Private companies are an outsized driver of wealth creation. In the United States, private companies with more than $100 million in revenues outnumber public companies by roughly six to one. Benefiting from innovative product development like exposures via intermittent liquidity structures and technology improvements, individual investors can now access higher quality private investments from top-tier managers more easily than ever before. Here we'll take a look at four potential benefits of adding private market investments to a traditional portfolio of stocks and bonds.
Diversification is a cornerstone of a proper investment strategy, and according to data provider, Preqin, some private market investments may have a low correlation with public markets, which may lead to a more resilient portfolio over the course of an economic cycle. In public markets, information is readily available to all investors, often leading to more efficient pricing. Because private markets operate with less transparency, skilled managers and investors may have greater success identifying undervalued assets before they are widely recognized.
Many private market investments include cash-flow generating assets such as real estate and private equity. Unlike some public equities that may focus on share price appreciation, alternative investments tend to provide a robust income stream through dividends, interest, or rental income. Private markets come in all shapes and sizes and can benefit individual investors in a variety of ways. Fortunately, private markets continue to democratize and are no longer the exclusive domain of institutional and high net worth investors.
While private market investments may not be suitable for every investor, those with a long-term perspective and a willingness to accept additional risks or illiquidity may find that private market investments can play a key role in building a robust and resilient investment portfolio.
