Private Market Investing Explained in 2025: How It Works, Risks & Returns

What Is Private Market Investing?

Private market investing refers to investing in assets that are not traded on public exchanges¹, which are typically offered in the form of equity or debt. This generally encompasses private equity (ownership stakes in private companies) and private debt (loans to private entities), among other alternative assets. Private market opportunities involve transactions negotiated privately, which is in contrast to public markets where securities are listed on public exchanges and made available to retail investors.  

A small fraction of companies list on public markets – in fact, less than 1% of U.S. companies with employees are publicly trade¹.  The vast majority of U.S. companies remain private, meaning private markets offer a much larger universe of potential investments although usually at smaller, earlier stages. Traditionally, access to private investments is often limited   to certain qualified or high-net-worth investors​².

Private vs Public Markets: Differences Explained

Source: Investopedia 

Private and public markets have fundamental differences that may affect investors in variety of ways: 

• Accessibility: Public markets are open to anyone – any individual can buy a share of a publicly listed company. In contrast, private market investments are typically limited to qualifying accredited investors, determined by regulatory requirements¹.  

• Liquidity: The liquidity of public markets is high – investors can readily buy or sell shares on an exchange at any time. In contrast private markets are highly illiquid by nature; there is no public exchange for private equity or debt stakes, so investors usually must hold their positions until an exit event, such as a sale or IPO, which could be years away​². Trading in public markets also means prices adjust continuously with market sentiment, whereas private asset valuations are updated infrequently. 

• Transparency and Information: Public companies face strict disclosure requirements and must publish audited financial statements and regular reports, making information transparent and easily accessible​². By contrast, private companies are not obligated to disclose nearly as much information. Information on private investments is available only to those directly involved, resulting in far less transparency for outsiders​¹. As a result, researching a private company’s performance or risk is much harder​², and due diligence requires significant effort that often involves access to internal data that is unavailable to the public or average retail investor. 

• Size of Investments and Companies: Public market investments can be very small -you can buy a single share of stock with no minimum. Private investments often have high minimum entry points that can be  tens or hundreds of thousands of dollars, or more​¹. Likewise, public companies tend to be large, established enterprises, whereas private companies generally range from early-stage startups to midsize firms. Investors in private markets often get to finance companies at earlier growth stages, which could  be both an opportunity and a risk. 

In short, public markets offer broad access, liquidity, and transparency, while private markets offer a potential broader opportunity set with restricted access, low liquidity, and less available information. An investor considering private markets must be comfortable with these differences, including the risk,  before committing capital.

Potential Benefits of Private Market Investing

Despite the hurdles, private market investing could provide several potential benefits for qualified investors: 

• Higher Return Potential (Illiquidity Premium): Private investments may have the potential to deliver higher long-term returns than public market investments, though it’s not guaranteed. For example, over the past 15 years, private equity achieved roughly 14% annualized returns ​ ². The potential for a realized  premium may be  attributed to the illiquidity premium – qualified investors are potentially rewarded for locking up capital longer and taking on additional risk.  

• Diversification: Private market assets can also provide diversification benefits to an investment portfolio because performance is not tightly correlated to the public stock and bond markets. In fact, private equity and other alternative assets have shown relatively low correlation to public market movements​¹. This means adding private investments may  help to spread risk – if public markets decline, private holdings may follow different market cycles. 

• Access to Innovative Opportunities: Private markets give qualified investors access to companies  not available in public markets because many companies now choose to stay private longer¹. By investing privately either directly or via funds, qualified investors can back companies in early stages  and possibly  reap  gains as the company potentially grows. For example, venture capital and private equity funds invest in startups or private firms developing new technologies, products, or services. These early investments, while very risky, could yield  returns if the company eventually succeeds.  

• Large Investment Universe: As mentioned, the universe of private companies is far larger than the public market. There are thousands of mid-sized businesses and emerging startups that if qualified, one can invest in through private transactions. This  opportunity set means a skilled investor or fund manager can be very selective and find niche opportunities for potential value creation. It also means private assets may  represent  areas that are underrepresented in public markets. Spreading capital across private equity, private debt, real assets, etc., could  provide a qualified investor exposure to a broader slice of the economy. 

It should be emphasized that these potential benefits come with trade-offs – primarily significantly reduced liquidity, substantial risk, and higher uncertainty.

Challenges and Risks of Private Market Investing

Private market investing is not for everyone:

• Low Liquidity: Private investments are typically illiquid – the secondary market in which one can sell a private equity stake is very small​¹. Qualified investors must often wait years (often 5–10+ years) for an exit event, such as a company sale or IPO, to potentially realize returns. Early redemption  is difficult or in some cases impossible, which means your money could be locked up for a long time​¹. This illiquidity makes it critical that qualified investors who decide to invest in a private investment, do not need their money back within short timeframes. 

• Long Investment Horizon: Because of the lack of liquidity , private market investments require a long-term time horizon. Private equity and venture capital funds,  often have lifespans of 10–15 years for full realization​¹. Investors  must be comfortable with no  potential returns for several years as the initial years often see negative cash flow due to capital calls and fees, with potential profits arriving much later. Such long-term commitments are very different from the ease of buying and selling in public markets. 

