Katherine Rosa:
For investors looking for ways to enhance returns and manage portfolio risk, private investments—private equity, private credit, real estate and real assets—can be an attractive, long-term complement to traditional public equity and fixed income allocations. At J.P. Morgan Private Bank, our suitable clients typically allocate 5 to 15% of their portfolios to investments, with the primary goal of generating outperformance over public holdings. Now these are long-term investments, and there is a liquidity give-up that they, and private equity in particular, necessitate. 

Over the last 20 years, the average spread to public markets has been in the range of 4 to 5% annualized, and this market continues to evolve and expand. We can point to the formation of new private companies, the steady increase in U.S. public companies choosing to remain or go private, and the alternative sources of capital that companies seek across their balance sheets. Having said that, these private companies are not easily available—they are sourced, negotiated, and then develop over time with holding periods that are planned out for years, typically three to five, for any given investment. A well-constructed private portfolio can become self-funding over time, with capital from eventual sales or exits, and be a provider of liquidity into the portfolio.

The potential for these excess returns to the public market is not as simple as a willingness to take on some illiquidity. The longer-term time horizon allows companies, management and investors to run these companies differently; they are not in the spotlight of daily share trading and quarterly earnings announcements. The partnership between these companies and investors is also different—they are specifically choosing to work together. Generally, that entails access to information and development of detailed action plans for the business before an investment is even agreed upon. This leads to a working partnership to make transformational changes inside a company.

Certainly, the financial metrics include revenue growth and profitability improvements, but the levers to pull these in achieving these results are numerous. We look for partners in the private markets that bring these companies operational expertise to drive innovation and improvement, specialists in a sector to support organic sales and identify areas for product expansion often by building or buying. So here looking to make businesses better, using hands-on, repeatable approaches that may require a longer time horizon, but can generate better results for all involved.

We work closely with our clients to help think about the various ways you may want to invest in the private markets.

There’s potential to build consistent and appropriately diversified exposures that consider vintage year, industry sectors, geography, size and stage of company. But also types of return, so balancing potential for income and long-term gains. Today, there are more than 2,000 funds in the marketplace. With our global team and dedicated due diligence professionals, we are committed to partnering with you to navigate the private markets.