In recent years, the debate surrounding private markets has intensified — sometimes with enthusiasm, at other times with caution and a measure of unease. One thing, however, is certain: we are witnessing a structural shift in the way alternative investments are entering the lives of ordinary savers.
Until not so long ago, the private markets universe was almost exclusively the preserve of large institutional investors. A closed club of sorts — defined by capital, expertise and long time horizons — populated by pension funds, insurance companies, foundations and family offices.
Today, however, thanks to regulatory developments (ELTIF 2.0, alternative PIRs) and the push from fintech platforms, those boundaries have widened. And a growing number of private savers are beginning to wonder whether the moment has come to “dip a toe” into this world.
But is it truly an opportunity for everyone?
And why, at the same time, are many international regulatory authorities sounding the alarm — to the point that some are raising the possibility that the next financial crisis could originate in private markets themselves?
Let us try to shed some light on the matter.
What private markets really are
When we speak of private markets, we are speaking of investments that do not pass through regulated markets.
There are no daily prices, no order books, none of the transparency that characterises the public market.
Within this perimeter we find many different forms:
- private equity and venture capital, which finance the growth or creation of unlisted companies;
- private debt and direct lending, meaning loans extended directly to businesses, often as an alternative to bank credit;
- real estate and infrastructure funds;
- investments in real assets such as energy, logistics and agriculture.
This is, in essence, an important segment of the real economy.
A segment that demands patient capital, analytical capability and a long-term perspective.
The “democratisation” of alternative investments
The introduction of the ELTIF 2.0 Regulation represented a turning point.
Entry thresholds were lowered, rules were simplified and the market seized the opportunity to build “semi-liquid” products aimed also at private clients.
Alternative PIRs added a further element, allowing investment in the real economy with significant tax advantages.
This transformation has been accelerated by digital platforms, which enable rapid subscriptions, fractional units and investments even of modest amounts.
All of this is very compelling.
Yet the ease of access should not mislead: the nature of the instrument remains complex.
The heart of the matter: risks (often invisible)
Anyone approaching private markets must first accept one fundamental concept: we are not talking about liquid instruments.
Here, capital is locked up for years — sometimes for a decade. Redemption windows, where they exist at all, are limited and not guaranteed.
The second characteristic is that valuations are not “market prices”: they are estimates.
Appraisals, models, multiples. Volatility appears low only because it is not visible — not because it does not exist.
Another crucial element is dependence on the manager: asset selection, monitoring, governance, the timing of exits — all of this makes the difference between success and failure.
Then there is the question of concentration: many funds invest in only a handful of companies. Specific risk, therefore, is by no means negligible.
And there is the J-curve effect: the first years almost invariably show negative returns, because costs arrive immediately whilst returns come much later.
Finally, macroeconomic risk must not be overlooked: elevated interest rates, slowdowns in the business cycle, and credit crises can weigh heavily on heavily indebted businesses or complex infrastructure projects.
Why some fear the next crisis could originate here
In recent months, cases such as Tricolor and First Brands in the United States have triggered more than one warning signal.
These are companies linked to private credit, in some cases with elaborate financial structures and valuations that, with the benefit of hindsight, proved excessively optimistic.
The Governor of the Bank of England, Andrew Bailey, compared these episodes to the “canary in the coal mine”: a signal that must not be ignored.
The warning is clear: do not underestimate phenomena that, by virtue of their scale and interconnections, could have broader repercussions than commonly believed.
This is precisely the point: private markets have become enormous. Their growth has not been accompanied by a proportionate increase in transparency or standardisation.
And when a sector grows rapidly in the shadow of traditional finance — with internal valuations and chains of funds investing in other funds — it is legitimate to ask whether risk is not accumulating in ways that are largely invisible.
In some cases, “semi-liquid” instruments offer periodic redemption windows that, if tested by substantial withdrawal requests, could prove unsustainable.
In others, illiquid or troubled assets are repackaged within new vehicles, sometimes under highly attractive labels.
This is not scaremongering: it is a matter of observing what is happening with clear-eyed judgement.
So, how does one navigate this?
The answer, for me, is always the same: transparency, awareness, independent advice.
Before investing, it is essential to understand:
- who manages the fund and what track record they have;
- what the underlying assets are, in which sectors, with what risks and what degree of financial leverage;
- how the cost structure works and in what way the manager’s incentives are aligned with the investor’s interests;
- what proportion of one’s wealth can reasonably be allocated to illiquid instruments;
- whether one’s personal time horizon is compatible with that of the instrument.
Private markets can be a useful component in a solid, well-constructed portfolio with long-term objectives.
But they are not, and never will be, a suitable instrument for those seeking liquidity, simplicity or short time horizons.
Conclusion
The growing opening of private markets to retail investors represents an important development, and in some respects a positive one. It enables the financing of businesses, infrastructure, and innovation. It brings private savings closer to the real economy.
But every innovation brings new responsibilities with it.
And the first responsibility is to understand. To understand what lies inside an instrument. To understand what risks it entails. To understand how it may behave under conditions of stress. To understand whether it is truly consistent with one’s own objectives.
Because financial instruments are not “good” or “bad” in any absolute sense. They are suitable or unsuitable, understood or misunderstood, well managed or poorly managed.
And the greatest risk today is not investing in private markets. It is doing so without awareness.