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Private markets: A compelling returns story

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By Ben Leach and Joseph Bassey-Duke | June 7, 2021

Private markets can offer institutional investors an asset class that has historically delivered returns throughout market cycles.
Exposure to assets that are unavailable through public markets.
Potential for excess returns relative to other asset classes.
Long-term historical returns above equities of 3%+1.

Following years of strong returns in traditional assets, we believe the forward-looking return expectations from these asset classes are low. Investors looking to meet their objectives need to reposition their portfolios for this new reality. Investing efficiently in private markets can be a tool that helps investors get from a good outcome to a potentially great one.


Are private markets really right for me?

“Alpha from my listed equity investments can probably do the same job”

We believe diversifying the sources of returns to include illiquidity and greater skill can contribute to a more robust portfolio.

“The illiquidity worries me”

We believe illiquidity in private markets is typically overestimated. Even though lock-up terms are typically 10 years, cash flows are received throughout the term and the value remaining in a fund at year 10 is typically minimal. Furthermore, the significant growth of the secondary market has materially increased liquidity.


Our private markets beliefs

  • Access a broad opportunity set
  • Be selective
  • Adopt a relative value thematic approach to positioning the portfolio
  • Advocate for better alignment, securing better fees and terms where possible

This is covered in more detail in the below paper, as well as how to build a high-conviction private markets portfolio and several case studies.

Footnote

1 Preqin median private markets fund returns compared to listed equities (MSCI World), for vintages 2000 to 2017. 2018 to 2020 vintages are excluded due to immaturity of these investments. Data to June 2020. Past performance is not indicative of future results.

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Senior Portfolio Specialist


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