A Guide to Private Markets
Why should investors consider private markets in their portfolio?
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Private Credit IRR vs. PME
By Vintage Year

One of the biggest factors drawing investors to private markets has been performance. 
Case in point: Private equity and private credit have outperformed global public equity and credit markets, respectively, in 20 of the last 20 years. 

Buyout IRR vs. PME
By Vintage Year

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A variety of factors drives the outperformance. First, there is a liquidity premium associated with private markets: Higher returns may be compensation for longer lockup periods with investors’ capital. 

Another reason could be that companies are staying private longer and, in turn, have the potential to experience more of their growth and innovation before going public. For instance, in the technology sector, the average age of a new public company has gone from 4.5 years in 1999 to more than 12 years in 2020.As tangible examples, two of the 10 largest-ever tech IPOs waited 10 and 12 years, respectively, before going public, long after they had disrupted the industries in which they operate.

PME: Public market equivalent 
LTM: Last twelve months 
IRR: The internal rate of return is a metric used in financial analysis to estimate the profitability of potential investments 
Definitions
Private markets may provide diversification benefits. 

Private investments can also be a valuable diversifier. This is due to the much wider pool of companies within private markets. There are more than 18,000 U.S. private companies with annual revenues above $100 million, compared with just 2,800 public companies with those same revenue levels.

Over the last two decades, public markets have become increasingly more concentrated, dropping from more than 7,800 publicly listed companies at the beginning of 2000, to roughly 4,800 at the end of 2020.2 The dwindling number of public companies has made diversification beyond them even more important.

U.S. Public & Private Companies
By LTM Revenue ($M)

1https://www.skadden.com/insights/publications/2020/01/2020-insights/private-pre-ipo-investments
2Source: Research by Professor Jay R. Ritter, University of Florida

Why should investors consider private markets in their portfolio?
A Guide to Private Markets
Offline: This content can only be displayed when online.
Offline: This content can only be displayed when online.
Offline: This content can only be displayed when online.

1https://www.skadden.com/insights/publications/2020/01/2020-insights/private-pre-ipo-investments
2Source: Research by Professor Jay R. Ritter, University of Florida

U.S. Public & Private Companies
By LTM Revenue ($M)

Private investments can also be a valuable diversifier. This is due to the much wider pool of companies within private markets. There are more than 18,000 U.S. private companies with annual revenues above $100 million, compared with just 2,800 public companies with those same revenue levels.

Over the last two decades, public markets have become increasingly more concentrated, dropping from more than 7,800 publicly listed companies at the beginning of 2000, to roughly 4,800 at the end of 2020.2 The dwindling number of public companies has made diversification beyond them even more important.

Private markets may provide diversification benefits. 
PME: Public market equivalent 
LTM: Last twelve months 
IRR: The internal rate of return is a metric used in financial analysis to estimate the profitability of potential investments 
Definitions

A variety of factors drives the outperformance. First, there is a liquidity premium associated with private markets: Higher returns may be compensation for longer lockup periods with investors’ capital. 

Another reason could be that companies are staying private longer and, in turn, have the potential to experience more of their growth and innovation before going public. For instance, in the technology sector, the average age of a new public company has gone from 4.5 years in 1999 to more than 12 years in 2020.As tangible examples, two of the 10 largest-ever tech IPOs waited 10 and 12 years, respectively, before going public, long after they had disrupted the industries in which they operate.

Private Credit IRR vs. PME
By Vintage Year

One of the biggest factors drawing investors to private markets has been performance. 
Case in point: Private equity and private credit have outperformed global public equity and credit markets, respectively, in 20 of the last 20 years. 

Buyout IRR vs. PME
By Vintage Year