For decades, the traditional 60/40 portfolio of stocks and bonds served investors well. But as institutional investors and ultra-high-net-worth individuals have increasingly allocated capital to private markets, many investors with substantial portfolios are asking: Should I look beyond public markets?
Private market investments—including private equity, private credit, venture capital, and private real estate—have grown significantly. According to recent industry data, global private market assets under management have expanded considerably over the past decade. But does this growth mean these investments belong in your portfolio?
Understanding Private Markets
Private markets encompass investments in companies or assets not traded on public exchanges. Unlike buying shares of Apple or Microsoft on the Nasdaq, private market investments involve direct ownership stakes in private companies, loans to private borrowers, or investments in non-listed real estate ventures.
These investments come in several forms:
Private Equity involves acquiring ownership stakes in private companies, often with the goal of improving operations and eventually selling at a profit. Investment periods typically range from 7–10 years.
Private Credit includes direct lending to companies that may not access traditional bank financing. These loans often carry higher interest rates to compensate for increased risk and illiquidity.
Venture Capital focuses on early-stage companies with high growth potential. While the success stories make headlines, the reality involves significant risk of total loss.
Private Real Estate encompasses direct property ownership, real estate development projects, and private real estate funds—distinct from publicly traded REITs.
The Appeal: Why Investors Are Looking at Private Markets
Potential for Enhanced Returns: Some private market strategies have historically generated returns exceeding public market benchmarks, though past performance doesn’t guarantee future results.
Diversification Benefits: Private investments often behave differently from public stocks and bonds, potentially reducing overall portfolio volatility.
Access to Different Opportunities: Private markets offer exposure to companies and projects unavailable in public markets.
Reduced Market Volatility: Without daily pricing, private investments don’t show the same price swings—though this reflects infrequent valuation rather than true stability.
The Realities: What You Need to Know
Illiquidity is Real: Private investments typically lock up your capital for years, making early exit difficult and costly.
High Minimum Investments: Many funds require $250,000 to $1 million or more, making diversification challenging for smaller portfolios.
Limited Transparency: Private companies are not required to disclose as much information as public ones.
Fee Structures: The typical “2 and 20” fee model (2% management fee + 20% profits) can significantly impact returns.
Regulatory Considerations: Many opportunities are limited to accredited investors or qualified purchasers.
Tax Implications Worth Considering
Private investments often generate K-1 forms, which can delay tax filing and increase complexity. Some may also produce unrelated business taxable income (UBTI).
The Tax Cuts and Jobs Act of 2017 introduced the Qualified Business Income (QBI) deduction under Section 199A, which may benefit certain pass-through income from private investments. This provision was extended under the One Big Beautiful Bill Act.
Is Your Portfolio Ready for Private Markets?
Do you have true liquidity elsewhere? Maintain several years of expenses in liquid assets before considering illiquid investments.
Can you afford to lose the investment? Private investments carry real risks, including total loss.
Do you have the sophistication to evaluate opportunities? These investments require deeper analysis or expert guidance.
Does it align with your financial plan? Private markets should support—not replace—your broader strategy.
A Measured Approach
Start with a small allocation (5–10%) if appropriate. Ensure you understand the investment and consider working with experienced advisors.
Private markets should complement a well-diversified portfolio aligned with your goals, timeline, and risk tolerance.
The Bottom Line
Private markets may enhance diversification and returns for some investors, but they are not essential for success and come with meaningful trade-offs.
A strong portfolio of public investments can still effectively support long-term financial goals.
This content was created with the assistance of artificial intelligence (AI). Please review with a qualified financial advisor before implementation.
This material is for informational purposes only and should not be considered investment, tax, or legal advice.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP®.
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.
Real estate investments carry risks including illiquidity and market fluctuations.
Investing involves risk, including potential loss of principal.
Tyler is a CERTIFIED FINANCIAL PLANNER® practitioner and a Retirement Income Certified Planner™. Beyond the creation and implementation of the client’s financial plan, investment portfolios and insurance recommendations, Tyler provides expertise regarding charitable intentions, retirement income sources, and tax-efficient planning strategies.
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Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization's initial and ongoing certification requirements to use the certification marks
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