Key Takeaways

  • Private markets have generated higher returns than public markets over the last 10 years. Global private equity has yielded an average annual return of 14.2% versus global public equities at 10%.
  • Despite worldwide business upheavals in 2020, the private equity industry in Southeast Asia managed to grow by 4% in the first half of 2020

What are private markets?

Equities and debts of private companies form a growing proportion of financial investments around the world. However, most of them are not accessible to the general public and are hence called ‘Private Markets’. These markets are only accessible to the ultra-wealthy or well-connected.

Investing in private markets allows investors to diversify their investments and partake in its potentially higher returns. .

Private markets include but are not limited to these varied investment categories.

  • Unicorn Investing: Investing in private companies that achieve a valuation of US $1 Billion prior to listing on a public stock exchange.
  • Growth Capital: Investing in established companies that are poised for accelerated growth.
  • Venture Capital Funds: Venture capital funds give investors an ownership stake in a diversified portfolio of small- to medium-sized startups that have attractive long-term growth potential
  • Hedge Funds: Invest in professionally managed private funds that use sophisticated techniques to pursue high returns.
  • Private Equity Funds: Invest in private companies with the potential to deliver a high rate of return.
  • Private Debt: Private Debt involves investors loaning funds to private companies in exchange for interest paid.
  • Real Estate Funds: Invest in a wide variety of real estate opportunities not found in the public markets.
  • Wholesale Corporate Bonds: Wholesale corporate bonds are bonds offered by private companies in denominations of at least S$250,000
  • Commercial Paper: Commercial paper is a way for companies to raise money to cover short-term liabilities without relying on the banking system.
  • Structured Credit: Invest in debt that has been customised with investor needs in mind, often by incorporating special incentives.

Why Investors Must Pay Attention to Private Markets:

Higher returns

Private markets have generated higher returns than public markets consistently over the past decade. Over the last 10 years, global private equity has yielded an average annual return of 14.2% versus global public equities at 10.0%. Early-stage venture capital has generated higher returns of 16.3% versus the S&P 500 at 14.0%. Private debt markets have also yielded higher returns (10.6% from 2014-19) compared to public debt markets (10-year historical return of 4.1%).

Diversification of assets

Incorporating private markets into traditional portfolios provides opportunities to diversify your portfolios as they are less volatile relative to the public marketplace, due to the difficulty of quickly selling securities to a third party.

What should investors be wary of before entering private markets?

Low liquidity compared to public markets

Private markets are also characterised by low volatility, which can be explained by its difficulty of selling the investors’ stake to a third party as they are private, unlisted assets which cannot be traded on the stock market. It is almost  impossible for a private investor to exit a private equity investment before the maturity period; hence the investment timeframe of  private markets is much longer than the timeframe of investment on listed markets.

Less transparent

Private Markets are also less transparent as there is typically a lack of financial history or accurate data highlighting the financial health of private markets instruments.

Aimed only at seasoned investors

Private markets are only open to seasoned investors who are extremely wealthy (UHNIs) or to the extremely well-connected in the right circles. It is typically very difficult for an average Accredited Investor to participate in private markets.

Who Can Invest in Private Markets?

Access to private markets traditionally cost millions of dollars, making them inaccessible to all but institutional investors and the extremely wealthy. ADDX, however, democratizes private equity investing by making it available to investors for as little as S$10,000 to invest in primary offerings and as little as S$100 to trade.

To qualify as an ADDX investor, investors need to meet one or more of the following conditions:

  • Yearly income of at least S$300,000 or
  • Net financial assets of at least S$1,000,000 or
  • Net total assets of at least S$2,000,000

Bottom line:

With funds under management already in the trillions, private markets have become attractive investment vehicles for wealthy individuals and institutions. Understanding what private market exactly entails and how its value is created in such investments are the first steps in entering an asset class that is gradually becoming more accessible to individual investors.

ADDX is your entry to private market investing. It is a proprietary platform that lets you invest from USD 10,000 in unicorns, pre-IPO companies, hedge funds, and other opportunities that traditionally require millions or more to enter. ADDX is regulated by the Monetary Authority of Singapore (MAS) and is open to all non-US accredited and institutional investors.