INSIDE ALTERNATIVES

Introduction to Private Markets

Key takeaways

  • Private markets are an expanding segment of alternative investments that are becoming a core component of modern portfolios.
  • These strategies offer differentiated return potential driven by illiquidity and complexity premiums, but require a long-term investment horizon and careful manager selection.
  • Structural shifts, including more companies staying private and reduced bank lending, are driving increased opportunity and growth in private markets.

What are private markets?

In the context of alternative investments, private markets are distinguished by the fact that they are not listed and traded on public exchanges. Once harder to access, the evolution of private markets may present a new set of opportunities for investment portfolios.

In recent years, product innovation has allowed more investors to allocate solutions ranging from private equity and private credit to real estate and infrastructure. Private markets are overall moving from a niche allocation used primarily by large institutions to becoming a core component of modern portfolio construction.

Core exposures to consider are:

  • Private equity: Investments in private companies, including buyouts, growth equity and venture capital.
  • Private credit: Direct lending and other non-bank lending strategies to private companies and an increasing number of public companies seeking alternative capital sources.
  • Real estate (debt or equity): Strategies focused on the acquisition, management and/or disposal of real estate properties to generate returns.
  • Infrastructure: Investment in the facilities, services, and physical systems considered essential to everyday life and economic productivity.
Graphic labeled ‘Alternative Asset Classes’ showing three categories: Private Markets, Hedge Funds, and Liquid Alternatives

What are the key differentiators in private markets?

Private markets are not traded on a public exchange like stocks and bonds, although they can now be accessed through non-traded, registered fund vehicles. Private investments typically prioritize long-term value creation over quarterly results.

Private market investing happens over a longer time horizon. These assets are generally less liquid than those on public markets, meaning they take more time or are more difficult to sell; by contrast, publicly traded mutual funds are designed to provide daily liquidity. In return for this lower liquidity, investors have historically been able to expect higher returns – this is commonly referred to as “illiquidity premium.”

Another differentiator in private markets is complexity. Success in private markets depends on specialized skills and experience. The best managers know how to uncover unique opportunities and navigate complex investments to drive potential returns, which makes manager selection critical.

Graphic showing that seeking higher returns leads to an illiquidity premium, while accessing new opportunities leads to a complexity premium

Why consider private markets?

  1. Expanded opportunity set
    Private companies are a growing part of the economy, offering wealth creation opportunities as more companies stay private for longer.
  1. Differentiated return potential
    Private markets have historically delivered attractive risk-adjusted returns and differentiated investment opportunities. These return differentials are often attributed to illiquidity and complexity premiums.
  2. New access points
    Ten years ago, private markets were mostly only available to institutional and high-net-worth investors. Industry innovation and better data and transparency are making private markets more accessible to individual investors, whether through evergreen products or whole portfolio managed solutions and services that blend public and private market investments in a single account.

Exhibit 1: Private markets may offer long-term return opportunity

Bar chart titled ‘10-year annualized returns’ comparing public and private assets across real estate, credit, infra, and equity, with private returns higher for all

Source: Preqin Insights+, S&P CapIQ. Federal Reserve, MSCI. Data as of May 16, 2025. Note: Data for 10-year returns is based on rolling returns ending Q4 2024 with annualized geometric average. Public indices are total return. Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance is no guarantee of future performance.

Asset class proxies are the following: Public REIT: S&P Global REITs TR Index, Public Infra: S&P Global Infrastructure Index, U.S. high yield: ICE BofA US High Yield Index, Russell 2000: Russell 2000 Total Return index, S&P 500: S&P 500 Total Return Index. Real Estate, Private Debt, Infrastructure, and Private Equity are calculated through Preqin®’s proprietary benchmarking team and are not based on publicly available indexes.

What is driving growth in private markets?

Long-term trends continue to support the case for private markets.

Risk has become increasingly concentrated in public markets as large indexes are dominated by growth-oriented technology stocks. Among the number of total listed companies, the 20 largest names now represent more than 30% of global stock market capitalization versus just under 14% in 2015 (See Exhibit 1). This coincides with a shrinking number of public stock issuance over the past decade as companies stay private longer.

