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An alternative perspective | Private (versus public) markets
Published 5 March 2024
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The foundation of asset allocation strategies shifted during 2023. Diversification into defensive alternative assets (uncorrelated to other major asset classes and with capital protection) as well as pricing-power (to pass on inflation) gained momentum. 

In this new era of investing how should we think about alternative private market assets? What are the key differences (if any) between the public and private market and what is the scope, size, and outlook for the extended private (alternative) market family? 

No difference in the underlying asset 

Private market assets (sometimes referred to as ‘alternatives’) are not new or in any fundamental way unique from their public market counterparts. 

Private markets simply offer different ways for investing in the same underlying asset. Immune from the persistent pressure of public market pricing, private market investing revolves around proprietary deals based on market fundamentals, utilising specialist management and operating expertise to add value. 

The private market family 

Considered ‘alternative’ but fundamentally like public assets (with certain key advantages), private market investing enables direct management and control of a security to achieve a higher return at a lower level of volatility. 

Equities (or shares) is money invested in the ownership of a corporation priced (in an ideal world) to reflect earnings potential and traded daily on a public securities exchange. Equity is the first to bear any losses (if they occur) within the capital structure of an entity or asset and its volatility is reflective of the movement in value of the underlying asset and expected future earnings. 

Private equity (PE) refers to owning a whole or part of a company. PE funds specialise in mergers and acquisitions and leveraged buyouts predominantly aiming to acquire a controlling stake in established corporates with the purpose of improving value through restructuring for subsequent resale.  

Private alternatives range across equity and debt 

Bonds (fixed interest) sit at the opposite end of the risk and capital structure to equity. A bond is a debt (loan) obligation of a company (or the government) that is actively and publicly traded. Private credit (debt) in essence is the same security – a loan obligation of a company secured against real assets without taking an ownership position in the entity. 

Private credit is a defensive asset class that seeks to offer both capital preservation (due to its priority position in the capital hierarchy) and relatively attractive risk-adjusted returns (due to its floating rate structure). It is a direct bilateral lending arrangement between a financier and a borrower with structured, bespoke terms and covenants and contractual payment terms and repayment date. 

The assets of private credit funds consist of a range of strategies including direct lending, venture debt or special situations provided as senior, junior or mezzanine debt to both listed and unlisted corporates, as well as for infrastructure and real estate assets.1 Secondary markets also exist for private credit but are less actively traded than bonds. 

The private market family of assets encompasses not just private credit (debt) and equity, but also incorporates real assets - equity and debt structures invested in real estate, infrastructure, and commodities.  

A focus on market fundamentals 

The pricing of private market assets occurs less frequently than publicly traded securities and, by design, is not subject to volatile market dislocation and momentum. Investors assess economic risk and return and commit capital based on market fundamentals. Investors are generally larger, sophisticated entities with a focus on long-term performance and secondary markets can be relatively shallow. 

Based on lower mark-to-market volatility compared to public markets, the trade-off for lower volatility in private market assets is lower liquidity (and transparency). Paradoxically, it is the limited liquidity which enables investors to commit capital based on underlying value, and not price (or sentiment), to deliver value through the cycle.  

Global growth into alternative assets set to continue 

Global public markets remain considerably larger than private markets. The market capitalisation of the New York Stock Exchange alone (~US$25 trillion) dwarfs the ~US$11.7 trillion of assets estimated to be held globally across private markets.2 

Although significantly smaller in overall scale, private markets have undergone significant expansion in the new millennium, increasing by ~12% per annum over the 10 years to 2022, and a rapid 17% over the past three years.3 

The double-digit growth has been driven by increasing allocation from investors attracted to the historic outperformance of private markets, a smoother ride on market appraisal (as assets are not valued by the most recent market movement of sentiment and price) and the ability to source a more diversified set of exposures, including faster growth in earlier stage companies.4  

Super funds and family office drive domestic capital 

The vast size and ongoing consolidation of Australia’s superannuation funds is a major factor driving capital allocation in domestic public and private markets.5 In search of diversification and higher returns the Australian superannuation sector plays an important role as the largest investor into private capital.6  

The next largest Australian-based investor is family office (private companies managing investment and wealth management on behalf of an individual family or high net-worth individuals), representing 23% of total investment. Family office is a rapidly growing sector in private market investing both domestically and globally.7 

An alternative way  

Asset prices are inextricably linked to interest rates. The aggressive and globally coordinated central bank tightening of rates has placed asset values under pressure. New options for products across the private market universe (particularly private credit) will support the fundamental shift occurring in asset allocation strategy into private markets, and not just for institutional investors. 

Growth in retail investment products, surging capital flows to private credit (in a higher interest rate environment), defensive buying opportunities in alternative real estate at meaningful discounts to replacement cost, continuing momentum in private/public investment partnerships in infrastructure, and the demand for impact and ESG (environmental, social and governance) investing is set to support the strong growth of private capital AUM. 


1 Private Debt in APAC, Japan, South Korea and Australia 2022, Preqin,

2 NYSE market capitalisation data from Statista, Private market capital estimate from McKinsey Global Private Markets Review: Private markets turn down the volume,

3 US Securities and Exchange Commission, The Growth of Private Markets and the impact on investors and the economy, Commissioner Allison Herren Lee, 12 October 2021, Australian Private Capital Market Overview: A Preqin and Australian Investment Council Yearbook 2022, Australian Investment Council, Growth rates quoted refer to assets under management.

4 Morgan Stanley, Thoughts on the market, 1 November 2022, Private Markets: Uncertainty in the Golden Age,

5 Australia’s superannuation funds manage assets worth $3.7 trillion (December 2023), APRA,

6 Australian Private Capital Market Overview: A Preqin and Australian Investment Council Yearbook 2023, Australian Investment Council,

7 Ibid

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