Navigating Barriers to Investing in Private Markets
The current macro environment requires investors to think outside the box. As we covered in our previous article, Private Markets offer a way to diversify and enhance returns during a time of high inflation and constrained growth.
For those used to operating exclusively in the public markets, however, navigating this field can be a challenge.
In this article, we’ll explore how private markets are organized, the barriers that may exist to investing in them, and how we at Petiole Asset Management can help.
Navigating Private Markets
Private Markets encompass a broad range of investment types.[1] There are three broad categories of private investment, which we’ll examine in turn.
Private Equity
Most businesses in a free market economy are privately held. Private Equity investors raise funds in order to finance the growth and development of these firms, generally with a view to selling them 5-7 years later.
Within Private Equity itself, there are many different sub-groups. For example, Venture Capitalists target very early-stage firms with high growth potential, whereas Buyout funds look for mature, established businesses with stable cashflows. There are also funds that look for firms in-between with specific opportunities for improvement, which the fund team believe they can help to execute.
The ability to shape the future of the firm means that private equity is a good match for investors with social impact, environmental or governance concerns top of mind.
Private Debt
The counterpart to Private Equity is Private Debt, which offers a way for companies to obtain loan-based financing without the need to go to a bank. Since the financial crisis, this has become more important as regulators have made banks more cautious in their lending practices.[2]
As a result of this lower regulatory burden, the structure of private debt is often more straightforward, although it will be tailored to the firm and investors in question. Currently, floating-rate structures in privately-arranged credit represent a positive for debt investors, given the prospect of further inflation and rising interest rates.
Investing in private debt provides the opportunity to tap into a growing market, with attractive rates of return and lower regulatory overhead. This can of course carry higher risk than traditional bank loans, and so comes at the cost of more rigorous due diligence on the part of the investor or fund.
Real Estate
While equity and debt technically cover all types of investing, Real Estate is large enough and unique enough to be considered under its own heading. Investing in commercial and residential properties is as old as property itself.
For investors today, it offers a number of advantages. In addition to the potential for growth in value over time, it also may have a low correlation with other types of asset, often offers tax advantages (e.g. deductible expenses), and has been seen to provide a hedge against inflation.[3]
Barriers to Investing in Private Markets
In spite of the opportunity, the typical investor has no more than 5% of their portfolio allocated to private market investments.[4] This is for a number of reasons.
Private market investments require time, effort and technical expertise to identify and maintain. Funds with the experience and competence to do so successfully are relatively few in number. Fees have generally been substantial and the minimum investment high (e.g. $25 million).
As a result, the benefits of private markets have been reserved mainly for ultra-high net worth and institutional investors.
Making Private Markets Accessible
Petiole Asset Management has a strong track record in private market investments. Our teams in Zurich, New York and Hong Kong work with our network of leading funds to identify and assess opportunities at an early stage, ensuring that our clients have access to the best opportunities.
In addition to this, we have designed our platform and digital ecosystem with the express purpose of enabling mid-sized investors to access and build a private markets portfolio.
Not only can such mid-sized clients invest alongside our major institutional partners, but they can also enjoy total transparency on their own financial progress and access the latest insights from our team.
Take the next step
With Petiole, you are engaging a team of seasoned advisors who have proven experience in navigating challenging markets and developing thriving private market investment portfolios.
Our active investment philosophy sets us apart from many other funds who have chosen to ride the wave of the bull market in the past decade. As our client, you are therefore well positioned to continue to grow your assets in spite of an uncertain backdrop in the global economy.
Click on the link below to find out more or arrange a meeting with one of our team.
Disclaimer
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