Private Markets – A Growing, Alternative Asset Class
Private markets are experiencing significant growth and transformation, fueling investments in infrastructure, energy transition, and more. The evolving dynamics require investors and companies to rethink their strategies for sustained success. S&P Global provides market participants with the transparency, benchmarks, data and insights needed to evaluate risks, identify opportunities, and shape the future of capital.
Key Takeaways
- Private markets, also known as private capital markets, involve transactions among non-listed businesses. These transactions include debt and equity investments in private companies or assets, and real assets such as infrastructure and real estate.
- Private capital markets offer investors a compelling value proposition through historically enhanced returns, portfolio diversification benefits, access to innovation, active value creation opportunities, reduced volatility, and inflation protection mechanisms not readily available in traditional public markets.
- The main differences between private markets vs public markets are that private markets offer potentially higher returns and unique investment opportunities, but come with significant trade-offs including limited accessibility, lower liquidity, less transparency, higher fees and investment minimums.
- Private markets assets under management (AUM) totaled approximately $15 trillion in 2024, up from $11.87 trillion in 2023 and $10.89 trillion in 2022.
- Private markets are projected to reach more than $18 trillion by 2027.
- Private equity investments account for over half of private market investments, but private credit/debt and real assets are growing rapidly.
What are Private Markets?
Private capital markets, also known as private markets, refer to debt and equity investments in privately owned companies, as opposed to assets traded publicly, such as stock exchanges, the bond market, and commodities markets.
Private markets allow investors to put money into private companies in the form of private debt or private equity, or into real assets such as infrastructure, natural resources, or real estate. In return, investors receive a share in the company or asset/s and stand to make a positive return if the company performs well or the value of the asset(s) appreciates. Conversely, they also risk losing capital if the company fails or the assets depreciate. Private debt investors do not get a share in the company to which they are lending money, but they stand to gain from the interest charged on these loans.
Private markets help companies launch by giving them access to much-needed capital, while also providing investors with opportunities to achieve a potentially better return than they would through public markets.
Investors are increasingly turning to the private capital markets for better returns, as these investments have outperformed public securities in recent years.
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What is private capital?
What is private capital?
Private capital refers to investments made directly into private companies or buyouts of public companies that result in delisting from public exchanges. Unlike public markets where securities are traded openly on regulated exchanges with standardized disclosure requirements, private capital investments are negotiated directly between investors and companies, typically with limited public disclosure requirements and less regulatory oversight.
The private capital market has experienced remarkable growth over the past two decades. According to Preqin data, global private capital assets under management (AUM) reached approximately $13.7 trillion in 2023, compared to just $2 trillion in 2008, representing a compound annual growth rate of over 12%.
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What are the key components/asset classes within private capital markets?
What are the key components/asset classes within private capital markets?
The key components of private markets are:
- Private Equity: Private equity involves direct investments in established private companies or public companies taken private, typically through leveraged buyouts, growth equity, or turnaround strategies. PE firms actively manage these investments over a 3-7 year holding period, implementing operational improvements and financial engineering to create value before exiting through sale or IPO.
- Private Debt: Private debt encompasses non-bank lending to companies through direct loans, mezzanine financing, or distressed debt investments. These instruments typically offer higher yields than public fixed income markets to compensate for reduced liquidity and increased risk, while providing borrowers with more flexible terms and potentially faster access to capital.
- Venture Capital: Venture capital focuses on funding early-stage, high-growth potential companies, typically in technology and innovation sectors. VC investors provide not just capital but strategic guidance, accepting high failure rates across their portfolio companies in exchange for the potential of outsized returns from breakthrough successes.
- Private Real Estate: Private real estate involves direct ownership or investment in commercial, residential, or specialized property assets outside public markets. Investors seek both income generation through rents and capital appreciation, with strategies ranging from core (stable, income-focused) to opportunistic (higher-risk development or repositioning projects).
- Infrastructure: Infrastructure investments target essential physical assets like transportation networks, energy facilities, utilities, and communications systems. These investments typically offer stable, long-term cash flows with inflation protection, matching well with institutional investors' long-duration liabilities while providing essential services to communities.
