Private markets – what they are and why they are important

When people think about investments, they often think of publicly traded stocks, such as shares that you might trade on a stock exchange.   

However, the last few years have seen a significant rise in the amount invested in private markets. Private markets are investments made in assets not traded on a public exchange or stock market. This might include, for example, private equity (investments made in private companies), or private debt, when investors lend directly to borrowers where there is no market to trade that debt on.  

Private markets have experienced rapid growth in recent years. PwC have estimated that assets under management (AuM) in private markets will expand by between $4.2-5.5 trillion between 2021 and 2025, to reach between $13.7-15 trillion in total, more than 10% of global assets under management! 

What has led to this rapid growth? Investors will invest in private markets for a variety of reasons. Perhaps they are hoping for superior returns - there can be significant capital gains from investing in private assets. Maybe they are looking to diversify their portfolios. Private markets offer access to companies throughout their lifecycle and growth, and offer different forms of exposure. Finally, as the number of publicly listed companies has sunk on various global markets over recent years, some investors will simply be seeking investment opportunities wherever they can find them. 

Private markets don't just offer benefits to investment managers and their clients. Private investment can help provide vital capital for companies, including start-ups looking to grow their business. As bank finance has declined along with the number of publicly-listed companies, there has been a growth in unlisted companies seeking investment capital.  

Likewise private investment can play a key role in helping the government to meets its Build Back Better, Levelling Up and Net Zero objectives, supporting infrastructure and social projects and in generating new jobs, while at the same time reducing the amount of public spending necessary. Particularly in terms of financing the UK’s infrastructure and housing pipeline, private finance is expected to provide a significant proportion of the total capital necessary. 

It is important to remember that investment approaches should vary depending on the goals of the investor, and private markets are another tool by which investment managers can help clients meet their investment needs, while also helping the needs of the wider society and economy.  

As our members' interest in private markets has grown, the Investment Association has increased its focus on the space. The IA has established a Private Markets Committee to help address the challenges and highlight the opportunities facing the industry, and in particular has been exploring how to improve investor access to long-term and illiquid assets (including private assets) through its work developing the Long-Term Asset Fund, with the expectation that this will provide further opportunities for investors and companies.  

Today the IA has also published a Policy Explainer, setting out what private markets are, the reasons behind their growth and how investment in private markets can benefit investors, their clients, companies and the UK more widely. We look forward to engaging with key stakeholders, including government, as we look to ensure an economy and society that works for all participants.