Private market investments in a mixed portfolio – understanding the opportunities, recognising the risks

In market phases characterised by heightened volatility, a weakening economy and structural changes in the global economy, private market investments are becoming increasingly important – for both institutional and private investors. The inclusion of private equity, private credit, private infrastructure or royalties no longer serves merely to increase potential returns. Instead, the focus is shifting to advantages such as lower sensitivity to economic cycles, more stable cash flows or inflation-hedging properties.

Attractive risk-return potential

As private market investments are less liquid than exchange-traded investments, investors have historically been able to benefit from higher realised returns. This so-called illiquidity premium represents compensation for assuming the illiquidity risk. In addition to higher current returns compared to traditional investments, avoiding daily market volatility can also help stabilise the overall portfolio: private investments are valued only monthly or quarterly, thereby smoothing out short-term market fluctuations.

At the same time, lower liquidity is the key risk: units often cannot be sold, or can only be sold at significant discounts, which limits flexibility. There is also a risk that the expected illiquidity premium may be lower in future or may not materialise. The delayed valuation of private investment assets can also mean that risks only become apparent later and that actual volatility is underestimated.

Risk and return profile of private and exchange-traded investments

Source: Erste AM, as of March 2026

Potential for inflation protection and stable cash flows

Individual private market segments – particularly infrastructure investments such as energy producers, telecommunications, airports, ports or data centres – often offer predictable, inflation-indexed revenues. Thanks to long-term contracts or regulated frameworks, many projects exhibit stable income profiles. Whilst private equity often relies on capital appreciation at exit, many infrastructure projects deliver continuous cash returns that can enhance the income structure of a mixed portfolio.

Infrastructure investments are not risk-free either. Regulatory interventions, political decisions, changes to concessions or higher operating costs can reduce revenues. Furthermore, infrastructure projects require significant capital investment and are often very long-term in nature, leading to a high degree of capital lock-up. Unexpected project delays or increases in construction costs can further impact return performance.

Long-term value creation

Private markets enable investors to develop companies over the long term, independently of the pressures of public capital markets. Private equity managers can implement strategic reorientations, restructurings or growth initiatives flexibly and with a multi-year time horizon. This active value creation is a key driver of long-term return potential.

However, active value creation is not a foregone conclusion. Operational missteps, unexpected market developments or inadequate implementation of transformation measures can prevent the planned value increases. Furthermore, private equity involves higher corporate and default risk, particularly where portfolio companies are heavily leveraged. Economic success depends largely on the quality of management and the implementation of strategy.

 

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. The language of communication of the sales offices is German and the languages of communication of the Management Company also include English.

The prospectus for UCITS funds (including any amendments) is prepared and published in accordance with the provisions of the InvFG 2011 as amended. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in conjunction with the InvFG 2011.

The currently valid versions of the prospectus, the Information for Investors pursuant to § 21 AIFMG, and the key information document can be found on the website www.erste-am.com under “Mandatory publications” and can be obtained free of charge by interested investors at the offices of the Management Company and at the offices of the depositary bank. The exact date of the most recent publication of the prospectus, the languages in which the fund prospectus or the Information for Investors pursuant to Art 21 AIFMG and the key information document are available, and any other locations where the documents can be obtained are indicated on the website www.erste-am.com. A summary of the investor rights is available in German and English on the website www.erste-am.com/investor-rights and can also be obtained from the Management Company.

The Management Company can decide to suspend the provisions it has taken for the sale of unit certificates in other countries in accordance with the regulatory requirements.

Note: You are about to purchase a product that may be difficult to understand. We recommend that you read the indicated fund documents before making an investment decision. In addition to the locations listed above, you can obtain these documents free of charge at the offices of the referring Sparkassen bank and the offices of Erste Bank der oesterreichischen Sparkassen AG. You can also access these documents electronically at www.erste-am.com.

Our analyses and conclusions are general in nature and do not take into account the individual characteristics of our investors in terms of earnings, taxation, experience and knowledge, investment objective, financial position, capacity for loss, and risk tolerance. Past performance is not a reliable indicator of the future performance of a fund.

Please note: Investments in securities entail risks in addition to the opportunities presented here. The value of units and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your units. Persons who are interested in purchasing units in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision. If the fund currency is different than the investor’s home currency, changes in the relevant exchange rate can positively or negatively influence the value of the investment and the amount of the costs associated with the fund in the home currency.

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Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to § 21 AIFMG for restrictions on the sale of the fund to American or Russian citizens.

It is expressly noted that this communication does not provide any investment recommendations, but only expresses our current market assessment. Thus, this communication is not a substitute for investment advice.

This document does not represent a sales activity of the Management Company and therefore may not be construed as an offer for the purchase or sale of financial or investment instruments.

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