• Difficult to Access: Gaining access to quality private investments has historically been challenging for qualified individual investors. There is no centralized public marketplace or exchange for private investments , and many opportunities were made available only to large institutions or accredited investors. Even today, many private funds are not open to individual investors, and those that are often have stringent regulatory qualifications​¹.  

• Limited Information: As noted earlier, private companies disclose far less financial information. Qualified investors often must rely on private data rooms, management meetings, and trust in their fund managers. The lack of public data can make due diligence challenging for those without expertise. It’s easy to underestimate risks when financial reporting is sparse. Opaque information increases the risk of unknown problems in the investment. 

• Higher Risk & Uncertainty: Private investments generally involve smaller or younger companies that carry higher business risk than established public companies​¹. Start-ups can and do fail frequently – one report notes that on average only about 2 of every 12 early-stage ventures produce significant returns for investors​^2,. There is a substantial chance of loss if a company does not execute its plan. Additionally, macroeconomic changes or new competitors can severely impact a private business that does not have the resilience of a large corporation. With less regulation and oversight, there is also potential for governance issues or fraud to go unnoticed. In short, the risk of capital loss is high, and outcomes are more uncertain. 

• High Minimums and Costs: Many private market funds require large minimum investments (often six or seven figures)​ ¹, making it hard to diversify unless one can commit substantial capital. Even when accessing via newer platforms with lower minimums, fees can be significant such as management fees, performance fees, etc., which are typical in private funds. Direct investing also incurs costs – investors may need to hire lawyers, auditors, or advisors to vet deals​². All of these factors mean private investing can be costly and  may be practical only for those with considerable financial resources. 

Private market investing is not for everyone. An investor must be financially prepared for illiquidity, lengthy commitments, and the possibility of losing their entire investment. In many cases, the possible advantages of private markets will only outweigh the significant drawbacks for those who have a long-term outlook, can tolerate high risk, and have access to top-tier investment opportunities. Caution and thorough due diligence are absolutely essential when investing in the private markets.

Ways to Invest in Private Markets

Source: Deloitte

If a qualified investor decides to pursue private market opportunities, how can they actually invest? There are a few primary avenues to access private markets: 

• Through Private Funds/Managers: One way to invest in private markets is via pooled investment funds managed by professional firms. These include private equity funds, venture capital funds, private credit funds, etc. In this model, an investor commits capital to a fund run by a general partner who invests in a portfolio of private companies or assets. Investing through funds leverages the expertise of seasoned managers who source deals and perform due diligence. For individual investors, this is often the only feasible route – attempting to build a portfolio of dozens of private companies on your own is impractical​⁸.  

• Direct Investment: For those with access and expertise, direct private investing is another route. This could mean  investing in startups (buying a direct equity stake in an early-stage company) or co-investing alongside a private equity fund in a specific deal.  

Direct investing may give more control and potential upside for a single company, but it requires sourcing opportunities, evaluating them, and often actively engaging with the business.  

The risks are concentrated – a direct investor might invest in a handful of companies, which is far less diversified than a fund. Direct deals have typically been available to those with substantial networks or capital. An investor would need to be accredited and should  rely on personal expertise or advisors to perform due diligence.  

Because of the substantial risks and complexities, direct private investing is usually undertaken by very experienced investors or professionals. New investors in this arena are advised to be extremely cautious , as the failure rate of ventures is high and due diligence demands are intense​^2,3. 

• Online Platforms and Feeder Funds: In recent years, fintech platforms have  broadened access to private markets for qualified individual investors. These platforms typically act as intermediaries, allowing accredited investors to commit smaller amounts into feeder funds or investment vehicles that aggregate capital to invest in private companies. By streamlining compliance, sourcing deals, and managing fund administration, such platforms make it more accessible  for individuals to gain exposure to high-growth startups and late-stage private firms—an area that was once limited to institutional investors and ultra-high-net-worth individuals. 

• Practical steps for those looking to invest in private markets would include:  

• Ensure qualification: Confirm that you meet any necessary investor eligibility criteria, such as accreditation requirements. 

• Determine allocation: Decide what portion of your portfolio you’re comfortable devoting, understanding that private investments are typically long-term, have substantial risk, and illiquid. 

• Research options: Explore and evaluate potential funds, platforms, or advisors that align with your investment goals, time horizon, and risk tolerance. 

• Perform due diligence: Investigate the specific opportunity or fund manager thoroughly before committing capital. 

• Seek guidance: Consider consulting with a financial advisor or investment consultant, especially given the complexity and substantial risks of private market investments. 

