New to private assets? Here’s what you need to know
Nathalie Krekis
Understanding the varied benefits of adding private assets to a portfolio is the first step on a journey. This is what to expect as an investor.
US policy changes create uncertainty
Over the next few years, individual investors are expected to increase their allocation to private markets, in some cases potentially approaching levels seen by various types of institutional investors. The compelling return history for private market investment is clearly a key motivator for these allocations. Schroders Capital research shows this is the main reason institutional investors enter private markets, and we have no reason to believe individual investors think any differently.
Over the past five years, smaller clients have also been offered more options to invest in private markets thanks to product development, changing regulations and technological advancements. New regulated fund structures such as the long-term asset fund (LTAF) in the UK, the European long-term investment fund (ELTIF) in Europe and UCI part II have been a game changer for accessing private markets, as well as for the increased use and further development of evergreen open-ended funds.
While promoting access to private markets with these new structures, regulators around the world have also been tightening rules to protect smaller investors. For example, in the UK, clients must confirm they meet certain investment criteria, undergo a suitability review by their financial advisor, and have a 24-hour cooling-off period to reconsider their decisions. The South African regulator requires investors to meet the criteria of a qualified investor as per the definition in section 96(1)(a) of the South African Companies Act, No. 71 or 2008 as amended, and/or to have a minimum of R1 million to invest in terms of section 96(1)(b) of the South African Companies Act.
Bain & Company estimates that by 2032, 30% of global assets under management could be allocated to alternatives, with a large chunk in private assets. While private investors currently allocate only up to 5% of their portfolios to private markets, we anticipate that the gap with institutional investors will narrow significantly over time and private markets will become commonplace.
The growing appeal of private markets
Of course, returns aren’t the only reason to use private assets, even if it’s high on the client agenda. Characteristics like stable income and genuine diversification, which have the potential to significantly enhance overall portfolio resilience, add to the appeal.
It is also about the opportunity set. In public markets, there is an increasing concentration of stocks, with more than 30% of the S&P 500 dominated by just a handful of companies, leading to a narrower range of options. In contrast, the number of private companies, and those staying private for longer, continues to grow. Private companies in the US with revenues of $250 million or more now account for 86% of the total. Additionally, the number of public listings in the US has more than halved over the past 20 years compared to the period from 1980 to 1999, highlighting the shift towards private market opportunities (see chart). In South Africa, the last five years have seen an average of 24 companies delist from local stock exchanges on an annual basis although 2024 showed a significant slowdown in this rate as only 11 companies exited the public market. The Johannesburg Stock Exchange is also highly concentrated with a few large companies dominating the index.
And it’s not just a matter of numbers. Private companies tend to be more agile and innovative in their operations compared to public companies, and they can access opportunities in sectors where public companies have limited or no reach. For example, the new US tariff policies are likely to affect both public and private companies, particularly those vulnerable to supply chain disruptions. However, private companies tend to be more flexible in restructuring their supply chains to adapt to these changes, potentially avoiding cost increases. Nevertheless, companies heavily impacted may still face higher costs, affecting profitability, and therefore valuations and deals.
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