- Natural Resources: Natural resources investments focus on assets like timberland, farmland, mining operations, and energy production. These investments can provide portfolio diversification through exposure to commodity cycles, inflation hedging, and sustainable yield generation, though they often require specialized operational expertise and environmental considerations.
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What are the key characteristics of private capital markets?
What are the key characteristics of private capital markets?
Historically, private capital markets have delivered higher returns than to public markets. According to Bain & Company's 2023 Global Private Equity Report, private equity has outperformed public markets by 1,000 basis points over a 20-year period.
Private capital market investments typically have lower correlation with traditional asset classes, providing diversification benefits that can reduce overall portfolio volatility.
Private markets provide exposure to emerging sectors, disruptive technologies, and innovative business models that may not yet be accessible through public markets.
Private capital investors often take active ownership roles, implementing operational improvements, strategic repositioning, and governance enhancements to drive value creation.
Private investments are typically valued quarterly rather than continuously, resulting in smoother return profiles and lower reported volatility compared to public markets.
Certain private capital segments, particularly real assets and infrastructure can provide effective hedges against inflation through cash flows that adjust with inflation.
Private capital markets inherently feature longer investment horizons (typically 5-10 years) with limited secondary market options, creating an "illiquidity premium" that compensates investors with potentially higher returns for committing capital long-term and accepting restricted exit opportunities.
Less Transparency and Regulation
Private capital markets operate with fewer disclosure requirements and regulatory oversight compared to public markets, allowing for more confidential transactions and strategic flexibility, but requiring sophisticated investors to conduct extensive due diligence to overcome information asymmetries.
Access to private capital markets has traditionally been restricted to institutional investors and high-net-worth individuals who meet accreditation standards, though recent innovations in fund structures and technology platforms are gradually democratizing access for a broader range of qualified investors
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Why is exposure to private capital increasing?
Why is exposure to private capital increasing?
Several factors are driving increased allocations to private capital markets:
In a persistent low-interest rate environment, institutional investors have increased allocations to private capital to meet return targets that traditional fixed income investments can no longer provide.
Extended company lifecycle in private markets
Companies are staying private longer. According to PitchBook data, the median time to IPO for venture-backed companies has increased from 4-5 years in the early 2000s to over 10 years today, shifting more of the value creation to private market investors.
The number of private companies far exceeds public companies. In the U.S., there are approximately 4,000 publicly listed companies compared to over 200,000 companies with annual revenues exceeding $10 million that remain private.
Regulatory changes have expanded access to private markets for a broader range of investors, including high-net-worth individuals and smaller institutions.
Digital platforms and innovative fund structures have reduced minimum investment thresholds and improved liquidity options, making private capital more accessible.
Private capital offers direct influence over portfolio companies' environmental, social, and governance practices, appealing to investors seeking impact alongside financial returns.
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Who invests in the private capital markets?
Who invests in the private capital markets?
The private capital markets investor base has expanded significantly and now includes:
Institutional investors
- Pension funds (public and private)
- Sovereign wealth funds
- Insurance companies
- Endowments and foundations
Financial institutions
- Banks
- Asset managers
- Fund of funds
Corporations
- Strategic investors
- Corporate venture capital arms
Wealth management channels
- Family offices
- High-net-worth individuals
- Private banks
- Retail investors (through newer access vehicles)
Private Market Asset Classes
There are several private markets asset classes that investors can use to access private companies, including private equity, private credit/debt, and real assets.
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Private Equity
Private Equity
Private equity refers to the purchase and sale of ownership stakes in private companies. Private equity investments are made by private equity firms that raise investment funds pooling money from investors and use it to buy stakes in private companies.
There are several different types of private equity, including:
- Fund of funds
- Growth equity
- Leveraged buyouts (LBOs)
- Mezzanine capital
- Real estate private equity (REPE)
- Venture capital (VC)
Private equity vs private markets: what’s the difference?
Private equity is a subset of private markets. Private markets broadly refer to investments made in assets not available on public exchanges, including private companies, debt and real assets, while private equity specifically refers to investments made in private companies.
