Celestin Pepin is a graduate of the University of St. Gallen in Switzerland, where he studied economics. Mr. Pepin recently began working with the Swiss Red Cross, helping children from war-torn countries who have been granted asylum in Switzerland to adapt to the school system, learn French, and do their homework. Benefiting from a wealth of experience of financial markets with a keen interest in alternative assets, Celestin Pepin is an accredited chartered financial analyst and associate at Invescap, having formerly served as a lieutenant in the Swiss Armed Forces.
This article will look at private assets, exploring fundamental concepts including the key differences between private and public assets.
A private asset is essentially a form of investment that is not publicly traded. Private assets take various forms, including real assets, debt, and equity. The value of private assets is usually determined through quarterly valuations, whereas the stock price of public companies is continually tracked.
Public investments typically offer high liquidity, being easily bought sold via stock exchanges. Public assets include everything from stocks, exchange-traded funds, and mutual funds to bonds, futures, and contracts.
Interest in private assets is growing among retail investors, fueling surging demand for technologies capable of identifying promising private wealth generation avenues. Historically, institutional investors have benefited from increased investment options, with many investing in both private and public assets. Seasoned investors may be able to find unique value in private assets that simply is not available in public markets; for instance, venture capital investments offering access to high-growth companies that are not listed on a public exchange.
Compared with public markets, private asset analytics tends to be incredibly complex, often requiring teams with specialist knowledge, including familiarity with cashflow management, funding risk, and the legal obligations associated with investing in private capital. These specialized workflows increase the cost of investing in private assets, requiring more research and analysis. Although typically less accessible than public assets, technological breakthroughs in the field of private asset analytics are breaking down barriers, making investing in private assets increasingly possible for retail investors.
Private asset valuations are inherently different to those for publicly traded assets, reflecting a longer-term outlook. Public market valuations reflect broad investor sentiment, which can fluctuate on a daily or even hourly basis. Public markets exist to provide liquidity, with market price movements directly correlating with buyer sentiment on a given day. Private assets, on the other hand, are not traded on an exchange and have no secondary market. Public markets are therefore difficult to compare with private market funds, the latter being an inherently closed-ended and long-term investment option.
It is the responsibility of private market managers to see past short-term market noise to determine the underlying asset’s long-term value. These valuations are by their nature forward-looking and can be affected to a greater extent by asset-level developments. Due to the long-term nature of private asset investments, valuations and reporting cycles for private market funds are periodic, with quarterly reporting for traditional closed-ended funds and monthly reporting for semi-liquid funds and generally little to no movement between updates. Because of this, private market funds are usually slower to reflect market downturns. Equally, assets tend to be uprated more slowly, with private markets taking longer to reflect upward swings. The upside is that this lag can help smooth volatility in the event of market corrections.
Despite their unique characteristics and reduced volatility, investing in private asset funds is not without risk. It is important to acknowledge that calculations are inherently based on subjective considerations, reflecting managers’ views and interpretations of inputs. This analysis is an imperfect science that can lead to variations in valuation outcomes, even for identical or similar assets.
