The Endowus Insights team spoke with Hugh Chung, our Chief Investment Officer, on the evolving private market landscape as regional regulators, including the Monetary Authority of Singapore (MAS), explore broader retail access beyond traditional assets. 

Hugh outlines three key checkpoints before considering private market investments. For those new to the private markets, our beginner reading pack at the end of the article provides essential insights to help navigate its complexities.

1. Why has it been difficult for regular investors to get access to private markets? 

Hugh: At present, private market investments are only available to individual accredited investors, family offices, and institutions. Retail access to private markets is regulated to better protect less experienced investors from more complex and less liquid instruments that require a more sophisticated understanding. A significant barrier is also the higher minimums, which may not be practical for most retail investors. 

2. Can you elaborate on how they are more complex and less liquid?

Hugh: Sure, investments and exits of private companies are much longer-term in nature, with limited market pricing in between. The performance attribution of private market strategies tends to be different from public market funds. 

The structural nuances of various private market strategies add layers of complexity. For example, for private equity, there are direct investments, primary and secondary, and co-investments, and strategies focused on early-stage, buyout, or growth-oriented investments. Understanding these dynamics requires specialised expertise and thorough due diligence.

Liquidity—or the lack thereof—is another crucial factor for investors to evaluate when considering private market investments. By nature, these assets are illiquid, meaning investors must be prepared for extended holding periods with limited opportunities for early exit. The higher volatility-adjusted returns associated with private markets serve as compensation for this illiquidity risk. Therefore, it is essential to allocate only long-term capital to such investments and to maintain a well-diversified portfolio to mitigate the risk of permanent capital loss.

3. What should mom-and-pop investors know before accessing private markets? 

Hugh: It is encouraging that the MAS is exploring ways to enable retail investors to access private market investments. Expanding access to these solutions can provide broader diversification opportunities.

In my opinion, due to the complexity of private market investments, it requires enhanced financial education for everyday investors. Private markets remain opaque to many, with a lack of publicly available performance data and limited know-how cited as major barriers to entry, according to our HNW Investor Sentiment Report 2024. 

Another layer of safeguard that can help minimise risks for investors is having experienced advisors who understand these asset classes and can advise clients independently and accordingly. Endowus’ client advisors serve as an important layer that helps our clients navigate the complexities of private markets so they better understand how such solutions play a role in their overall portfolios.  

Lastly, investors should be conscious about the fees they are being charged by fund managers and their advisors, as fees can make a significant dent in returns. Being served by advisors that do not impose sales charges or earn commissions, in Endowus’ case, is crucial in ensuring that the advice we provide is conflict-free and in clients’ best interests. 

4. How do you think private markets fit into investors' portfolios?

Hugh: I believe it is equally important that all individual investors—not just retail, but accredited investors who already have access—develop a clear understanding of how private markets fit within their overall portfolio strategy and align with their long-term financial objectives.  Here are three safeguards I summarise from a well-implemented approach with these investments.

Ensure that the investment period aligns with your horizon

As I said above, investing in private markets is inherently illiquid, meaning investors must be prepared for extended capital lock-up periods. While the rise of semi-liquid fund structures has improved accessibility, the underlying assets remain fundamentally illiquid. Investors should have a long-term investment horizon, as private market strategies reward illiquidity premiums in exchange for limited redemption flexibility. 

Fund structures often include lock-up periods, liquidity gates, and notification requirements, differing significantly from public market investments, where liquidity is readily available. Understanding these constraints is essential for effective portfolio planning.

The importance of diversification continues beyond public markets

Liquidity risk often correlates with concentration risk, and an over-concentrated portfolio can lead to heightened exposure to permanent capital loss. To mitigate this risk, investors should allocate across multiple sectors, geographies, strategies, and fund managers. A well-diversified approach helps balance risk while ensuring resilience in varying market conditions.

Don't hesitate to seek help from advisors

Selecting advisors with strong credentials, relevant experience, and an alignment of interest ensures that investment recommendations remain objective and conflict-free. This is particularly important given the specialised nature of private market strategies, where fee structures, risk profiles, and liquidity constraints require careful evaluation.

Responses are edited for brevity and clarity.

Education on private markets

On our part, Endowus invests significant time and effort to educate our clients, regularly develops free content, and holds conferences and seminars to simplify and help investors understand more about investing and private markets. 

Here is a reading pack about what private market strategies are and how they can be included in a portfolio: 

A glossary on alternative investments

Interested in the world of alternative investments? Here’s an A to Z of common investing terms in the alt universe so you can grow your wealth and invest with peace of mind. 

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Guide to sizing my private market allocations

The Yale portfolio was famously deployed not only into broad asset classes and the main source of incremental returns came from a combination of alpha, manager selection, illiquidity premium, longer duration assets, and leverage through its investments in various private market funds and hedge funds. Why can we not just copy and paste Yale’s asset allocation for ourselves? 

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Learn about the evergreen fund structure

Evergreen funds are investment vehicles with no fixed end date. They offer advantages like asset allocation rebalancing, immediate exposure to asset classes, flexible investment and redemption options, and diversified exposure. These factors, along with the ability to stay invested long-term and benefit from compounding, make evergreen funds an enduring investment option in private markets. 

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Are there more opportunities in private equity?

Over decades, the global public equities market has averaged 7% annual returns. To exceed public equity beta over the long term, investors must rely on alpha generation, illiquidity premium, and leverage. Private equity offers higher alpha potential due to inefficiencies in a smaller asset pool. Its illiquidity premium allows long-term capital to demand higher returns from companies seeking stable funding. 

Read the full article

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