Private equity, venture capital, private credit and real estate funds sit outside the stock market. Here is what makes them different, and what to ask before investing.
Key takeaways
- Private markets include private equity, venture capital, private credit and private real estate.
- Many offerings require accredited investor status, such as $200,000 income ($300,000 joint) or $1 million net worth excluding your home.
- Commitments are drawn through capital calls over years; plan cash accordingly.
- Illiquidity, limited information and manager dispersion are the main risks.
- Track private holdings with the rest of your net worth to see true exposure.
What counts as private markets
Private markets are investments that do not trade on a public exchange. The main categories are private equity, which buys stakes in established private companies; venture capital, which funds early-stage startups; private credit, which lends directly to companies; and private real estate and infrastructure funds.
Because these assets are not listed, there is no daily price and no easy way to sell. Valuations are typically estimated by the fund manager on a periodic basis, often quarterly.
Who can invest
Many private offerings are limited to accredited investors under SEC rules. For individuals, common ways to qualify include income above $200,000 in each of the last two years ($300,000 together with a spouse or partner) with the expectation of the same this year, or net worth above $1 million excluding the value of a primary residence. Certain professional licenses also qualify.
Some offerings require higher thresholds, such as qualified purchaser status. Newer vehicles like interval funds and some tender-offer funds are open to a broader set of investors, with their own liquidity rules.
How a private fund works
In a classic fund, you make a commitment, an amount you agree to invest over time. The manager then issues capital calls as it finds investments, often over several years. You need cash available to meet those calls when they arrive.
As investments are sold, the fund makes distributions. Funds commonly run ten years or more. Early on, returns often look negative as fees are paid before investments mature, a pattern known as the J-curve.
Fees are typically a management fee on committed or invested capital plus carried interest, a share of profits above a hurdle. Read the fund documents carefully; terms vary widely.
Illustrative diagram.
Assume your capital stays locked up until the fund winds down.
The risks to weigh
Illiquidity is the defining feature. You should assume your capital stays locked up until the fund winds down, and secondary sales, when possible, may come at a discount.
Information is limited compared with public companies, and valuations are estimates. Smoothed quarterly marks can make private assets look less volatile than they really are.
Manager selection matters a great deal. Outcomes across private funds vary much more than across public index funds, which makes due diligence on the manager, strategy and terms essential.
| Public markets | Private markets | |
|---|---|---|
| Pricing | Continuous, exchange-traded | Periodic manager estimates |
| Liquidity | Sell on any trading day | Locked up for years |
| Access | Open to most investors | Often accredited investors only |
| Disclosure | Regular public filings | Limited reporting to investors |
Questions to ask before committing
How much of my net worth would this lock up, and for how long? Do I have liquid reserves to meet capital calls? What are the full fees? How are holdings valued, and how often will I get reports? What happens if I need to exit early?
It also helps to track private holdings alongside everything else. Wealthnow lets you bring private investments into one view next to your public accounts, so commitments, called capital and estimated values sit beside the rest of your net worth. Wealthnow finds and proposes; you approve every move.
Glossary
- Capital call
- A request to send part of your commitment to the fund.
- Carried interest
- The manager's share of profits above a hurdle.
- Accredited investor
- An SEC category based on income, net worth or certain licenses.
Frequently asked questions
What is a capital call?
A request from a private fund manager to send part of your committed capital, usually when the fund makes an investment.
Can I sell a private fund investment early?
Usually not easily. Some secondary markets exist, but sales may be at a discount or not possible.
What is the J-curve?
The tendency of private fund returns to look negative early, as fees are paid before investments mature, then improve later.
Educational content, not investment, tax or legal advice. Wealthnow finds and proposes; you approve every move.
