A Guide to the Private Markets
What are the risk/return tradeoffs of private markets?
VC Growth: Includes all funds with a strategy of venture capital or growth equity.
SMID US Equities: Any buyout fund smaller than a certain fund size that depends on the vintage year and is primarily investing in the United States.
US Mega/Large: Any buyout fund larger than a certain fund size
that depends on the vintage year and is primarily investing in the United States
ROW Equity: Includes all buyout, growth, and venture capital-focused funds, with a geographic focus outside of North America and Western Europe.
Real Estate: Any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures.
Private Equity: A broad term used to describe any fund that offers equity capital to private companies.
MSCI World Index: The MSCI World Index tracks large and mid-cap equity performance in developed market countries.
CS Leveraged Index: The CS Leveraged Loan Index represents tradable, senior-secured, U.S. dollar-denominated non-investment grade loans.
Credit: This strategy focuses on providing debt capital.
BofA ML High Yield Index: The BofAML High Yield index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.
Definitions

Source: Hamilton Lane Data, Bloomberg (May 2023)

Source: Hamilton Lane Data, Bloomberg (December 2022)

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As previously mentioned, private equity and private credit outperformed their respective public market counterparts over the last two decades. Data also reveals that in the lowest-returning five-year period from 1995–2022 neither private equity nor private credit experienced negative performance.

1995-2022

Lowest 5-Year Annualized Performance

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Investors have increased allocations to a more diverse lineup of investments, including alternatives, to meet return expectations. 

Going forward, we believe private markets will have an increasingly important role to play in meeting investors’ portfolio objectives. The chart below puts this in perspective.

Investor Allocation Seeking to Earn 8.0%

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While the charts suggest investors may want to consider making an allocation to the private markets, there are also tradeoffs. The biggest of those, as we’ve discussed, are the long-term nature and illiquidity associated with the private markets. It often takes considerable time – years, not months – for private investments to realize their value. As such, investors should approach the private asset class with long time horizons.

Individuals accessing the asset class for the first time should make sure they have enough liquidity within the rest of their portfolio to support a long-term private investment. To encourage a long-term commitment, many investors use evergreen funds within their retirement vehicles, intending to let the investment appreciate until retirement.

Disclosures

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A Guide to the Private Markets
What are the risk/return tradeoffs of private markets?

Disclosures

While the charts suggest investors may want to consider making an allocation to the private markets, there are also tradeoffs. The biggest of those, as we’ve discussed, are the long-term nature and illiquidity associated with the private markets. It often takes considerable time – years, not months – for private investments to realize their value. As such, investors should approach the private asset class with long time horizons.

Individuals accessing the asset class for the first time should make sure they have enough liquidity within the rest of their portfolio to support a long-term private investment. To encourage a long-term commitment, many investors use evergreen funds within their retirement vehicles, intending to let the investment appreciate until retirement.

Investor Allocation Seeking to Earn 8.0%

Going forward, we believe private markets will have an increasingly important role to play in meeting investors’ portfolio objectives. The chart below puts this in perspective.

Investors have increased allocations to a more diverse lineup of investments, including alternatives, to meet return expectations. 

1995-2022

Lowest 5-Year Annualized Performance

As previously mentioned, private equity and private credit outperformed their respective public market counterparts over the last two decades. Data also reveals that in the lowest-returning five-year period from 1995–2022 neither private equity nor private credit experienced negative performance.