Posted on September 10th, 2025.

Private Markets: Unlocking Value Beyond Public Exchanges

Executive Summary

Private markets have shifted from being an alternative investment niche to becoming a central pillar of global capital markets. Over the last two decades, they have grown at a remarkable pace, with assets under management (AUM) estimated between US$12 trillion and US$14 trillion as of 2023, depending on the source. Some broader measures, which encompass a wider spectrum of private capital, put the figure as high as US$24 trillion, underscoring the scale and importance of this asset class. This exponential growth reflects the appetite of institutional investors, sovereign wealth funds, and high-net-worth individuals for diversification, innovation, and returns beyond what public markets can offer.

The appeal is clear: superior returns, diversification, and the illiquidity premium. Unlike public equities that are traded daily, private investments are designed for long-term horizons, allowing managers the time and flexibility to drive operational transformations, fund innovation, and withstand economic cycles. The illiquidity of these assets, once seen as a disadvantage, has become a cornerstone of value creation, rewarding investors with higher returns for their patience and commitment.

Yet, these opportunities are not without challenges. Private market transactions are inherently complex, fund structures demand rigorous alignment of incentives, and risks such as illiquidity, valuation uncertainty, and high fees must be carefully managed. Success in private markets is not simply about deploying capital—it requires deep expertise, disciplined risk management, and partnerships with skilled managers who can unlock value over time.

As private markets continue their rapid ascent toward US$18 trillion and beyond by 2027, they are no longer a mere complement to public investments but a core allocation strategy for institutions seeking long-term performance. This paper explores the transaction and fund structures, investment horizons, benefits, risks, and the central role of the illiquidity premium, equipping investors with insights into one of the most powerful wealth-creation engines of the 21st century.

Transaction Structures

One of the defining characteristics of private markets is the flexibility and creativity embedded in their transaction structures. Unlike public markets, where securities are standardized and traded on exchanges with rigid frameworks, private market transactions are highly tailored to meet the unique needs of investors, fund managers, and businesses seeking capital. This flexibility enables the alignment of incentives, the balancing of risk and reward, and the development of strategies that can unlock long-term value.

Direct investments represent one of the most straightforward yet powerful structures. In these transactions, investors acquire ownership stakes directly in private companies or tangible assets, often gaining not only financial exposure but also governance rights. This structure provides investors with significant influence over strategic decisions, operational improvements, and long-term direction. Direct investments are desirable to sophisticated investors who have the expertise, resources, and appetite to shape outcomes rather than passively hold securities.

Secondary transactions have grown in prominence as private markets have matured. These transactions allow investors to buy or sell existing stakes in funds or companies, creating liquidity in an otherwise illiquid asset class. For early investors, the secondary market offers an exit before the natural maturity of a fund, while buyers gain access to seasoned assets with a shorter duration to realization. This dynamic creates a more efficient ecosystem, broadening participation and reducing the rigidity traditionally associated with private market investments.

Co-investments are another increasingly popular structure, offering investors the opportunity to participate directly alongside fund managers in specific deals. By bypassing the traditional “fund of funds” structure and investing at the deal level, investors often benefit from reduced or waived management and performance fees. Beyond cost efficiency, co-investments provide investors with greater transparency into the assets they own and the ability to tailor their portfolios according to sector, geography, or strategy preferences. For institutions and high-net-worth individuals seeking both efficiency and control, co-investments are a compelling option.

Finally, club deals and syndications reflect the collaborative spirit of private markets. In these structures, multiple investors pool their capital and expertise to finance large-scale opportunities that would be too capital-intensive for a single party. By pooling financial resources and risks, participants can access significant opportunities, such as infrastructure projects, corporate buyouts, or real estate deals, and benefit from the syndicate’s shared expertise and connections. 

Taken together, these transaction structures illustrate the adaptive and innovative nature of private markets. Each offers unique advantages and trade-offs, enabling investors to select the approach that best aligns with their return objectives, risk tolerance, and desired level of involvement. This flexibility is precisely what makes private markets so powerful, offering pathways to value creation that cannot be easily replicated in the more standardized and liquid public securities market.

Fund Structures

The architecture of private market funds is designed to carefully balance the interests of investors and fund managers while defining how capital is raised, deployed, and returned. Unlike public markets, where securities are standardized, private market funds rely on bespoke structures that provide the governance framework, incentive mechanisms, and flexibility required to pursue complex, long-term investments. The choice of structure not only determines the mechanics of capital deployment but also has a profound impact on investor returns, liquidity, and control.

