Private Markets
Definition
Private markets refer to investment opportunities that are not traded on public exchanges. These include private equity, venture capital, private credit, real estate partnerships, hedge funds, and infrastructure deals. Access to private markets is generally limited to institutional investors, family offices, and high-net-worth individuals due to high minimum investment thresholds, limited liquidity, and less regulatory oversight.
Why It Matters to Investors
- Private markets have historically offered the potential for higher returns, particularly through access to early-stage companies or specialized real asset opportunities
- These investments are typically less liquid, with capital locked up for years, and valuations marked infrequently
- Because of the lack of daily pricing, private market investments often appear less volatile, though this may be an illusion created by infrequent revaluations
- Investors in private markets take on additional risks, including lack of transparency, complex fee structures, and operational or governance challenges
- Illiquidity and opacity mean private markets are more sensitive to economic stress when cash or liquidity is urgently needed
The TiltFolio View
Neither TiltFolio system invests in private markets. While private assets can offer diversification and return opportunities, both TiltFolio systems prioritize liquidity, transparency, and daily pricing: advantages uniquely available in public markets. Moreover, the 2020s have revealed that even large institutions like Harvard and Yale, long-time proponents of private market investing, have struggled to exit private assets without incurring significant losses to book value. Both TiltFolio systems see this as evidence that the "low-volatility, high-return" promise of private markets may not hold up when liquidity is most needed.
TiltFolio Adaptive requires the flexibility to rotate monthly between asset classes, while TiltFolio Balanced needs the ability to rebalance annually. Both systems rely on liquid, transparent instruments that can be traded efficiently without the constraints of private market illiquidity.
Real-World Application
• Investing in a venture capital fund or private equity vehicle is a form of private market exposure
• Private credit has grown rapidly post-2008, offering loans to mid-sized companies bypassing traditional banks
• Pension funds and endowments often allocate large portions of their portfolios to private markets in pursuit of the so-called illiquidity premium
• During market downturns, many private funds implement "gates" or suspend redemptions, exposing investors to liquidity risk