By Anna Davies
If you have a portfolio of stocks, bonds and other public assets, you may be intrigued by private market investing. Private market investing—a phrase often used interchangeably with private equity, venture investing and direct lending—offers robust opportunity, said Jay Karpen, investment manager at Whittier Trust.
“Companies are staying private longer and are going public at larger sizes than they were a decade ago,” he said. “Because of that, we’re seeing more investors who want to participate in the private markets.”
But while it may be easier than ever to participate in private markets, these investments require a different mindset and strategy than investing in public assets. “There’s more risk due to less disclosure combined with asymmetric information, illiquidity, execution challenges and manager risk,” said Karpen, adding that connections to opportunities, extensive due diligence and access to industry experts is essential.
Here are five tips to consider when you’re adding private market investments to your portfolio.
An Extension Of Traditional Asset Classes
Instead of thinking of private market investments as a brand new type of investment, consider it an extension of traditional asset classes, said Karpen.
“Venture and growth equity have similar characteristics to small and mid-cap equities, private equity buyout is similar to large cap and direct lending is similar to fixed income markets,” said Karpen.
That said, private market investing does bring additional considerations for investors. For one, the investment is illiquid, they are loosely regulated and there are often fees associated with private market investments.
“You should expect to be compensated for these risks, otherwise it may not be worth it,” said Karpen.
The Right Partner Is Essential
Since these investments are illiquid, and private equity vehicles generally require a large financial commitment, it’s important to take the time to understand the investment partnership,