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Private debt
Private debt
Private debt is a type of private market asset class that refers to the purchase and sale of loans and debt securities in private companies. It is often used interchangeably with private credit, which is actually a subset of the private debt asset class. There are several forms of private debt, including:
- Direct lending – a form of financing provided directly by a lender to a borrower, without the involvement of a bank or other intermediary. Direct lenders typically focus on providing loans to small and medium-sized businesses (SMBs) and borrowers considered speculative/non-investment grade.
- Distressed debt – provided directly by a lender to a borrower, without the involvement of a bank or other financial intermediary. Direct lenders typically focus on providing loans to small and medium-sized businesses (SMBs) and other borrowers considered to be below investment grade.
- Mezzanine debt – a combination of senior debt and equity, often used to finance leveraged buyouts or other transactions where the borrower's credit rating is not strong enough to qualify for senior debt.
- Private debt fund of funds – a type of investment fund that invests in other private debt funds and offer investors the opportunity to gain exposure to a diversified portfolio of private debt investments, without having to invest directly in individual debt.
- Venture debt – provided to early-stage companies by venture capital firms, it is typically used to bridge the gap between a company's initial round of funding and its next round of financing. Venture debt lenders typically have a lower interest rate than traditional banks, but they also have a higher risk of default.
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Real Assets
Real Assets
Real assets investing is the purchase of physical assets, such as real estate, infrastructure, and natural resources. Real assets can provide investors with stability and long-term returns, as they are not as volatile as traditional financial assets such as stocks and bonds.
There are several different types of real asset investments, including:
- Real estate: the purchase of property such as offices, retail space, apartments, and industrial buildings. Private equity real estate investments can provide investors with stability and long-term returns, as they are not as volatile as traditional financial assets such as stocks and bonds. Real estate investments can be made through private real estate funds or public real estate markets.
- Infrastructure: the purchase of transportation networks (e.g. roads, bridges, airports), communication networks (e.g. telecommunications networks, data centers), or utility systems (e.g. water treatment plants, energy pipelines). Private market infrastructure investments can provide investors with stability and long-term returns, as they are not as volatile as traditional financial assets such as stocks and bonds. Infrastructure investments can be made through private infrastructure funds or public infrastructure markets.
- Natural resources: the purchase of commodities such as oil, gas, coal, gold, silver, and copper. Private market natural resources investments can be made through private natural resources funds or public natural resources markets. Each investment type has its unique characteristics and benefits. Natural resources can provide investors with stability and long-term returns, as they are not as volatile as traditional financial assets such as stocks and bonds.
What is Private Market Investing?
Private market investors are typically institutional investors such as pension funds and insurance companies. Private market investments are typically made via a private markets fund arranged as limited partnerships, with investors referred to as Limited Partners, or LPs, and investment managers referred to as General Partners, or GPs.
The Private Markets Lifecycle
A typical private equity fund’s lifecycle is between seven and 10 years, although the exact timeline can vary depending on a fund's investment strategy and market conditions. It typically consists of five stages:
- Fundraising
- Capital deployment
- Portfolio monitoring
- Portfolio administration
- Value realization
Once the private fund has been raised, the GP will begin capital deployment: investing in portfolio companies. These companies can be at any stage of development, from early-stage startups to mature businesses.
During portfolio monitoring, a GP will work closely with the portfolio companies to help them grow and improve their performance. This could involve providing strategic guidance, operational support, and further capital.
Portfolio administration involves managing the day-to-day operations of a private equity fund's portfolio, including tracking investment performance, monitoring portfolio companies, managing capital calls and distributions, preparing financial reports, and complying with regulatory requirements.
Value realization, also known as an exit, happens once a GP believes that a portfolio company has reached its full potential. An exit is typically done through an IPO, sale to another company, or recapitalization.
Once a GP has exited all of the investments in a fund, the fund is liquidated and the proceeds are returned to investors.
What are some of the potential benefits of private markets investing?
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Why invest in private markets?
Why invest in private markets?