The most widely used model is the Limited Partnership (LP/GP) structure, which has become the backbone of private equity, venture capital, and real estate investing. In this framework, the General Partner (GP) manages the fund, sources deals, and oversees portfolio companies or assets, while the Limited Partners (LPs)—typically pension funds, endowments, sovereign wealth funds, and high-net-worth individuals—commit the bulk of the capital. The alignment of interests is enforced through management fees and “carried interest,” which incentivize GPs to deliver strong performance. This structure has proven effective at combining professional management expertise with large-scale capital commitments.

Closed-end funds are another dominant structure, particularly in private equity and real assets. With a defined lifespan of typically 10 to 12 years, these funds raise committed capital upfront, deploy it gradually through capital calls, and distribute proceeds upon successful exits. The staged nature of capital calls reduces the drag of idle cash, while the fixed timeline creates discipline for managers to deliver results within a set horizon. Investors, in turn, gain clarity on when to expect capital deployment and return, albeit with limited flexibility to redeem early.

By contrast, open-end funds offer greater flexibility, allowing investors to enter or exit at regular intervals, often on a quarterly or annual basis. This model is more common in private credit or infrastructure strategies, where underlying assets generate steady cash flows and do not require the same long-term lock-ups as private equity. Open-end funds appeal to investors seeking exposure to private markets without committing to a decade-long horizon. However, they may sacrifice some of the return potential associated with long-duration strategies.

For more targeted strategies, Special Purpose Vehicles (SPVs) have become a favored tool. SPVs are typically designed for single assets or single-deal exposures, enabling investors to participate directly in specific opportunities without exposure to an entire portfolio. This precision appeals to investors who want to customize their allocations, manage sectoral or geographic concentration, or co-invest alongside a larger fund manager in a marquee deal. SPVs also offer flexibility in structuring terms and governance, tailoring them to the specific needs of each transaction.

Finally, evergreen funds offer a perpetual structure that reinvests proceeds rather than winding down after a set term. This model is gaining popularity in areas such as private credit, infrastructure, and sustainable investing, where continuous capital deployment and long-term compounding are crucial. Evergreen funds offer investors enduring exposure to an asset class, allowing managers to maintain flexibility in deploying capital over decades rather than years.

Together, these fund structures illustrate the versatility of private markets. They empower investors to select vehicles that best match their risk tolerance, liquidity preferences, and strategic objectives while providing fund managers with the tools to execute value-creation strategies. Whether through the discipline of closed-end funds, the flexibility of open-end funds, or the precision of SPVs, the structural innovations of private markets ensure that capital can be channeled efficiently toward opportunities that drive both financial performance and long-term transformation.

Long-Term Investment

Private markets are built on the foundation of patience and long horizons, unlike public equities, which can be traded in seconds and are subject to daily volatility. Private market investments are designed to unfold over seven to twelve years—or even longer. This long-term commitment gives fund managers and investors the time and flexibility to execute complex strategies that create lasting value, rather than being constrained by the short-term pressures of quarterly earnings or market sentiment.

One of the most significant advantages of this long horizon is the ability to drive operational transformations within companies. Private equity managers, for example, often acquire underperforming or undervalued businesses to restructure operations, enhance efficiency, improve governance, or upgrade technology. These improvements require time to take hold, but when executed successfully, they can significantly improve enterprise value and yield superior returns for investors.

Long-term capital also enables strategic expansion and innovation. Private investors have the freedom to support bold growth initiatives, fund research and development, and back mergers and acquisitions (M&A) that position companies for future market leadership. For instance, venture capital funds frequently invest in emerging technology firms or biotech startups whose actual value may not materialize for a decade or more. Without the pressure of daily liquidity, these companies can focus on sustainable innovation rather than short-term profitability.

Equally important, long-duration capital provides resilience to endure economic cycles. Public markets are often swayed by short-term economic news or geopolitical events, but private market investors are positioned to ride out volatility. Over a decade-long horizon, cycles of recession and recovery can be absorbed, allowing managers to exit investments when conditions are optimal rather than being forced to sell into a downturn. This flexibility is a crucial driver of the superior risk-adjusted returns that have historically been associated with private markets.

For institutional investors with long-term liabilities, such as pension funds, endowments, and sovereign wealth funds, private markets are a natural fit. These institutions must meet obligations decades into the future, and they seek asset classes that align with that timeline. By allocating significant capital to private equity, infrastructure, real estate, and private credit, they match their long-term liabilities with long-term, value-generating investments. This alignment between time horizon and investment strategy is one of the reasons private markets have become a cornerstone of institutional portfolios worldwide.

In essence, private markets are a long game. They reward investors who are willing to look beyond immediate liquidity and focus instead on the transformative power of time—time to restructure, innovate, and grow. It is this patient capital that allows private markets to consistently unlock value that is often inaccessible in the fast-moving world of public markets.

