Private markets are moving from a niche institutional strategy to a core portfolio allocation as fewer companies choose to list on public markets, according to GSFM.
The firm’s chief executive, Damien McIntyre, said structural shifts in global capital markets had reshaped the investment landscape, with investors relying solely on listed equities now accessing a smaller share of available investment opportunities.
“Private markets are no longer a niche allocation reserved for large institutions. More companies are choosing to stay private for longer, meaning investors relying solely on listed markets are accessing a smaller proportion of the global opportunity set.”
The expanding universe of private assets, spanning private equity, private credit, infrastructure, real estate and venture capital, has also created new opportunities for diversification, McIntyre said.
Investing across multiple private market asset classes could help build more resilient portfolios because returns were driven by different factors than those affecting listed markets.
“By investing across all private markets, it is possible to build more resilient portfolios by accessing investments that are driven by different fundamentals to listed markets.”
He said demand for private markets accelerated following the market volatility of 2022, when investors were reminded that traditional diversification strategies did not always provide the protection they expected.
“The market volatility experienced during 2022 reminded investors that traditional diversification doesn’t always work as expected,” he said.
Unlike listed companies, which McIntyre noted often operate under an intense 90-day reporting cycle, private businesses can focus on creating long-term value rather than responding to short-term market sentiment.
“Private market investments tend to be valued on underlying business fundamentals rather than daily market sentiment, reducing the impact of short-term noise and allowing managers to focus on long-term value creation,” he said.
He added that private ownership also gave management teams greater flexibility to improve operations and invest for growth over several years instead of managing quarterly earnings expectations.
As private markets mature, however, McIntyre argued that choosing the right managers would become increasingly important because the performance gap between top-performing and average managers is much wider than in listed markets.
“The dispersion between top-performing and average managers in private markets is significantly wider than in listed markets, making manager selection a key driver of long-term returns.”
Despite the increasing role of private assets, McIntyre stressed they should complement, rather than replace, listed investments.
“The role of private markets isn’t to replace listed investments but to complement them, improving diversification and potentially increasing long-term risk-adjusted returns.”
