Private markets and the need to ask questions

By Aneet Deshpande | Chief Investment Officer, Clearstead
May 21, 2025

The push into the wealth management channel by private market asset managers has been more pronounced than ever. New fund structures in the ‘evergreen’ category alongside a broader push by asset managers to distribute traditional drawdown private market structures are giving individual investors and wealth managers newfound access to private markets – asset classes that most individual investors had traditionally been left out of.

Investors and the wealth management industry both seem keen to adapt to the increased access to private markets, coupled with recognizing the importance of the private sector in the US (and global) economy writ large.

The importance of the private sector in the US economy

The public markets are less of a reflection of the overall economy today than 50 years ago and so it is rational to expect investment portfolios to adapt to these differences.

• Private companies account for 85% of all companies generating more than $100 million in revenues in the US.¹
• US publicly traded companies have declined by 50% over the last twenty-five years.²
• Employment by S&P 500 companies represents less than 20% of total US employment.³
• Capital expenditures (capex) by S&P 500 companies represents just 15% of total capex in the US.³
• Small privately owned businesses account for over two-thirds of job openings.³

Institutionalizing individual portfolios

In a recent Bank of America survey, when posed with the statement “it is no longer possible to achieve above-average investment returns by investing solely in traditional stocks and bonds”, 72% of respondents aged 21-43 agreed with the statement.⁴ Taken one step further, this cohort of investors tends to favor private market strategies (e.g., real estate, private equity, and direct investments), cryptocurrency, and digital assets.⁴ While the demand drivers are notable for this next generation, interest in private markets remains robust across cohorts with nearly two-thirds of investment advisors planning to increase allocations to private markets over the next three years.⁵ In aggregate, individual investors account for about 20% of total private market AUM, and that is expected to surge to 37% over the next five years.⁶

Asking questions

The result has been a steady supply of new products with the promise of connecting investors to private markets, often through simplified fund structures. However, simply investing in private markets does not guarantee a better outcome compared to public markets. That is the unfortunate truth. Exhaustive due diligence and a clear understanding of fund structures and investment strategy are paramount in order to experience the benefits of private markets, whether that be investing in digital assets, private equity, private credit, or infrastructure. Considerations for traditional private market strategies in drawdown structures can include evaluation of the investment team, investment process, portfolio sourcing, investment strategy, track record, key man provisions, waterfall, fees (management and incentive), auditors, counsel, background and reference checks, legal reviews of agreements, LP base, tax implications – to name a few. For evergreen fund structures, considerations might include things such as fund structure, fund lifespan, subscriptions and redemption cadence, liquidity gates, fees (management and incentive), investor qualification, investor base, portfolio construction, portfolio and liquidity management – to name a few.

While potentially rewarding, the complexity of these structures and the investments being made require a level of understanding and due diligence that can be extraordinarily time consuming. It is important to get this right, as the range of outcomes in the private markets are significantly wider than in public markets. Investing with top-tier managers is essential for capturing private market outperformance. In other words, picking the wrong manager or wrong structure in private markets is exponentially more hazardous than getting it wrong in the public markets. We have seen this movie before.

For investors and wealth advisors it is important to balance interest and excitement with a structured process that allows you to make the best decisions possible. These trends are shaping up to be multi-year in nature and the role of private markets in capital formation and the economy are likely to continue to be profound and so it is important for advisors and investors alike to understand what exactly they are investing in, in terms of the structure of the fund, the nature of the underlying investment, as well as the quality and track record of the manager.

[1] Blackstone, Bain & Company, “Global Private Equity Report,” 2023.[2] PitchBook[3] Apollo[4] Bank of America Institute, “2024 Bank of America Private Bank Study of Wealthy Americans.”[5] Adams Street Partners, 2025 Advisor Outlook, “The Rise of Private Wealth in Private markets.”[6] Morgan Stanley, “Accessing the $70Tr Private Wealth TAM,” 2024.

Information provided in this article is general in nature, is provided for informational purposes only, and should not be construed as investment advice. These materials do not constitute an offer or recommendation to buy or sell securities. The views expressed by the author are based upon the data available at the time the article was written. Any such views are subject to change at any time based on market or other conditions. Clearstead disclaims any liability for any direct or incidental loss incurred by applying any of the information in this article. All investment decisions must be evaluated as to whether it is consistent with your investment objectives, risk tolerance, and financial situation. You should consult with an investment professional before making any investment decision. Performance data shown represents past performance. Past performance is not an indicator of future results. Current performance data may be lower or higher than the performance data presented.

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