Key Trends in Private Market Growth 

Private market investing has grown  in recent decades. Here are some key trends driving the growth of private markets: 

• Rapid Growth in Assets Under Management: Private markets have been expanding over the recent years. The total capital in alternative assets including private equity, private debt, real assets, and more, is climbing steadily. Industry data provider Preqin forecasts that the global alternatives industry will reach about $29.2 trillion in AUM by 2029 (up from $16.8 trillion at the end of 2023), putting it on course to exceed $30 trillion by 2030​⁴. This represents roughly a high single-digit annual growth rate, outpacing many traditional asset classes. Similarly, PwC projected that alternative asset classes (especially private equity, private debt, and real assets) would more than double to $21.1 trillion by 2025, accounting for roughly 15% of all global assets under management​⁶. While recent macroeconomic challenges have slowed fundraising somewhat, the long-term trajectory still points upward. In fact, private market capitalization globally has outpaced public market capitalization growth since around 2007​¹, indicating a possible secular shift as more investment capital finds its way into private ventures. 

• Companies Staying Private Longer: A notable trend is that companies are delaying going public or avoiding the public markets altogether. The number of publicly listed companies has been declining in some major markets, while private fundraising has increased. Preqin reports that private equity is on track to more than double in size from 2023 to 2029, and this is partly driven by companies staying private for longer, lackluster IPO markets, and an overall decline in listed companies​⁴.  

In other words, some  firms are able to raise  capital in private rounds and may  not currently feel the pressure to list on a stock exchange as early as in past decades.  

For private market investors, this trend may be  an opportunity – they can capture potential growth during a company’s prime development years. However, it also means public market investors might miss out on potential  growth phases. We are seeing a shift where the public market is no longer the default route for growing companies; the private market can sustain very large enterprises with some private companies being valued in the tens of billions of dollars.  

• Broader Investor Participation: Once dominated by institutions, private markets are now attracting a wider investor base. Institutional investors such as pension funds, endowments, and sovereign funds, have steadily increased their allocations to private assets over the past two decades – today, upwards of 25% or more of many large institutions’ portfolios are allocated to private market investments​¹.  At the same time, high-net-worth and retail investors are entering private markets in greater numbers through the new channels described earlier. Preqin notes that the “private wealth channel” is growing, as individual qualified investor access to private markets continues to open up and gather pace​⁴. The rise of feeder funds, secondaries markets, and interval funds aim to bring private market strategies to a broader audience. This democratization is still in its early stages, but it’s a noticeable  trend. Over time, we may see standard portfolio advice include an allocation to alternatives for ordinary investors, whereas a decade or two ago this was rare. The landscape is shifting from private markets being a niche for elite institutions to becoming a  part of diversified investment strategies for some  investor types. 

Private market investing is a complex  part of the financial world. It offers the potential for  returns and unique opportunities, but comes with considerable challenges like illiquidity, higher risk, and loss of total investment. The differences between private and public markets are significant, and any investor should approach private assets with a clear understanding of those distinctions. For those who can navigate it – often alongside experienced managers or platforms – the private market could  be a rewarding addition to a long-term investment portfolio. With private markets growing and evolving , this asset class is set up to possibly play an even larger role in portfolios in the future. As always, rigorous due diligence and a long-term perspective are essential when exploring private market investments.

Article Sources: 

1. https://www.moonfare.com/glossary/private-markets#:~:text=The%20term%20%E2%80%9CPrivate%20Markets%E2%80%9D%20refers,Private%20Debt%20and%20Private%20Equity 

2. https://cdn2.yieldstreet.com/wp-content/uploads/2022/02/15132222/Private-Market-Investing-Explained-3.pdf#:~:text=Simply%20put%2C%20the%20potential%20for,investment%20opportunities%20in%20private%20markets 

3. https://cdn2.yieldstreet.com/wp-content/uploads/2022/02/15132222/Private-Market-Investing-Explained-3.pdf#:~:text=The%20McKinsey%20Report%20mentioned%20earlier,outpaced%20its%20public%20market%20equivalents 

4. https://www.globenewswire.com/news-release/2024/09/18/2948056/0/en/Global-alternatives-markets-on-course-to-exceed-30tn-by-2030-Preqin-forecasts.html 

5. https://www.blackrock.com/institutions/en-us/insights/private-markets-outlook#:~:text=Everywhere%20we%20see%20clients%20seeking,than%20%2420%20trillion%20by%202030 

6. https://www.pwc.com/ng/en/press-room/global-assets-under-management-set-to-rise.html#:~:text=,wealth%20managers%20who%20have%20acted 

7. https://www.thinkingaheadinstitute.org/content/uploads/2024/05/institutional-allocation-to-private-equity-short-version-gb.pdf 

8. https://fsinvestments.com/education/a-further-look-at-private-equity/ 

This material, provided by Linqto, is for informational purposes only and is not intended as investment advice or any form of professional guidance. Before making any investment decision, especially in the dynamic field of private markets, it is recommended that you seek advice from professional advisors. The information contained herein does not imply endorsement of any third parties or investment opportunities mentioned. Our market views and investment insights are subject to change and may not always reflect the most current developments. No assumption should be made regarding the profitability of any securities, sectors, or markets discussed. Past performance is not indicative of future results, and investing in private markets involves unique risks, including the potential for loss. Historical and hypothetical performance figures are provided to illustrate possible market behaviors and should not be relied upon as predictions of future performance.