When it comes to investing, there’s a whole world beyond public stocks and bonds. Private market investments, for example, can offer exciting opportunities.
These are investments made into companies that are not publicly traded on stock markets. They can take the form of private equity, private debt or venture capital, for instance. Private market investments are a subset of alternative investments. These assets can play a crucial role in building a robust and diversified portfolio. Here's a brief guide to help you assess if they’re right for you.
Types of Investor Profiles
If you fit one of the categories below as an individual investor, private market investing could be the ideal next step for you.
High net worth individuals
Many alternative investments have high minimum investment requirements, making them more accessible only to wealthy individuals. Elkstone, for example, typically accommodates investments starting from €25,000, although the minimum can be higher.
Sophisticated investors
Given the complexity of many alternative investments, they’re best suited for investors with a solid understanding of financial markets and risk management, or for those who can retain specialist investment advisors to guide them on their private investment journey.
Long-term investors
Many private market investments are illiquid and can have lock-up periods from quarterly to 10 years or more – they’re most appropriate for investors with a long-term investment horizon.
Medium-term investors
Many newer private equity, credit or infrastructure funds have shorter lock-up periods of two to three years, and also allow you to draw out funds once a quarter. These can be ideal for those with a medium-term investment horizon.
Risk-tolerant investors
While alternatives can help manage overall portfolio risk, individual private market investments may carry higher risks than traditional assets.
Investors seeking diversification
Private market investments can provide valuable diversification benefits if you want to reduce your portfolio's correlation with traditional markets. These categories are not mutually exclusive, especially when it comes to the most suitable candidates. For instance, a high-net-worth individual with a long-term investment horizon and a sophisticated understanding of financial markets could certainly benefit from private market investing.
Investment considerations
The key to successful private market investing lies in finding the right balance—between risk and return, liquidity and long-term growth, and complexity and simplicity. This balance will be different for each investor, so make sure you get personalised advice from experienced professionals.
Portfolio allocation
The appropriate allocation to alternatives will depend on your circumstances, but it’s usual for investors to allocate up to 50% of a portfolio to alternatives.[1] More experienced and yield-hungry investors often allocate even higher percentages.
Risk tolerance
Carefully assess your risk tolerance and ensure you understand the potential downside of each private market investment.
Investment goals
Align your private market investments with your overall investment objectives, whether those involve capital preservation, income generation or long-term growth.
Liquidity needs
Consider your liquidity requirements—ensure tying up your capital in illiquid investments won't cause you financial stress.
Due diligence
Thoroughly research and understand each private market investment before committing capital. Consider working with experienced advisors with deep knowledge of the alternative investment landscape.
Diversification within alternatives
Don't put all your private market investment eggs in one basket. Spread the risk by diversifying across different types of alternatives.
Elkstone is Ireland’s leading alternative investments firm, specialising in private markets. We offer a gateway to diversified wealth expansion through unique access to global and local investment opportunities, specialising in non-traditional market investments such as real estate, venture, private equity, private credit and global hedge funds.
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