CPD: Why private market assets belong in client portfolios

Private markets are becoming an increasingly important component of diversified investment portfolios.

Australia’s superannuation funds have quietly reshaped their portfolios over the past decade, and the numbers tell the private markets story better than any commentary can. Hostplus allocates 38% of its ‘balanced’ option to private markets, AustralianSuper sits at 23.75%, and ART discloses 29.5% in unlisted and alternative assets^[1]. These aren’t marginal allocations. They represent a structural shift in how the largest pools of retirement capital in the country are being invested, and that shift has implications beyond the super sector.

For financial advisers, this raises an obvious question. If institutional investors have moved so decisively into private markets, what does that mean for your clients? Private equity, private credit, unlisted infrastructure and private real estate were once considered specialist territory, reserved for large institutions with the scale and patience to commit capital for a decade or more. That’s no longer the case. Access has broadened, structures have matured and the case for including private markets in a well-constructed portfolio has become harder to ignore.

It’s important to note why private markets have traditionally sat out of reach for most advisers and their clients. Private companies aren’t held to the same disclosure standards as listed companies, so the information available about their operations is far more limited, and the due diligence needed to assess them properly has largely been the preserve of institutions with the resources to do it well.

Minimum investment sizes add another barrier, and the sheer breadth of sectors and sub-sectors within private markets makes genuine diversification difficult for retail investors to achieve on their own, assuming they can secure access to begin with.

These aren’t small hurdles and they’re part of the reason private markets have taken time to reach a broader audience. But the diversification private markets can offer away from public markets, particularly during volatile geopolitical periods, is a genuine and growing part of the case for including them in client portfolios.

What are private markets?

Private markets refer to capital invested in companies and assets that aren’t listed on a public exchange. Where a public market investor buys shares in a company through the ASX or other exchange, a private markets investor commits capital directly to a business, project or asset that isn’t publicly traded. That capital is usually held for years rather than traded day to day.

The asset class covers several distinct categories, each with its own risk and return profile:

• Private equity involves taking ownership stakes in private companies, often with the goal of improving operations or growth before an eventual sale or listing.
• Private credit is direct lending to companies, typically businesses that sit outside the reach of traditional bank lending or public bond markets.
• Private infrastructure covers long-life physical assets such as toll roads, energy networks and data centres, generally chosen for their stable, often inflation-linked income.
• Private real estate involves direct or fund-based ownership of property assets that aren’t held through listed property trusts.
• Venture capital funds early-stage, high-growth companies, often in technology or life sciences, where the potential for outsized returns comes with a higher risk of failure.

The mechanics of investing in private markets differ from public markets in a few important ways. Most private market funds operate on a capital call basis, meaning an investor commits a set amount of capital upfront but the manager draws it down over time as opportunities arise.

Returns are typically distributed back to investors as the underlying assets are sold or refinanced, rather than through the ongoing dividends or capital growth an investor might expect from a listed share. And because these assets aren’t traded on an exchange, there’s no daily market price. Valuations are set periodically by the fund manager, usually quarterly, based on independent assessments.

As previously noted, private markets were, until fairly recently, the domain of large institutions. Minimum investment sizes were high, lock-up periods were long and the due diligence required to select and monitor individual fund managers was significant.

That is changing. The emergence of evergreen and semi-liquid fund structures, wider distribution through wealth platforms and growing manager appetite for the retail and high net worth channel have all lowered the practical barriers to entry. For advisers, this means an asset class that was once out of reach most clients is increasingly something to actively consider as part of mainstream portfolio construction.

The move from public to private

The Australian public market has been shrinking, a trend that isn’t new or seemingly temporary. On 31 December 2024, the ASX had 1,989 domestic and foreign equity issuers listed, and while total market capitalisation sat near record highs, the number of listed companies fell by 145 between December 2022 and December 2024, the largest two-year decline since the recession of the early 1990s. That decline was driven by two factors: fewer new listings (66) and a larger number of delistings (211).^[2]

This pattern isn’t unique to Australia. In the United States, the number of publicly listed companies has halved over the past 25 years, and the London Stock Exchange has seen a 15% reduction in listings over the past decade. Companies across major markets are choosing to stay private for longer, or leaving public markets altogether, and Australia is following the same structural path^[2].

Meanwhile, capital has been flowing the other way. According to ASIC, the total value of Australian public equity and debt markets doubled over the ten years to 2024, while the value of private capital funds grew by 161% over the same period^[4], comfortably outpacing public market growth. That gap is the clearest evidence of where investor appetite has been heading.

