Private Markets for Limited Partners

Private markets are a core allocation for many limited partners (LPs), offering access to return streams and opportunities not available in public markets. For LPs, the asset class is defined less by individual investments and more by how capital is deployed across different structures: primarily funds, co-investments, and secondaries.

At a high level, private markets involve committing capital to strategies such as private equity, private credit, venture capital, and real assets. Unlike public markets, capital is not deployed immediately. Instead, LPs commit to investment vehicles managed by general partners (GPs), who draw capital over time, invest it, and return proceeds as assets are realised.

The most common entry point is through funds. In a traditional private markets fund, LPs commit capital to a blind pool managed by a GP. The GP is responsible for sourcing, executing, and managing investments, typically over a 10-year lifecycle. This structure provides diversification and access to the GP’s platform, but comes with fees, limited control, and reliance on manager execution. For most LPs, funds form the foundation of a private markets portfolio.

Co-investments sit alongside fund commitments. Here, LPs invest directly into specific deals alongside a GP, usually with reduced or no management fees and carried interest. Co-investments allow LPs to increase exposure to high conviction opportunities and deploy capital more efficiently. They also provide greater transparency and underwriting involvement. However, they require internal resources, speed of execution, and the ability to assess individual transactions. Access is typically dependent on existing GP relationships.

Secondaries provide a different entry point. Rather than committing to a new fund, LPs acquire existing fund interests or portfolios of assets from other investors. This can offer accelerated deployment, earlier visibility on underlying assets, and mitigation of blind pool risk. Pricing is a key driver of returns, with opportunities often arising from liquidity needs or portfolio rebalancing by sellers. Secondaries can also include GP-led transactions, where existing assets are rolled into new vehicles.

From a portfolio construction perspective, these three components serve distinct roles: funds provide broad exposure and manager access, co-investments enhance returns and reduce fee drag, and secondaries improve pacing and offer more control over entry points. A well-structured private markets programme typically blends all three.

There are, however, structural considerations. Private markets require long-term capital, with commitments drawn and returned over time. Cash flow management is critical, particularly when layering funds, co-investments, and secondaries. Governance and resourcing also matter, as LPs need the ability to diligence managers, assess opportunities, and monitor portfolios effectively.

Performance dispersion is another defining feature. Outcomes vary significantly between managers and strategies, making access and selection central to success. For LPs, this shifts the focus from market timing to manager selection, portfolio construction, and consistent deployment.

In practical terms, private markets are not a single allocation but a programme. Funds, co-investments, and secondaries are the core building blocks. Understanding how they interact, and how to use each effectively, is fundamental to building a resilient and scalable private markets portfolio.