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.

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. 

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.