Profiting from the potential of private markets has become more affordable

Global financial markets have undergone a seismic change in the last 30 years. The number of public companies has slumped from a peak of 7,300 in 1996 to 4,300 today. Companies are delisting and initial public offerings (IPOs) have slowed to a crawl, with many firms choosing to stay private for longer, or never list at all. This shift has left public equity investors with a narrower market. Most growth stories are off-exchange: of the 159,000 companies making annual sales of $100 million or more, 140,000 are privately owned.

To gain exposure to this vast swathe of private companies, investors need to turn to private-equity funds. These funds, which have been around for decades, raise capital to buy companies with the aim of growing the business and eventually selling it at a profit. In the 25 years from 1999-2024, annualised returns on private-equity funds surpassed those of global listed equity funds by 7.3% a year.

But until recently, private-equity funds have been the preserve of ultra-high-net-worth individuals and institutional investors, such as pension funds or sovereign wealth funds. This is due to high investment minimums (typically millions of dollars) and complex regulatory frameworks. Investors are also obliged to lock up their capital for periods of 10 years or more.

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However, this is finally changing. Many top alternative-asset managers are creating versions of their flagship funds for private investors: semi-liquid or evergreen funds. These are structured like unit trusts, albeit with a few more restrictions. Capital can be invested at regular intervals, and there are periodic liquidity windows (usually once a quarter). The minimum investment can be around £25,000.

Three ways to access private markets

EQT Nexus gives investors exposure to a private-market portfolio with an emphasis on private equity and infrastructure. The fund is managed by EQT, the world’s second-largest private-equity firm, whose history is rooted in the Wallenberg family, the Swedish industrial dynasty and one of the most influential business families in Europe.

In keeping with Wallenberg family tradition, EQT invests in good businesses, helping them develop into great and sustainable companies. Since June 2023, the fund has grown net assets to €1.1 billion and delivered a return of 20.2% in sterling. The fund is hoping for a yearly return of 12%-15% net of fees over the long term. The minimum investment is £26,000.

The Franklin Lexington PE Secondaries Fund focuses on “secondaries”: it acquires private-equity investments from other market participants, usually at a discount, some years after the original investment. By this stage, the portfolio is less risky. Lexington is an expert secondaries manager with a solid record. It has been active in this market since its inception over 30 years ago and has $40 billion invested in the asset class. Since 1990, secondaries managed by Lexington have delivered an average internal rate of return (IRR) of 16.0%. The minimum investment is £26,000.

Oaktree Capital Management is a global specialist credit investor, led by renowned investors Howard Marks and Bruce Karsh. The Oaktree Strategic Credit Fund offers exposure to private direct lending and opportunistic credit, two of Oaktree’s main areas of expertise. The firm’s focus on downside risk is born out of its experience in distressed credit: default and recovery rates across its $45 billion of private direct loans have historically fared better than its peers’ rates, while still delivering the higher yields associated with private credit. The fund targets a net distribution yield of 8%-10%, and a net levered return of 9%-11%. Investors can invest in the founder share class in sterling, with a discount on the annual management charge, reduced to 1.8% from 2.1%. The minimum investment is £51,000.

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