It is now less expensive to take advantage of private markets' potential

The founder and CEO of Wealth Club, a high-net-worth investment service, Alex Davies, shares his investment choices

Over the past 30 years, the world's financial markets have experienced a dramatic transformation. There are currently 4,300 public companies, down from a peak of 7,300 in 1996. Many businesses are opting to remain private for longer or never list at all, and initial public offerings (IPOs) have slowed to a crawl as companies delist. Public equity investors now have a smaller market as a result of this change. The majority of success stories are off-exchange: 140,000 of the 159,000 businesses with yearly sales of £100 million or more are privately held.

Investors must use private-equity funds to obtain exposure to this enormous number of private businesses. Established for several decades, these funds raise money to purchase businesses with the intention of expanding them and then selling them for a profit. Between 1999 and 2024, private equity funds' annualized returns exceeded those of globally listed equity funds by 7.3 percent annually.

Private equity funds, however, were reserved for institutional investors like sovereign wealth funds and pension funds, as well as ultra-high net worth individuals, until recently. This is because of complicated regulatory frameworks and high investment minimums, which are usually millions of dollars. Additionally, investors must lock up their funds for ten years or longer.

This is finally changing, though. For private investors, a number of leading alternative-asset managers are developing semi-liquid or evergreen funds that are variations of their flagship funds. These have some additional limitations, but they are structured similarly to unit trusts. Regular intervals of capital can be invested, and there are recurring windows of liquidity (often once every quarter). A minimum investment of £25,000 may be required.

Three methods for getting into private markets.

With a focus on infrastructure and private equity, EQT Nexus exposes investors to a private-market portfolio. The second-largest private equity firm in the world, EQT, is in charge of managing the fund. Its roots are in the Wallenberg family, a prominent European business family and a member of the Swedish industrial dynasty.

Following in the Wallenberg family's footsteps, EQT makes investments in worthy companies, assisting them in becoming outstanding, long-lasting enterprises. The fund has generated a return of 20.2% in sterling and increased its net assets to 1 billion since June 2023. In the long run, the fund aims for a return of 1215 percent per year net of fees. A minimum investment of £26,000 is required.

Focusing on "secondaries," the Franklin Lexington PE Secondaries Fund buys private equity investments from other market players, typically at a discount, a few years after the initial investment. The portfolio has decreased in risk by this point. With a strong track record, Lexington is a skilled manager of secondaries. Since its founding more than three decades ago, it has been involved in this market and has invested £40 billion in this asset class. Secondaries under Lexington's management have produced an average internal rate of return (IRR) of 16.0% since 1990. The bare minimum is £26,000.

Renowned investors Howard Marks and Bruce Karsh are at the helm of Oaktree Capital Management, a global specialist credit investor. Exposure to opportunistic credit and private direct lending, two of Oaktree's primary specialties, is provided by the Oaktree Strategic Credit Fund. The company's experience with distressed credit led it to concentrate on downside risk; its £45 billion in private direct loan default and recovery rates have historically outperformed those of its peers while maintaining the higher yields associated with private credit. The net distribution yield and net leveraged return that the fund aims for are 810 and 911 percent, respectively. With a reduction in the annual management charge from 2 percent to 1 point 8 percent, investors can purchase founder share class in sterling. A minimum of 51,000 must be invested.