Allocating to Private Markets

 HOW PRIVATE MARKETS FIT INTO A PORTFOLIO

Private markets and alternative investments are becoming more popular than ever, especially among investors looking for new ways to diversify beyond traditional stocks and bonds. While the public markets are familiar and easy to access, the private side of the investing world can offer opportunities that feel more direct, less volatile, and sometimes more exciting.

At their core, private-market investments involve putting money into companies, real estate, or funds that don’t trade on the public stock exchange. These opportunities used to be available mainly to big institutions or wealthy families. But over the last decade, new regulations and investment structures have opened the door for more everyday investors to participate.

Alternative investments, a broader category, include things like real estate, private credit, private equity, and specialized funds. These alternatives can help investors spread risk, access different sources of returns, and potentially smooth out the ups and downs of traditional markets.

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Private markets can be powerful because they often:

• Behave differently from public markets

• Are based on long-term fundamentals

• Provide access to broader economic activity

Portfolio Roles

• Private equity → long-term growth

• Private credit → income stability

• Real estate → income + appreciation

• Natural resources → inflation protection

• Venture capital → exposure to innovation

Institutions often allocate 20–50% with individual investors closer to 10-30% to private markets because of their diversification benefits and long-term performance potential.

RISKS, LIQUIDITY, AND WHAT SMART INVESTORS CONSIDER

The key considerations include:

• Illiquidity (long-term commitments)

• J-curve effects (returns rise later in the fund life)

• Manager selection importance

• Complexity of deal structures

• Changing market cycles

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Private markets are no longer just the playground of Wall Street institutions. Today, investors of all sizes can participate—if they understand the landscape, timelines, and risks.

Key takeaways:

1. Access equals opportunity.
   Private markets open doors to investments unavailable in public markets: private companies, commercial real estate, niche strategies, and structured credit.

2. Diversification is powerful.
   By combining public and private assets, investors can smooth volatility, reduce correlation to stock markets, and seek higher long-term growth.

3. Income or growth—choose your focus.
   Vehicles like Non-Traded REITs and BDCs provide income, while private equity, venture, and crowdfunding target long-term capital growth.

4. Liquidity varies—plan accordingly.
   Some structures offer quarterly or annual liquidity, while others lock capital for years. Understanding timelines is essential.

5. Tax strategies enhance returns.
   1031 and 721 exchanges, as well as Qualified Opportunity Zone investments, allow investors to defer or eliminate taxes while reinvesting in new opportunities.

6. Professional management matters.
   Most private-market vehicles are actively managed by experts who source deals, underwrite risk, and oversee execution. This expertise is hard for individual investors to replicate alone.

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Being informed of both the opportunities and the risks while following a goal's based plan allows for sound investment decisions.

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