Exhibit 2: Public stocks have become increasingly concentrated

Two pie charts show the top 20 companies’ market share rising from 13.9% in 2015 to 30.3% in 2024 as total market cap grows

Source: Preqin Insights+, Aladdin, MSCI Data as of November 2025, Based in the Market Capitalization of the MSCI ACWI IMI. For illustrative purposes only. Asset allocation and diversification strategies do not guarantee a profit and may not protect against loss. Indexes are unmanaged and index performance is shown for illustrative purposes only. It is not possible to invest directly into an index.

Capital formation increasingly takes place in private markets – today, 81% of companies with revenues over $100m are private. With banks reducing lending and public markets shrinking, private capital has become essential to funding business investment, innovation and economic growth. As a result, investors are rethinking traditional exposures and exploring how private markets can expand their opportunity set.

Exhibit 3: A growing opportunity set

Line chart comparing trends since 1980, shows number of U.S. private companies increasing by 29%, while public companies decreases by 32%

Source: U.S. Census Bureau - Center for Economic Studies - Business Dynamics Statistics (2022) and World Federation of Exchanges database; for more information on the World Federation, please refer to the Important Notes. Both sources, represents the latest data as of 2022 as derived on 2 April 2025. The graph denotes the growth or decline for both U.S. public and private companies from 1988 until 2022. Past performance is no guarantee of future performance.

Exhibit 4: Banks retreating from credit markets has created private financing opportunities

Market share, leveraged loan market, 1994-2023

Stacked bar chart shows leveraged loan market shifting from banks to non-banks, with non-banks growing from 28% in 1994 to 86% in 2023

Past performance is no guarantee of future results. Diversification does not assure a profit and may not protect against loss of principal. For illustrative purposes only. 1 Demonstrated in footnote 4. 2 Demonstrated on page 2. 3 S&P LCD, Pitchbook LCD as of 3/31/24. Both displays as of latest reported data. Select dates are shown to illustrate a trend over 20+ years. Non-bank lenders refer to financial institutions without a full banking license and those which cannot accept public deposits. This includes venture capitalists, insurance companies, micro-loan firms, and currency exchange (Source: World Bank). 4 Source Capital IQ, BlackRock as of 12/31/24. Represents the number of companies with annual revenues greater than $100 million.

With private markets offering a potentially compelling risk/return profile, more investors may seek to allocate to private markets alongside traditional stocks and bonds.

Exhibit 5: Traditional portfolios are evolving.

Two donut charts show a shift from a 60/40 stock-bond portfolio to 50% stocks, 30% bonds, and 20% alternatives for greater diversification

Source: BlackRock Alternative Portfolio Solutions. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise – or even an estimate - of future performance. Historical example looks at a 60% MSCI ACWI, 38% Bloomberg Agg Bond Index, and 2% cash portfolio vs. a 51% MSCI ACWI, 22% Bloomberg Agg Bond Index, 2% cash, 9% Burgiss Private Equity Manager Universe (which includes 7.727 private equity funds, vintages 1978-2023, and time-weighted quarterly returns), 6% Cliffwater Direct Lending Index, and 10% “diversifying alternatives” sleeve made up of the Credit Suisse Equity Market Neutral, Credit Suisse Multi-Strategy, and Credit Suisse Global Macro Indexes.

Key considerations for private market investments*:

  1. Manager selection
    There can be dispersion in returns among private market strategies. To pick a manager you trust, consider industry expertise, a demonstrated track record, scale, fees and reporting transparency.
  1. Access points
    Product innovation has allowed individual investors greater access to private markets. New registered fund structures offer more transparency and operational efficiency than their predecessors.
  1. Liquidity needs
    While new structures may offer limited liquidity and shorter lock-ups than traditional funds, private market investments are designed to focus on a longer time horizon for value creation. Consider your spending needs and investment period when allocating to private markets.

Private markets are reshaping how investors think about portfolio construction. As access continues to improve, private equity, credit, infrastructure and real estate are playing a growing role alongside traditional stocks and bonds. With thoughtful implementation and a long-term perspective, private markets can help expand opportunity sets and lead to superior investment outcomes.

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