The scale of this shift is visible globally and can be seen by following the money. Preqin expects the global alternatives market, spanning private equity, private credit, infrastructure, real estate, hedge funds and natural resources, to reach US$32 trillion in assets under management by 2030^[5].

The trade-off between public and private markets is relatively straightforward. Public markets offer daily liquidity, price transparency and a level of regulatory oversight that private markets don’t. Private markets offer access to a broader and growing opportunity set, often with less short-term volatility, in exchange for reduced liquidity and less frequent, manager-determined valuations. Private markets are typically uncorrelated with traditional public market investments, adding diversification benefits to the ‘pros’ column for private market investments. For advisers, understanding this trade-off is the starting point for deciding whether, and how much, private markets exposure suits a given client.

The benefits of private market investment

The case for private markets rests on more than access to a growing opportunity set. For advisers building portfolios, the core appeal comes down to a handful of practical benefits, and diversification sits at the top of the list.

Diversification

Public and private markets don’t move in lockstep, and that gap is where much of the diversification benefit comes from; there’s a significant dispersion of returns between investments and investment managers. What that means is the difference between the best-performing private market asset manager and the worst-performing is sometimes five times as much as the difference in performance in listed markets.

The dispersion in the private space can be thousands of basis points, whereas in the listed space the dispersion of returns typically would be closer to 100 basis points in fixed income and 200 basis points in equities.

Therefore, there are huge opportunities for investors to outperform. But equally, if they choose the wrong investment or fund, there is the chance that their investment could severely underperform.

A broader opportunity set

Diversification isn’t only about correlation. It’s also about access to a different universe of companies and assets altogether. Private equity invests in a distinct set of businesses that sit outside public indexes entirely, giving investors exposure to different capital structures, growth profiles and industries than they’d find on a listed exchange. With fewer listed companies and a narrower range of economic exposures on public markets, private equity has increasingly become a source of opportunities that public markets simply can’t replicate. The same holds for private credit and private real estate.

Private credit gives investors access to lending relationships with mid-sized businesses that sit outside the reach of bank balance sheets and public bond markets, a segment of the lending market with no real public equivalent.

Private real estate opens up a wider range of property types than the relatively narrow set found in listed property trusts, including sectors such as build-to-rent, data centre facilities and specialist industrial assets, with valuations tied more closely to the performance of the physical asset itself rather than to listed market swings.

Return potential and income characteristics

Private markets have historically offered the potential for enhanced returns relative to public market benchmarks, reflecting the illiquidity premium investors are compensated for locking up capital over longer periods, along with the value active managers can add through direct involvement in portfolio companies. Certain private market categories, particularly infrastructure and private credit, also offer income streams that are often more stable or contractually linked to inflation than their listed equivalents, which can be a useful complement for clients seeking defensive income alongside growth.

Resilience in volatile periods

Because private market valuations are set periodically rather than priced daily, portfolios with private markets exposure tend to show a smoother return path through periods of public market volatility. This shouldn’t be mistaken for an absence of risk, but it does mean clients are less likely to see the same day-to-day swings in reported value that come with a fully listed portfolio, which can support better client outcomes during periods of market stress simply by reducing the temptation to react to short-term noise.

Co-investment and fund of fund structures

Private markets aren’t a single asset class but a wide array. Each of these behaves differently, carries a different risk profile and offers the potential for substantial gains alongside the potential for substantial losses. What’s the best way for your clients to approach such a diverse and, in places, high-risk field?

GSFM’s private markets partner CI Global Asset Management believes that a multi-strategy approach delivers the best outcome for most investors, for several reasons.

Access to specialised expertise

The first is expertise. Private credit, private equity, venture capital and infrastructure each require a different skill set to assess properly, and a manager who understands how to evaluate a mid-market lending deal isn’t necessarily equipped to assess a venture capital opportunity or an infrastructure asset. A multi-strategy structure provides investors with access to specialists in each individual asset class, rather than relying on one team with broad but shallow knowledge spread across private markets as a whole.

Scale matters

To deliver genuine diversification across these asset classes, a multi-manager operator needs scale. Scale is what opens doors to deal flow in the first place, since the best private market opportunities are often oversubscribed and go to investors with the strongest existing relationships. It also translates into negotiating power on fees, since a large operator committing significant capital is in a far stronger position to negotiate favourable terms than a smaller investor or wealth adviser trying to access the same opportunity independently.

