Understanding Private Assets: A Detailed Guide for New Investors

What Are Private Assets and Why Are They Gaining Popularity?

Private assets refer to investments in companies or projects that are not listed on public exchanges. This includes private equity, private credit, infrastructure, and real estate. Historically, these markets were dominated by institutional investors, but individual investors are now increasing their allocations, sometimes approaching institutional levels. The main motivator is the compelling return history of private assets, which have often outperformed public markets, especially during periods of volatility.

Recent product development, regulatory changes, and technological advances have made private markets more accessible to smaller investors. New fund structures—like the Long-Term Asset Fund (LTAF) in the UK, the European Long-Term Investment Fund (ELTIF), and evergreen open-ended funds—have opened doors for broader participation.

Access and Regulation: What Has Changed?

While access is expanding, regulators have also introduced stricter rules to protect smaller investors. For example:

• In the UK, investors must meet certain criteria, pass a suitability review, and have a 24-hour cooling-off period.
• In South Africa, investors must qualify under specific legal definitions or meet minimum investment thresholds (such as R1 million).
• Globally, higher minimums and suitability checks are common, reflecting the complexity and risks of private assets.

Portfolio Fit: How Should Investors Approach Private Assets?

1. Risk Assessment and Allocation

Investors typically fall into risk categories: cautious, balanced, growth, and aggressive. For a "growth" investor (with 50–80% equity exposure and good investment understanding), a 20% allocation to private assets across private debt, equity, and real estate may be appropriate.

2. Building Exposure Gradually

Private asset allocations should be built up over time to ensure "vintage diversification"—spreading investments across different years and market cycles. This helps smooth out returns and reduce risk from market timing.

3. Structure Selection

• Closed-ended funds: Suitable for those able to lock up capital for 10+ years. These funds have a fixed lifespan and invest in specific vintages.
• Evergreen funds: Open-ended with no predetermined end date, allowing for periodic liquidity but still requiring a long-term commitment. These are more flexible for investors with lower minimums or uncertain time horizons.

How Private Asset Investing Works

Capital Deployment and Liquidity

• Private investments are illiquid—there’s no immediate secondary market, and capital is typically locked in for years.
• Fund managers raise capital in "vintages," each with an investment and a harvesting phase. Returns are realized through exits (IPOs, sales, or continuation vehicles), usually 5–7 years after investment.
• Over time, distributions from matured investments can be reinvested, creating a self-sustaining allocation.

Vintage Diversification

Investing across multiple vintages (years) helps mitigate risks associated with economic cycles. This approach can enhance returns, reduce volatility, and build robust, self-funding portfolios. Investors can achieve this by making annual commitments or using multi-vintage or perpetual funds.

Risks and Considerations

• Illiquidity: Private assets cannot be easily sold or transferred. Investors must be comfortable with long holding periods and the potential for capital loss.
• Complexity and Transparency: These investments have less regulatory oversight and transparency than public markets, and often involve higher fees.
• Suitability: Private assets are best suited for sophisticated investors who can tolerate illiquidity and higher risk, and who have a long-term investment horizon.

How Liquidity.io Is Transforming Private Asset Investing

Liquidity.io is a digital platform designed to revolutionize the trading and settlement of private credit and private stock, traditionally among the most illiquid asset classes. Here’s how it’s making a difference:

• Blockchain-Powered Efficiency: Liquidity.io uses blockchain to streamline compliance (KYC/AML), increase transparency, and enable near-instant settlements—addressing one of the biggest hurdles in private markets: lack of liquidity.
• Access and Partnerships: The platform is launching with over a billion dollars in commitments from private credit originators and private companies, offering unprecedented access to a wide array of private assets.
• For Accredited and Institutional Investors: Liquidity.io is initially focused on accredited and institutional investors, providing them with tools to trade, settle, and manage private assets more efficiently than ever before.

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