Illiquidity Premium

At the heart of private market investing lies the illiquidity premium—the additional return investors earn as compensation for tying up their capital over long horizons. Unlike public markets, where assets can be bought and sold with the click of a button, private market investments require investors to accept the trade-off of limited liquidity. In exchange for this patience, investors are rewarded with the potential for significantly higher returns.

The illiquidity premium exists because private assets cannot be easily marked to market or liquidated without a buyer willing to engage in a negotiated transaction. This lack of daily liquidity creates uncertainty and risk for investors, but it also unlocks opportunity. By accepting more extended lock-up periods, investors can capture returns that exceed those available in the public markets. Over time, academic research and institutional data have consistently shown that private equity, venture capital, and private credit have outperformed their public counterparts, mainly due to this premium.

This return differential is not merely a function of market inefficiency—it is also reinforced by the active management strategies employed in private markets. Unlike passive public market investors, private market fund managers often take direct roles in shaping company strategy, restructuring balance sheets, and driving operational improvements. These interventions compound the benefits of the illiquidity premium, creating a unique blend of structural and managerial advantages that deliver outsized performance.

Another critical dimension of the illiquidity premium is its role in portfolio construction. For long-term investors such as pension funds, endowments, and sovereign wealth funds, the inability to access capital on demand is not necessarily a disadvantage. Their obligations stretch decades into the future, making short-term liquidity less critical than the ability to achieve superior long-term growth. By allocating a significant portion of their assets to private markets, these institutions harness the illiquidity premium as a deliberate strategy for compounding wealth.

However, capturing the illiquidity premium requires discipline. Investors must carefully assess their liquidity needs, ensuring that they can meet near-term obligations without being forced to sell long-term assets prematurely. Those who manage this balance effectively are positioned to consistently harvest the premium, turning a structural limitation into a competitive advantage.

In sum, the illiquidity premium is the cornerstone of private market investing. It represents the reward for patience, the price of commitment, and the value of long-term perspective. For investors who can withstand the absence of immediate liquidity, it is not simply a risk to be tolerated, but an opportunity to be embraced—a gateway to returns that remain out of reach in the liquid, transparent, but often lower-yielding world of public markets.

Benefits of Investing in Private Markets

The allure of private markets lies in the unique advantages they deliver to investors, advantages that are difficult to replicate in public markets. By stepping away from the constant scrutiny and short-term volatility of public exchanges, investors gain access to opportunities that unlock innovation, diversification, and superior returns. For institutional players and sophisticated individuals alike, the benefits of private markets make them an indispensable pillar of a well-balanced portfolio.

Perhaps the most compelling benefit is the potential for higher returns. Private market investors are compensated not only by the illiquidity premium but also by the active role managers play in shaping outcomes. Private equity funds, for example, do not simply buy and hold companies; they actively restructure operations, implement new strategies, and pursue growth initiatives that can dramatically increase enterprise value. Venture capital investors, meanwhile, gain access to early-stage firms with the potential to become tomorrow’s industry leaders. These strategies create returns that, over time, consistently exceed those available in public markets.

Another decisive advantage is diversification. Private markets provide exposure to sectors, geographies, and asset classes that may be underrepresented or unavailable in public exchanges. Investors can allocate capital to real estate, infrastructure, private credit, and emerging technologies, thereby broadening the spectrum of risk and return drivers within their portfolios. This diversification reduces dependence on public market cycles and provides a buffer during periods of volatility, making private markets a valuable stabilizer in long-term investment strategies.

Private markets also offer access to innovation at its earliest stages. Many of the world’s most transformative companies, whether in artificial intelligence, biotechnology, clean energy, or financial technology, first emerge in private hands. By investing before these companies reach public markets, private investors capture growth at its most exponential phase. This early access provides not just financial upside but also strategic influence in shaping the direction of industries poised to redefine the global economy.

Equally important is the control and influence that private market investors often enjoy. Unlike public shareholders, who usually have limited influence over company strategy, private investors can exert significant influence through board seats, governance rights, and direct partnerships with management teams. This hands-on approach enables investors to align businesses with their values, drive operational excellence, and ensure that capital is deployed toward sustainable, long-term objectives.

Finally, private markets offer a natural hedge against inflation. Investments in real assets—such as real estate, infrastructure, and natural resources—tend to appreciate as prices rise, thereby preserving purchasing power and protecting portfolios from erosion. In today’s global economy, where inflationary pressures remain a persistent risk, this protection has become an increasingly attractive feature for institutional investors.

In combination, these benefits highlight why private markets are no longer viewed as an “alternative” but as a core allocation strategy. They provide higher return potential, broaden diversification, unlock innovation, enable influence, and shield against inflation—all while rewarding patient capital. For investors committed to building resilient, forward-looking portfolios, private markets represent not just an opportunity but a necessity in the pursuit of long-term success.