Private markets are appealing to investors for several reasons, including the potential for higher returns, the ability to diversify a portfolio and reduce overall portfolio volatility, and to access unique investment opportunities not available on public markets, such as investing in early-stage companies, real estate and private debt.
Risks associated with private markets include limited liquidity, lack of transparency/disclosure, and high investment minimums.
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For Investors
For investors
- Higher potential returns. Private equity has typically outperformed public markets over a long term time horizon.
- They offer investors the opportunity to get in on the ground floor of promising companies.
- Diversification. The bulk of the economy consists of public market investments, so the private markets offer access to a alternative sources of risk and return.
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For companies
For companies
Private investment can provide vital capital for companies, including start-ups seeking growth. The decline in both the availability of bank finance and public companies leaves more private companies seeking investment capital.
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For governments
For governments
- Help governments to meet objectives on infrastructure and net zero initiatives.
- Allow governments to create jobs while simultaneously reducing public spending.
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How to invest in private markets?
How to invest in private markets?
Private market investments can be made directly or indirectly. Indirect investments are typically made through funds such as venture capital funds, private equity funds, real estate funds, and private debt funds. These funds are typically open to a wider range of investors, including retail investors, and are therefore the most common method of private market investing. Direct investment in private markets is typically only available to accredited investors, who have a high net worth and/or income.
Private Markets Regulation
How Are Private Markets Regulated?
In the U.S., debt and equity investments in private companies are subject to Regulation D of the Securities and Exchange Act of 1933. Codified in 1982, Regulation D prescribes the qualifications needed to meet exemptions from registration requirements to issue securities. Generally speaking, they are that all sales within a certain time period that are part of the same Reg D requirement must be treated as one offering; information and disclosures must be provided; there must be no general solicitation, and the securities being sold contain restrictions on their resale.
Private market funds targeting investors in Europe are subject to the Alternative Investment Fund Manager Directive (AIFMD), which was drawn up in response to the global financial crisis and implemented in 2013. It sets the standards for marketing a private markets investment fund, remuneration policies, risk monitoring and reporting as well as overall accountability. Its primary goal is to protect investors an reduce some of the systemic risk these funds can pose to the economy.
A second iteration of the directive, introduced in 2024, states that AIFMs cannot grant loans with a notional aggregate value of 20% of a fund’s total capital to a single borrower that meets a range of requirements. This rule may affect private credit managers.
Private Markets vs Public Market Investing
What are the differences between private markets vs public markets?
Private markets and public markets represent fundamentally different investment ecosystems with distinct characteristics that significantly impact investor experience. Private markets are exclusively accessible to accredited and institutional investors who meet specific wealth or income thresholds, creating a more restricted investment environment. This limited accessibility is paired with notably lower liquidity, as private investments typically involve multi-year lockup periods and lack established secondary markets, making it difficult for investors to exit positions quickly without potentially significant discounts. Additionally, private markets operate with considerably less transparency, as private companies aren't required to disclose financial information publicly, and investment performance data is often limited and reported with significant delays compared to the real-time pricing and standardized reporting available in public markets.
The regulatory environment further distinguishes these markets, with private markets subject to fewer disclosure requirements and regulatory oversight compared to the comprehensive regulatory framework governing public markets through entities like the SEC. This regulatory difference is reflected in the cost structure as well, with private markets typically commanding higher fees (often following the "2 and 20" model of 2% management fees plus 20% performance fees) and substantial investment minimums frequently starting at $250,000 or higher. Despite these higher barriers to entry, private markets have historically delivered superior returns, with U.S. private equity generating average returns of 10.5% from 2002-2022 compared to the S&P 500's 9.8% during the same period—a premium that investors must weigh against the additional constraints and costs.
While public markets remain significantly larger with an approximate market capitalization of $125 trillion in 2022, private markets have grown substantially to reach approximately $11.87 trillion in the same year, reflecting increasing investor interest in accessing opportunities outside traditional public exchanges. This growth has been driven by several factors, including the declining number of public companies, businesses staying private longer, and institutional investors seeking diversification and potentially higher returns through private market allocations. The fundamental tradeoff between these market types involves balancing the greater accessibility, liquidity, and transparency of public markets against the potentially higher returns, diversification benefits, and access to unique investment opportunities available in private markets—considerations that investors must evaluate based on their specific investment objectives, time horizons, and risk tolerances.
