A Guide to Private Markets
What are the risk/return tradeoffs of private markets?

Private equity and private credit outperformed their respective public market counterparts over the last two decades. Data also reveals that in the lowest-returning five-year period from 1995–2020, as seen in the chart below, neither private equity nor private credit experienced negative performance.

1995-2021

Lowest 5-Year Annualized Performance

Investors have increased allocations to a more diverse lineup of investments, including alternatives, to meet return expectations. 

Going forward, many experts believe private markets will have an increasingly important role to play in meeting investors’ portfolio objectives. The chart below from Callan Associates, an institutional investment consultant, puts this in perspective. 

Investor Allocation Seeking to Earn 7.0%

While the chart suggests investors may want to consider making an allocation to private markets, there are also tradeoffs. The biggest of those, as we’ve discussed, are the long-term nature and illiquidity associated with private markets. It often takes considerable time – years, not months – for private investments to realize their value. As such, investors should approach private asset classes with long time horizons.

Individuals accessing the asset class for the first time should make sure they have enough liquidity within the rest of their portfolio to support a long-term private investment. To encourage a long-term commitment, many investors use evergreen funds within their retirement vehicles, intending to let the investment appreciate until retirement.

A Guide to Private Markets
What are the risk/return tradeoffs of private markets?
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While the chart suggests investors may want to consider making an allocation to private markets, there are also tradeoffs. The biggest of those, as we’ve discussed, are the long-term nature and illiquidity associated with private markets. It often takes considerable time – years, not months – for private investments to realize their value. As such, investors should approach private asset classes with long time horizons.

Individuals accessing the asset class for the first time should make sure they have enough liquidity within the rest of their portfolio to support a long-term private investment. To encourage a long-term commitment, many investors use evergreen funds within their retirement vehicles, intending to let the investment appreciate until retirement.

Investor Allocation Seeking to Earn 7.0%

Going forward, many experts believe private markets will have an increasingly important role to play in meeting investors’ portfolio objectives. The chart below from Callan Associates, an institutional investment consultant, puts this in perspective. 

Investors have increased allocations to a more diverse lineup of investments, including alternatives, to meet return expectations. 

1995-2021

Lowest 5-Year Annualized Performance

Private equity and private credit outperformed their respective public market counterparts over the last two decades. Data also reveals that in the lowest-returning five-year period from 1995–2020, as seen in the chart below, neither private equity nor private credit experienced negative performance.