Risks and Challenges

While private markets present compelling opportunities, they are not without their risks. In fact, the very qualities that make private markets attractive—long-term horizons, flexibility, and illiquidity—also introduce unique challenges that investors must manage with discipline and foresight. Understanding these risks is essential because private market success is as much about risk management as it is about opportunity capture.

The most significant challenge is illiquidity. Capital committed to private funds is often locked up for a decade or more, with limited opportunities for early exit. Unlike public equities or bonds, which can be sold within minutes, private market assets require negotiated transactions to change hands. For investors with short-term liquidity needs, this can create strain, particularly during periods of financial stress. The secondary market has improved access to liquidity, but it remains far less fluid and often comes at a discount.

Another critical risk is the complexity of private market structures. Fund terms, transaction agreements, and valuation methodologies are often highly sophisticated and can vary significantly across funds and strategies. This complexity makes due diligence essential, but also more resource-intensive. Investors who lack the expertise to navigate intricate legal, financial, and operational structures risk misalignment with fund managers or exposure to unforeseen liabilities.

High fees are another challenge, often summarized by the well-known “2 and 20” structure: a 2% annual management fee and 20% carried interest on profits. While top-performing managers can more than justify these costs through strong returns, underperforming funds can leave investors with disappointing outcomes once fees are accounted for. Fee transparency and alignment of incentives remain ongoing areas of scrutiny in the industry.

Valuation uncertainty is also a recurring risk. Unlike public markets, where asset values are constantly updated through market prices, private market valuations are periodic, subjective, and dependent on assumptions. This creates uncertainty and can obscure the actual performance of underlying assets. In periods of economic downturn, these valuations may lag reality, creating a mismatch between reported results and actual risk exposure.

In addition to these structural challenges, private market investors face regulatory and compliance risks. Rules governing private equity, venture capital, real estate, and private credit vary across jurisdictions and continue to evolve as regulators increase oversight of the industry. Investors must remain vigilant to avoid compliance pitfalls that could lead to penalties, reputational harm, or investment restrictions.

Finally, there are concentration and leverage risks. Many private market strategies involve concentrated investments in specific companies or assets, amplifying both upside and downside potential. The frequent use of leverage, particularly in private equity buyouts, further increases exposure, magnifying returns in good times but exacerbating losses in downturns. Mismanagement of leverage can quickly turn a promising investment into a distressed one.

In summary, the risks and challenges of private markets are real and significant. Yet, for investors who approach them with discipline, conduct rigorous due diligence, and align themselves with skilled and trustworthy managers, these risks can be effectively managed. The key lies in preparation, diversification, and patience—recognizing that private markets reward those who respect both the opportunities and the dangers inherent in this powerful asset class.

Conclusion

Private markets are no longer a peripheral corner of global finance—they have become a central driver of capital formation, innovation, and long-term wealth creation. By offering access to transformative companies, critical infrastructure, and emerging industries, they allow investors to participate in the building blocks of tomorrow’s economy. Unlike public markets, where short-term fluctuations dominate, private markets reward patience, discipline, and vision.

For investors willing to embrace the challenges of illiquidity, complexity, and longer investment horizons, the rewards can be substantial. The combination of the illiquidity premium, active management, and access to opportunities not available in public exchanges creates a powerful engine for generating outsized returns. More importantly, private markets align with the needs of long-term institutions—such as pension funds, endowments, and sovereign wealth funds—that must preserve and grow wealth across generations.

Yet, the promise of private markets comes with responsibility. Investors must approach them with clear-eyed diligence, selecting skilled managers, diversifying across strategies, and striking a balance between opportunity and risk. Success is not guaranteed, but for those who navigate wisely, private markets provide the tools to reshape portfolios, influence industries, and create lasting economic impact.

As the 21st century continues to be defined by technological disruption, global capital shifts, and evolving financial systems, private markets stand at the forefront of this transformation. They are not merely an alternative to public markets; they are a necessary complement, providing depth, resilience, and innovation to global portfolios.

Ultimately, private markets are the arena where patience meets conviction, and where vision transforms into enduring value. For investors who aspire not only to earn returns but to wield influence, build resilience, and shape the trajectory of industries and economies, private markets are no longer optional—they are essential, a defining imperative for those determined to lead in the future of global finance.

 Mike Ike is the author of the following books:

A Comprehensive Guide to Tokenization

Unlocking XRP: The Future of Digital Finance

Mastering the Stock Market: A Comprehensive Guide to Investing and Trading

The Ultimate Guide to Cryptocurrency: From Beginner to Trader

You can get my books from Amazon, Apple Store, Barnes & Noble, Walmart, Hudson Booksellers, and Xlibris at the following link: https://mikeikebooks.com/

Thank you,

Mike Ike

mikeikebooks.com

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