Due diligence takes considerable resources

Private markets don’t come with the same public disclosure requirements that apply to listed companies, which means the due diligence process looks very different. Assessing a manager or a deal properly requires background research into the companies involved and the people running them, none of which is readily available through public filings. A multi-strategy operator needs sufficient scale and resourcing to do this work properly, both at the point of initial investment and on an ongoing basis, since private market monitoring doesn’t (or shouldn’t!) stop once capital has been committed.

Co-investment as a complement

Within a multi-strategy structure, co-investment can play a useful additional role. This is the opportunity to invest directly alongside a fund manager in a specific deal, sitting next to the manager’s own fund capital in that transaction. Because there’s no second layer of fund fees on top of the deal, co-investment is typically a lower-cost way to add targeted exposure. These opportunities tend to go to those existing investors who bring more than capital, whether that’s scale, relationship history or the ability to move quickly. This is where the ecosystem argument becomes most relevant.

Why the ecosystem matters

Being part of a large, well-resourced multi-strategy structure gives investors access to networks and relationships that a smaller platform would struggle to replicate. Large managers see more deal flow than smaller ones, get better allocation in oversubscribed funds and can negotiate more favourable terms across fees, co-investment rights and reporting standards. This is because of the scale of capital they represent. For a client invested through a large, well-connected platform, that access comes built into the structure itself. 

Weighing the trade offs

None of this comes without cost. A multi-strategy structure generally adds an additional layer of fees on top of the fees charged by the underlying funds, and advisers need to be able to explain that layered cost clearly to clients and weigh it against the diversification, expertise and access benefits on offer.

For most clients new to private markets, a multi-strategy structure offers the more practical starting point because it combines specialised manager selection, diversification and ongoing due diligence in a single vehicle, backed by the scale needed to do all three properly.

The investor case in a nutshell

As more companies choose to stay private for longer, the case for looking to private markets for genuine diversification only gets stronger. This isn’t a niche addition to a portfolio. It’s a meaningful shift in where opportunity lie in today’s investment environment.

Private companies are typically valued only quarterly, which means they operate outside the daily noise of listed markets. That gives managers room to focus on improving operations and building long-term value in the underlying assets, rather than managing to a share price. Private credit and venture capital extend the opportunity further still, offering access to businesses and deals that simply don’t exist in public markets, from lending relationships with companies outside the reach of bank balance sheets to early-stage businesses years away from any listing.

Done well, with the right strategic asset allocation, a private markets allocation should make a portfolio more efficient overall, with the potential for higher returns and lower volatility. That’s not a new idea, as illustrated by the super fund allocations highlighted at the beginning of the article.

Direct access remains difficult for most investors, given the scale of the assets involved and the relationships needed to get in the door. But a growing range of private markets funds now invest across private markets opportunities, giving your clients a practical way in.

In short, the investment case for your clients can be summarised succinctly as follows: broader diversification, access to opportunities public markets can’t offer, and a structure that’s worked for institutions for decades, now increasingly available to a wider range of investors.

None of this replaces your careful client-by-client judgement. Private markets will suit some clients well and others not at all; you are best placed to weigh liquidity needs, time horizon and cost against the potential benefits before making a recommendation.

However, for those clients where a private markets allocation makes sense, the opportunity is clear. What sophisticated institutional investors have been doing for decades is now within reach of a much wider range of clients through the right fund structures. Private markets have moved from the margins of institutional investing to a core part of how capital is being allocated; now they can form part of your investment strategy to be used to benefit clients.

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Notes:
[1] Open Markets
[2] ASIC
[3] Investing.com
[4] Morningstar
[5]  Prequin

The information included in this article is provided for informational purposes only and is general advice only. It does not take into account an investor’s own objectives. The information contained in this article reflects, as of the date of publication, the current opinion of GSFM Pty Ltd and CI Global Asset Management and is subject to change without notice. Sources for the material contained in this article are deemed reliable but cannot be guaranteed. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions. All reasonable care has been taken in producing the information set out in this article however subsequent changes in circumstances may occur at any time and may impact on the accuracy of the information. Neither CI Global Asset Management, GSFM Pty Ltd, their related bodies nor associates gives any warranty nor makes any representation nor accepts responsibility for the accuracy or completeness of the information contained in this article.