Investors ignoring private markets may be missing out

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Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

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Ana Puric, vice-president, investment specialist, CIBC Asset Management 

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The reason why private markets are becoming more important for investors, I guess the simplest way to think about this is the structure of the global economy has changed, but many portfolios haven’t caught up yet. 

So first I’d say, you know, companies are staying private for longer. Historically, firms would go public earlier in their life cycle, giving public market investors access to most of the growth phase. Today, the median age of IPOs has increased significantly, from around six years in 1980, to roughly 14 to 16 years today. That means a large portion of value creation is happening before companies ever reach public markets. 

The second point I’d make is that public market opportunity set is shrinking. So the number of listed companies, especially in the U.S., has declined materially over the past few decades. At the same time, globally, nearly 90% of companies with revenues above $100 million are private. So if you’re only investing in public markets, you’re effectively accessing just a fraction of the real economy. 

The third point is that public markets have become more concentrated. So today, a small group of mega-cap companies dominates the indices. The top 10 names now account for roughly 40% of the S&P 500. That concentration reduces diversification and increases dependence on a handful of firms. 

The fourth point would be passive investing and investors accelerating short-term focus are reshaping markets. With more capital flowing into index strategies, market pricing is increasingly driven by flows, rather than fundamentals. At the same time, public companies face intense quarterly scrutiny, which can discourage long-term investment and innovation. 

The fifth point would be capital availability has shifted. Private markets now have the scale to fund companies at every stage. Private assets under management have more than doubled in the last decade, going from $10 trillion to $20 trillion today. Companies no longer need to go public to get access to capital, which further reinforces the cycle. 

And finally, I’d say innovation itself is increasingly private. Frontier technologies, especially in areas like AI, are being developed and scaled in private markets. We’re seeing it with some of the private holdings, like a SpaceX, or an Anduril Industries. Public markets often capture these companies only after they’ve matured. When you put this all together, a growing share of economic growth and value creation is happening outside of public markets. 

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Private markets provide several structural advantages that are difficult to replicate in public markets. First is access to earlier-stage growth. Because companies stay private for longer, and private equity and venture capital investors can participate in the most dynamic phases of a company’s expansion. So public investors often enter later, when the growth has already happened. 

The second is long-term active ownership. Private equity investors are not just passive shareholders. They’re actively involved in strategy, operations and capital allocation. This alignment enables them to drive operational improvements and long-term value creation, rather than reacting to short-term market pressures. 

The third is exposure to innovation. As mentioned earlier, a large share of innovation, especially in sectors, like technology and healthcare, is happening in private markets. Venture capital, in particular, offers access to companies shaping future industries before they reach scale. 

And finally, access is broadening. Historically, private markets were limited to large institutions. But new structures, like evergreen funds, are making these exposures more accessible to a wider set of investors. 

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Diversification is especially relevant in the current environment where the traditional 60/40 portfolio is under pressure. In the past, equities and bonds tended to be negatively correlated. When one went down, the other often provided a cushion. But with the return of inflation, that relationship has weakened. We’ve seen periods where both asset classes decline simultaneously, reducing the effectiveness of traditional diversification. 

Private markets can help address this in several ways. First, they can introduce different return drivers. Private equity returns are more closely tied to operational improvements, strategic growth and long-term value creation, not just market sentiment. This can reduce reliance on public market beta. 

The second point would be, they provide access to a broader opportunity set. As we discussed, much of the economy is now private, so allocating to private markets helps close that exposure gap. 

The third point, they can enhance long-term return potentials over longer horizons — 10, 15, or 20 years. We’ve actually seen private equity historically outperform public equities on an Internal Rate of Return basis. That reflects both access to earlier growth, and benefits of active ownership. 

The fourth point would be they reduce exposure to certain public market risks. So private investments are less affected by index concentration, momentum-driven flows, and daily mark-to-market volatility. 

They also offer portfolio level optionality. Venture capital, in particular, provides exposure to breakthrough innovation and potential for outsized returns, even if only a small number of investments succeed. 

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When it comes to private markets, there are some risks to consider when investing and putting your clients into private strategies. One of the key ones would be the fact that they’re more illiquid than traditional investments. 

Typically, evergreen strategies, they do offer liquidity, but it’s on a quarterly basis, and generally, it’s 5% of NAV. If it breaches that, you could get into situations where some strategies are experiencing gating. So, it is important to note that, and to make sure to notify clients and understand their risk appetite. A venture evergreen fund would be at a 2.5%. Private equity is a little higher than that, more liquid. So it’s really important to understand how managers decide to build out their portfolios and how they decide to fund liquidity. 

This is why manager selection is absolutely crucial when investing in private markets, because, again, the dispersion of returns between top and bottom quartile manager in private markets is widening, and we can expect that to get wider. 

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To bring this all together, private markets come with trade-offs, namely, liquidity, longer investment horizons and higher dispersion of outcomes. That means manager selection, discipline and appropriate sizing are critical. 

So, to wrap this all up, we’re seeing a structural shift in private markets, where companies are staying private for longer, public markets are becoming more concentrated and less representative, and a growing share of growth and innovation is happening outside public markets. For investors, this isn’t just a tactical opportunity, it’s a strategic one. Private equity and venture capital are no longer optional alternatives. They’re increasingly essential tools for accessing the full spectrum of global economic growth, enhancing diversification and building more resilient portfolios for the long term.

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