Private markets refer to investments made in assets not traded on public exchanges, such as private equity, private credit, real estate, and infrastructure.
What Role Can Private Markets Play in a Portfolio?
Reducing reliance on public markets by spreading risk across different asset types may provide potential diversification benefits.
Private market investments seek to offer higher returns relative to public market investments, often due to niche opportunities and illiquidity premiums.
Private credit, for example, can potentially provide consistent cash flows, which are particularly appealing in falling interest rate environments.
Charting the New 60/40 with Private Markets
Source: Bloomberg, as of 06/30/24. Note: Portfolio investment from 6/30/1999-6/30/2024. “Equities” is represented by the MSCI ACWI Index. “Fixed Income” is represented by the Bloomberg Barclays Global Aggregate Index. “Private Equity” is represented by the MSCI Burgiss Global Buyout Funds Index. “Private Credit” is represented by the Cambridge Associates Private Credit Index. For illustrative purposes only. Past performance is not indicative of future results. There is no assurance that any portfolio objectives can be achieved or that nay such portfolio will be profitable. Diversification does not eliminate the risk of loss.
Index Definitions: MSCI World Index: The MSCI World Index is a global equity index designed to track the performance of large and mid-cap companies across 23 developed world markets.
Bloomberg Barclays Global Aggregate Index: The Bloomberg Barclays aggregate Index is a measure of global investment grade debt from 24 local currency markets, including treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. MSCI Burgiss Global Buyout Funds Index: The MSCI Global Buyout Funds Index is based on data compiled from historical performance records of various Global Buyout funds tracked via Burgiss since 1980. The Index is inclusive of private equity-style funds that are closed-end with manager discretion over cash flows. Cash flows are reported from LPs and the dataset is updated on a quarterly basis. The index is not transparent and cannot be independently verified because MSCI Burgiss does not identify the funds included in the index. The Burgiss Private Equity Manager Universe is also recalculated each time a new fund is added, therefore the historical performance of the index is not fixed, cannot be replicated, and will differ over time. Returns are calculated net of fees and carried interest. The Cambridge Associates Global Credit Index: The Cambridge Associates Global Private Credit Index is based on data compiled from the historical performance records of various global credit funds between 1986 and 2022 . The Credit funds included in the Cambridge Global Private Credit Index report their performance voluntarily and therefore the Index may reflect a bias towards funds with track records of success. Funds report unaudited quarterly data to Cambridge Associates when calculating the Index. The Index is not transparent and cannot be independently verified because Cambridge Associates does not identify the funds included in the Index. Because Cambridge Associates recalculates the Index each time a new fund is added, the historical performance of the Index is not fixed, cannot be replicated, and will differ over time from the data presented in this communication. Returns are net of fees. The Index returns do not represent Fund performance.
Comparisons to Benchmarks. This illustration may include comparisons of the performance of certain investment funds to published rankings, indices or similar benchmarks. These comparisons have inherent limitations and qualifications, such as limited sample size, imperfect access to information and other considerations. Selected benchmarks are shown for comparability at the asset level. There may be significant differences between the types of securities and assets typically acquired by any Fund and the investments covered by the applicable index. For example, the investments covered by the applicable index may have more liquidity than the investments held by any Fund. You cannot invest directly in an index or benchmark group. There may be other studies, rankings or benchmarks where the relative performance would be higher or lower. Additional information is available upon request.
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Flash Concepts
Open-ended investment vehicles designed for investors seeking sustained exposure to private markets. Typically offers more individual investor-friendly terms, with relative liquidity, lower investment minimums, preferred tax reporting, and the ability to continuously invest.
In traditional closed-end private equity funds, the private equity firm acts as the general partner (GP). The GP is responsible for all decisions regarding the fund’s investments. Through the fund, the GP holds an ownership stake in the fund’s portfolio company, while also playing an active role in guiding the company’s strategy, operations, and growth.
In traditional closed-end private equity funds, fund investors are considered limited partners (LPs). Through the fund, LPs hold ownership stakes in the portfolio company but take a passive role, providing capital liquidity but exercising no control over the fund’s investment decisions.
The value of a fund’s assets minus liabilities. The NAV can help evaluate the performance of a fund, which is critical in private markets where assets are often illiquid and not marked to market regularly.
In private equity, the J-curve describes the typical performance of investments across a fund’s life cycle. Initially a fund might show negative returns due to upfront costs, fees, and the time required for portfolio companies to grow and mature. Over time, as the investments mature and start to generate returns, the fund's performance improves, mimicking a J-shaped curve.
Multiple on Invested Capital (MOIC) represents the total return on invested capital relative to the total amount of invested capital. This metric is commonly used to evaluate the value or performance of private equity investments.
Refers to capital raised by a fund that has not yet been invested. This type of capital acts as a reserve that the fund manager can call and deploy as investment opportunities arise.
The anticipated additional return an investor receives in exchange for sacrificing liquidity.
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