Why investing in private markets matters

Westmount has long supported the idea that individual investors should embrace private investments, and it seems the rest of the investing world is finally catching up.

Demand for private credit and private equity—the two main areas of private market investing—has grown significantly over the last few years. At the start of 2024, the size of the private credit market (the private market counterpart to publicly traded bonds) was approximately $1.5 trillion, up from $1 trillion in 2020. It is estimated to reach $2.8 trillion by 2028.¹

Meanwhile, the global private equity market (the counterpart to public stocks), which was $4.7 trillion² at the beginning of 2021, is expected to grow upwards of $5.8 trillion this year.³

What explains this resurgent demand? In our opinion, the main draw of these investments is their attractive risk-return profile. For example, recent research has shown that, over time, private credit outperforms the public liquid bond market by 3-4% annually⁴, while the private equity market outperforms public market stocks by 4-6% annually.⁵

Some of this outperformance is attributable to the illiquid nature of these investments. Investors receive an “illiquidity premium” as compensation for having to hold their positions for a long time.

However, we also feel that some of the excess performance over public markets is due to the prices paid for these assets. For example, portfolio financing company Dawson recently found that private companies have been trading at a roughly 25% discount to the broader U.S. public markets, while private equity-backed companies experience, on average, a 28% “pop” in value upon exiting (via IPO or acquisition).⁶

Catalysts for Growth and Pathways to Access

A decade ago, private investment opportunities were typically only accessible through limited partnerships, where long lockups and high minimums were the norm. Today, we can access the same opportunities through registered interval funds, which price daily and allow an investor to be fully invested immediately.

We have spent the last several years searching for who we believe to be the best managers and funds in this space and have built a modern, semi-liquid alternative investment portfolio to allow our clients to gain access to these investments, which we feel will enhance returns while diversifying risk.

We are excited about the upcoming opportunities that we believe these markets will offer our clients, and encourage you to ask your advisor about the alternatives in your current portfolio.