Private Markets – What Investment Managers Need to Do Now

As private capital reshapes global finance, the challenge is no longer access. It’s mastering complexity, data, and disciplined execution

By Paul Taylor

Private markets (covering private equity, venture capital, private debt, infrastructure, and real assets)  have transformed from a niche allocation for institutional investors into a mainstream pillar of global capital markets.   

Over the past 20 years, the constant drive for yield, diversification, and long-term value creation has driven a steady migration of capital away from public markets and into private vehicles.  

According to Preqin, global private market assets under management (AUM) surpassed $13 trillion in 2024, up from just $4 trillion a decade earlier – ie over a 300% increase. 

As the line between public and private markets continues to blur, it is now essential for managers to understand what drives this expansion and what the associated risks are.   

This article explores what private markets are, their key advantages and drawbacks, and how investment managers can adapt to an increasingly complex environment.  

Private markets refer to investments in companies, assets, or funds that are not publicly traded on an exchange. Instead, transactions occur through private negotiations, direct investments, or limited partnership structures. 

There are five main types of private markets: 

1. Private Equity (PE) – Investments in established private companies, often involving buyouts, recapitalisations, or growth capital. PE firms typically acquire controlling stakes and seek to enhance operational performance before exiting via sale or IPO. 
2. Venture Capital (VC) – Focused on early-stage, high-growth startups, VC investors provide capital in exchange for equity, typically with a higher risk-reward profile. 
3. Private Credit / Private Debt – Lending directly to companies outside traditional banking channels. This includes mezzanine financing, distressed debt, and direct lending. 
4. Infrastructure – Long-term investments in physical assets such as energy, transportation, and digital networks. 
5. Real Assets / Real Estate – Direct ownership or funds investing in tangible assets like real estate, agriculture, and commodities. 

Private market valuations are periodic and will often rely on models or appraisals. This is different to public markets, which are determined continuously through trading. This different structure offers both insulation from short-term volatility, but it does create a challenge for transparency and liquidity. 

Why are investors turning to private markets?  

The appeal of private markets stems from several intertwined structural, macroeconomic, and behavioural drivers. 

• Return Enhancement and Alpha Generation - Over the past two decades, private equity has consistently outperformed public equity benchmarks on a net-of-fees basis. According to Cambridge Associates, US private equity funds have delivered annualised returns of approximately 13–15%, compared to 9–10% for public equities. While distribution among managers is significant, the ability to actively influence portfolio companies, leverage capital efficiently, and pursue operational improvements offers investors a potential source of alpha unavailable in passive public markets. 

• Diversification and Low Correlation - Private market assets are often less correlated with public equities and bonds, which provides enhanced portfolio diversification. The illiquidity premium (or the compensation investors demand for locking up capital) can enhance total returns over time. For long-term allocators such as pension funds, endowments, and sovereign wealth funds, this trade-off is more often than not acceptable. 
• Access to Innovation and Growth - A significant portion of corporate growth and innovation now occurs before a company ever reaches the public markets. In 2000, there were roughly 7,500 publicly listed companies in the US, but by 2024, that number had fallen below 4,000. Meanwhile, the number of private equity-backed companies has more than doubled, which means that private markets offer exposure to these growing and dynamic enterprises that may not yet (or even never) pursue a public listing. 
• Structural and Regulatory Shifts – Following the  Global Financial Crisis of 2008-2009, global regulations constrained banks’ ability to lend and hold riskier assets, which opened the door for private capital providers to fill the gap. Additionally, low interest rates over the 2010s drove investors toward higher-yielding illiquid assets. Even as rates increase, the structural underpinnings of private markets of flexible capital, patient ownership, and operational engagement still remain compelling. 

What are the drawbacks? 

Despite their appeal, private markets come with significant challenges and risks that investment managers must understand and take into account when or if investing. 

• Illiquidity and Long Time Horizons - Private investments often require commitments of 7–12 years, with capital called over time and distributed upon exit. This illiquidity can create portfolio management challenges, particularly for investors with shorter liabilities or unexpected liquidity needs. 

• Opaque Valuations and Limited Transparency - Valuation practices vary widely across managers, and infrequent pricing can obscure true asset values, especially during volatile markets. This opacity makes risk measurement, benchmarking, and performance attribution more complex and unreliable than in public markets. 
• High Fees and Complexity - The traditional “2 and 20” fee structure (ie 2% management fees and 20% carried interest) remains common, although there is greater pushback from investors regarding this.  These layered fund-of-funds structures can further erode net returns, and furthermore, complex partnership agreements and waterfall provisions require robust due diligence and legal expertise. 

