insurance companies, endowments and endowments (E&F), pension funds, or sovereign wealth funds.
Since the beginning of 2022, the public market has faced rampant inflation, rising interest rates leading to higher borrowing costs, the Russo-Ukrainian war, the energy crisis, supply chain constraints, and slowing economic growth posing challenges for public companies and investors. It is up and down. similar.
Accredited and institutional investors alike are seeking more diversified and uncorrelated returns as uncertainty rises after the stock market rally since the pandemic turned around in Q2 2020. , looks to private markets to mitigate market and cyclical risks from macro- and micro-related developments. in this unprecedented time. These investors seek an escape from volatility in order to protect their assets, beat the market, and take advantage of alternative and non-traditional assets. Given the high barriers to entry due to illiquidity, lock-up constraints, and increased available leverage, private funds such as private equity and venture capital have a long-term view, especially as the road to listing unicorns has stalled. may offer more opportunities. A year with rising interest rates and costs, with fears of a looming recession on the horizon.
Within McKinsey’s Global Private Markets Review 2022, global companies share in-depth analysis and perspectives on private markets compared to previous years to help analysts better understand the current market. They share findings on private market funding pools from each private market fund, including real assets such as real estate, infrastructure and natural resources, as well as private debt and private equity.
Today there is new research on the growing interest and presence of retail investors in private capital markets. Since the pandemic began, many new platforms such as Fundrise and Crowdstreet have democratized investment in farmland and real estate development for just a few hundred dollars. As noted above, compared to the traditionally large minimum thresholds required to invest in private markets, which were primarily open only to accredited institutional investors, this compares with McKinsey’s It’s a unique discovery we reported.
“Representing pools of over $50 trillion, retail investors are the second largest source of growing interest in private markets. However, a combination of regulatory change, product innovation, and new GP distribution capabilities is curving the adoption curve: according to a recent study4, more than one-third of private market managers expect to become We expected to have a vehicle for retail at , and today only 9% have it.”(10)
Over the decades, there has been a significant increase in capital pouring into private markets as an attractive non-traditional alternative to public market securities as a long-term commitment to grow returns in more diverse ways. did. While all markets come with potential risks and downsides, private market capital activity presents a unique opportunity for a highly sophisticated young retail investor base looking to capitalize on opportunities outside the traditional public markets. We will provide