Private vs public markets: a quick comparison
Private Market Size
How big are private markets in terms of assets under management (AUM)?
As of 2023, private markets, excluding venture capital andhedge funds, assets under management (AUM) totaled more than $12.4 trillion globally as of 2023, up from $10.7 trillion at the end of 2022. There was an additional $3 trillion in dry powder – cash committed by investors but has yet to be allocated to specific investments.
Private markets growth can be attributed to increasing demand from investors for high-yield and private equity investments, as well as the growth of private credit/debt markets.
Private Market AUM by Region
More than half of global private markets AUM, over $7 trillion, is invested in North America, followed by Europe with $2.67 trillion and Asia-Pacific with $1.38 trillion.
Private Market AUM by asset class
Private equity remains the largest private market asset class with global AUM of $5.3 trillion as of 2023, followed by private debt ($1.63 trillion) and real assets ($4.52 trillion).
Source: Preqin
What is dry powder?
‘Dry powder’ refers to capital that has been raised by a private market firm but not yet invested. There was a record amount of dry powder in private markets in 2023, estimated to be around $3.12 trillion. Private equity dry powder is forecasted to be $3.21 trillion in 2024, around 11% higher than the December 2022 total of $2.24 trillion.
Private Market Trends and Outlook
Private markets are projected to reach more than $15 trillion by 2025, and more than $18 trillion by 2027. The strong growth of private credit/debt, real assets, and secondary markets is expected to continue.
Stay informed with the latest developments in private markets. Our private markets news offers timely updates, expert analysis, and in-depth coverage of private equity, private debt and real assets.
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Private equity outlook
Private equity outlook
Many of the private equity trends seen in 2023 are expected to continue in 2024, including slow fundraising, elevated interest rates, a macroeconomic outlook clouded by conflict and geopolitical tension, according to S&P Global Market Intelligence’s private equity 2024 outlook.
Private equity exits fell sharply from 2022 to 2023, but there were signs of a rebound in late 2023. his is positive news for PE markets, the difficult deal environment won’t disappear overnight and as of November 2023, the number of PE entries were tracking for their lowest annual total since at least 2019. There is, however, a record $2.59 trillion in record dry powder waiting to be committed.
Creative deal structures and a relentless focus on value creation in private equity portfolios could be critical in the coming year.
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Private debt outlook
Private debt outlook
- Private debt markets are projected to continue growing, albeit at a slower pace, in 2024, due to uncertain interest rates and the possibility of a US recession.
- Larger issuers, middle-market, and private credit CLOs are expected to intensify activity, with alternative investment funds (AIFs) expanding in both number and leverage. Business development companies (BDCs) may encounter volatile valuations, and certain portfolio companies could struggle due to earnings pressure and higher interest costs. Speculative-grade issuers may have trouble servicing debt in the face of rising costs and strained earnings, which will turn challenges for borrowers into opportunities for lenders.
- Both General Partner (GP)- and Limited Partner (LP)-led secondary strategies are expected to be in high demand, and valuations in private markets may become more volatile due to the macroeconomic environment.
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Real assets outlook
Real assets outlook
Infrastructure and real estate fundraising fell from 2022 to 2023. Global infrastructure fundraising hit its lowest level in six years, while real estate fundraising and deal flow decreased to new post-COVID lows.
For real estate, higher interest rates, weak office demand and falling property valuations pose significant risks in 2024. Office and retail real estate could come under stress following the rise of home working since the pandemic, pushing workers away from urban centers. An upcoming wave of refinancing could further impact the value of investments and transaction activity.
Rising interest rates and an economic slowdown have made capital more expensive and scarce, driving an overall decline in infrastructure fundraising, but global megatrends such as digitalization, decarbonization and deglobalization are driving new infrastructure investment opportunities.
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