How To Talk to Your Financial Advisor About Private Markets

Private markets, or assets not traded on public exchanges, were once reserved for only institutional or ultra-wealthy investors. Today, technological advancements, regulatory changes, and new fund structures have expanded access for retail investors. Meanwhile, attention-grabbing headlines about remarkable historic returns are drawing more interest in private market investing. 

Still, private markets carry complex and unique risks, so investors should make informed, intentional investments, considering their timeline, risk tolerance, and goals, with guidance from a financial advisor.

What Are Private Markets?

Private markets are debt and equity investments that you won’t find on public exchanges. Investors in private market transactions allocate capital directly to private businesses, projects, or real estate ventures instead of buying publicly traded companies like Apple, Microsoft, or Amazon shares. 

Under the private market umbrella, there are several different investment categories and opportunities:

Private Equity (PE)

Private equity is an alternative investment opportunity where high-net-worth investors or investment firms buy shares of non-publicly traded companies or publicly traded companies to manage them and delist them from exchanges.

Venture Capital (VC)

Venture capital is a type of private equity investing where private investors, institutional investors, investment banks, or other financial institutions allocate capital to early-stage start-ups deemed to have high-growth potential. Venture capitalists may also provide technological expertise, managerial experience, and financial support.

Private Debt

Private credit involves investors loaning money to businesses or sometimes individuals in exchange for loan repayment plus interest. In many instances, companies and individuals seeking private credit loans cannot get loans through banks or other public market institutions. 

Real Assets

Real assets, such as real estate, precious metals, or land, derive their value from their physical properties. Due to their illiquidity and lack of regulatory oversight, real assets fall under the private market umbrella. 

Why Private Markets May Be Right for You

Historically, private markets were only accessible to large institutions and the ultra-wealthy–but that may be changing. Since 2010, the democratization of private markets has driven a 618% surge in assets, and that growth will accelerate as technology platforms make investing easier and new regulations open opportunities to more people.

Private markets, specifically private equity and venture capital, have historically delivered higher returns in the medium to long term than public sector investing. In the period between 2000 and 2025, private market returns offered net annualized time-weighted returns of 13%, compared with 8% for the Russell 3000. 

Returns in private markets are not always correlated with public stocks and bonds. They depend on different economic drivers like company-specific growth and long-term plans more than daily market swings. Because of this, private markets can add diversification to a portfolio that helps to smooth out returns over the long term. 

This broader participation and growing accessibility of private markets continue to pique interest, allowing more investors to pursue the potential returns and diversification benefits of private markets. However, these opportunities still carry complexity, fees, and liquidity risks that require careful consideration.

What To Ask Your Financial Advisor

Here are key questions to ask before investing—and why they matter:

1. Am I Qualified To Invest in Private Markets?

While the democratization of private markets has made investing more accessible, many offerings still have income or net worth thresholds. Your advisor can help determine your eligibility and suggest alternative options based on your financial status.

2. How Do Private Market Investments Compare to Traditional Ones in Terms of Risk and Return?

The potential outsized returns of private markets come with increased risk from lack of transparency, holding periods, leverage, and business failure. Ask your advisor to compare returns with volatility for a more complete picture.  

3. What’s the Liquidity Profile, and How Long Is My Money Locked Up?

Your goals, risk tolerance, and timeline should govern your investments, but these are particularly pertinent when considering private markets because private markets often have 5-10 year holding periods. 

4. What Are the Fees, and Who Gets Paid?

Private markets often include management fees, carried interest, and various transaction or monitoring fees. These fees can eat into returns, so it’s essential that your advisor maps out the fees and how they affect your bottom line before committing capital.

5. How Does This Fit My Financial Plan?

Ask your advisor how private markets align with your goals, risk tolerance, and timeline.

Other helpful questions:

• What are the historical returns of the specific strategy or fund?
• Who is the general partner or fund manager, and what is their track record?
• How often will I receive updates or reporting?

Understanding Access Channels

Several fund vehicles offer access to private markets—each with its own requirements, liquidity, terms, and cost considerations. Some examples include:

Feeder or interval funds: These funds pool investor capital to meet minimum investment requirements, which allows smaller investors to participate. Benefits include smaller initial investments, some liquidity, and diversified exposure to private assets. 

Direct platforms: Technological advancements have given rise to online investment platforms that enable individual investors to connect directly to private markets. These platforms usually lower minimum investments and provide access to opportunities for diversification not generally available to individual investors. 

Retail private funds: Often structured as business development companies (BDCs), these funds typically offer access to the private credit market. One analysis showed that these funds offered lower returns than those that were available to accredited investors.

Before choosing any access channel, discuss fees, liquidity, and regulatory oversight with your advisor to determine how they pertain to your investment objectives, timeline, and risk tolerance. 

Risks To Discuss

Private markets have unique risks, specific to the private sector, as well as risks investors have come to expect. Before committing capital to private markets, ensure your advisor addresses all risks, but specifically the following:

Illiquidity: Private market investments often have holding periods that require you to commit capital for 5-10 years, often with no secondary market to allow for an early exit. 

Valuation opacity: Private assets do not trade on public exchanges or have daily market pricing. Their valuations come from periodic appraisals, internal models, and comparable transactions, which makes it harder for investors to understand the current value of their investments.

Fund structures: Many private funds employ complex structures, such as the waterfall model, to determine when to sell assets and how to distribute profits. This approach can be risky, as the timing and amount of your returns depend heavily on the manager’s decisions and the fund’s performance.

Regulatory protections: Private investments are generally less regulated than public ones. Because they have limited reporting requirements and disclosures, they, in turn, have fewer investor protections. To minimize this associated risk, it is critical to understand the fund manager’s track record. 

The Bottom Line

Private market opportunities are becoming increasingly accessible and more popular among individual investors. While they do offer the potential for higher returns and diversification, they’re not for everyone. Private markets have illiquidity, valuation opacity, regulatory oversight, and fund structure risks that could deter individual investors.

The key to confident private market investing is an open, informed conversation with your financial advisor about how private markets support your risk tolerance, timeline, and goals.