• Dispersion of Returns - Unlike public markets, where index replication is feasible, private markets exhibit extreme dispersion between top and bottom-quartile managers. Data from Burgiss show that top-quartile PE funds can outperform bottom-quartile funds by more than 1,000 basis points annually. Manager selection and access, therefore, play a decisive role in achieving outperformance. 
• Macroeconomic Headwinds - The private market ecosystem has benefited enormously from cheap debt and rising valuations. Higher interest rates, slowing global growth, and tightening exit markets (especially IPOs) could constrain returns. As of 2025, many managers are grappling with extended holding periods, declining deal activity, and increased refinancing risk. 

After a decade of strong growth, private markets face a more challenging macro backdrop. 

Fundraising slowed in 2024–2025 as limited partners (LPs) reached allocation limits or the so-called “denominator effect” caused by falling public market valuations. 

Exit activity has declined, with IPO windows largely closed and trade buyers more cautious. This creates pressure on general partners (GPs) to extend fund lives or pursue continuation vehicles. 

Valuation resets are occurring, particularly in venture capital and growth equity, where inflated 2021 valuations have yet to be fully marked down. 

However, private credit has emerged as a bright spot, benefiting from higher base rates and demand for non-bank financing. 

The sector is therefore at a crossroads. This means while short-term challenges persist, the long-term structural case for private capital remains intact.  

The question is how investment managers can navigate this transition effectively. 

For both asset owners and fund managers, adapting to the evolving dynamics of private markets requires a strategic recalibration. 

• Enhance Transparency and Reporting - Investors are demanding greater visibility into portfolio performance, valuation methodologies, and ESG metrics. Managers must invest in data infrastructure and adopt standardised reporting frameworks such as the Institutional Limited Partners Association’s Private Markets (ILPA) templates or their valuation guidelines.  Regular, data-driven communication builds trust and can help attract capital in an increasingly competitive fundraising environment. 
• Embrace Technology and Analytics - Digitisation is reshaping private market operations. From deal sourcing to performance monitoring, artificial intelligence, machine learning, and natural language processing are transforming how firms identify opportunities and assess risk.  Investment managers should develop data analytics capabilities to gain an edge in underwriting, portfolio optimisation, and secondary market pricing. Those who fail to adopt technology risk falling behind more agile competitors. 
• Diversify Strategies and Vehicles - The era of “plain vanilla” buyout funds is giving way to a broader set of strategies, including continuation funds, NAV-based lending, secondaries, and private credit hybrids.  Managers can attract new investors by offering customised solutions, such as open-ended or semi-liquid structures designed for high-net-worth and retail investors. The democratisation of private markets, which has been helped by digital platforms and regulatory changes, represents a significant growth frontier. 
• Strengthen ESG Integration and Impact Credentials - Environmental, social, and governance (ESG) considerations are now central to institutional decision-making. Private market investors, with their active ownership model, are uniquely positioned to drive change within invested companies. But this means that managers must go beyond box-ticking by ensuring that sustainability metrics, value creation plans, and exit strategies are embedded within the companies they invest in. Authentic ESG integration not only mitigates risk but can also unlock new sources of value creation. 
• Focus on Value Creation and not financial engineering - In a higher-rate world, reliance on leverage to drive returns is less viable. Operational value creation, such as improving profitability, digital transformation, and strategic repositioning, will be the key differentiator.  Managers must build operational expertise across sectors, deploying proven operating partners and sector specialists. The ability to transform businesses, rather than merely buy and sell them, will separate winners from losers..  

• Prepare for Liquidity Solutions and Secondary Market Evolution - As investors seek flexibility, the secondary market for private assets is expanding rapidly. Transaction volumes exceeded $130 billion globally in 2024, as LPs sold fund interests and GPs created continuation funds. Managers should proactively design liquidity solutions covering secondary sales, NAV financing, or hybrid structures to accommodate investors’ evolving needs. 
  
  

The long-term outlook 

Despite cyclical headwinds, the growth story of private markets remains intact.  Institutional allocations continue to rise with the continued trend towards the retail market, which could unlock trillions in new capital over the next decade. 

Private credit is poised to play an increasingly central role as traditional banks retreat. 

Infrastructure and energy transition assets will attract growing demand, fueled by global decarbonization and digitalisation imperatives. 

Asia-Pacific and emerging markets are expected to drive the next wave of expansion, offering diversification beyond mature Western economies. 

However, success will require discipline. Investors must remain selective, favouring managers with proven operational capabilities, transparent governance, and the ability to navigate cycles. 

Private markets are no longer the alternative or something done by a specific group. They are the new mainstream of global investing.  

As they mature, the traditional advantages of opacity, illiquidity, and exclusivity are being replaced by demands for transparency, liquidity, and accountability. 

The next ten years will test the adaptability of investment managers. Those who embrace technology, integrate ESG, deliver genuine value creation as well and align more closely with investors’ needs will thrive. Those who rely on financial engineering and legacy models may struggle. 

In the long run, private markets offer a compelling promise, which is the ability to pair long-term capital with long-term vision. In a world of short-term noise and volatility, that remains an enduring and valuable proposition but only for those equipped to seize it.