Decoded: Aberdeen explains the world of private markets

Aberdeen explores private markets further in its whitepaper on private markets for public good, which looks at the opportunities and barriers to democratising access to these investments. 

What are private markets?

Broadly speaking, the term “private markets” refers to investments made in assets which are not available on public exchanges (like a stock exchange). Examples of such investments include privately-owned companies, debt held outside the traditional banking system, and other assets, like real estate and infrastructure.

When talking about private markets, four main segments are typically discussed:

Private equity

Private markets refer to investments in companies that are not listed on public stock exchanges. Instead of buying shares in well-known public companies, investors in private markets put money into privately owned businesses. These investments are typically less liquid, meaning they can't be easily bought or sold, but they can offer strong long-term returns and access to opportunities not available in public markets.

Private credit

Private credit is when investors lend money directly to companies or specific projects instead of borrowing from a bank or raising money through public bonds. It’s a way to get funding privately, and investors earn returns from the interest paid on the loan. This type of lending is usually used by companies, funds or specific projects that want more flexible terms or quicker access to capital.

Real estate

In the context of private markets, real estate in private markets means investing in physical properties - like offices, homes, shops, or warehouses. Investors make money by renting out these buildings or selling them for more than they paid. Because these investments happen privately, they’re usually long-term and less affected by daily market ups and downs.

Infrastructure

Infrastructure investing means putting money into big, essential projects like roads, bridges, airports, or energy networks. These are things that help society run smoothly, and investors earn returns over time – usually through fees, rent, and long-term contracts.

Why do governments want to encourage private market investing?

Millions of people around the world are forecast to have an insufficient income in retirement due to low levels of pension savings. Policymakers are therefore taking a growing interest in encouraging greater retirement savings and finding ways of boosting returns from existing pots.

Attention has therefore turned to the benefits private markets can offer, as the long-term and illiquid (i.e. harder to buy and sell quickly) nature of the private market investments as mentioned above – particularly when compared to publicly exchanged investments like stocks and bonds – means investors can typically demand a higher level of return. If people can access private markets through their pensions for example, this could help them potentially boost the value of their retirement savings.

How is the UK government helping people invest in private markets?

To help encourage investment into private markets, the UK government has established a structure called a Long-Term Asset Fund, or LTAF for short. 

An LTAF is a regulatory regime created in the UK to help people invest in long-term, less liquid assets like those in private markets. The UK Government established LTAFs to make these kinds of investments more accessible, especially for pension funds and individual investors, and to help channel money into projects that support the UK’s economy, like green energy and innovation.

What are the risks to consider?

It’s important to remember that investments into private markets are typically more illiquid than investments into stocks and bonds, which are traded on public exchanges and therefore can be easier to buy and sell.

As private market assets can take longer to buy and sell, as they are not traded publicly, this means they are not well suited to people who need to immediate access to their savings.