Investing in private markets

What role do private markets play?

The primary role of private markets is to finance the real economy. This consists largely of established companies and physical assets that are not listed on the stock exchange. Some of the most technologically advanced companies are privately owned. Private markets can help these companies to finance innovation and thus shape the economy of the future.

Unsurprisingly, the number of private companies, particularly when taking into account all SMEs and family-owned businesses, exceeds that of listed companies. The figure below therefore only includes companies with revenue in excess of USD 100 million. In North America and Asia, over 80% of these companies are privately owned, whilst in Europe – likely due to a lack of capital market culture – as many as 95% of companies with revenue exceeding US$100 million are not listed on the stock exchange.

Source: Capital IQ, as of August 2025

The number of new IPOs is also declining because companies remain private for longer. In private markets, companies are under less pressure to achieve short-term success. Instead, they can focus on sustainable growth because their owners aim for a long-term holding period.

Source: World Bank, Federation of European Securities Exchanges, as of end of 2025

Asset classes in private markets

How does active value creation work?

Active managers in public markets selectively choose shares of listed companies – based on their analysis of publicly available information – and buy and sell these positions opportunistically. However, they generally hold minority stakes and can only exert limited influence over company management and its decisions.

In private markets, managers generally invest actively and pursue a hands-on, entrepreneurial approach to creating value. They take control of a company, shape its strategy and support its implementation in collaboration with the management team. Investors in private markets are legal insiders and have full access to a private company’s books, enabling them to conduct more thorough due diligence. As majority owners, they use their control to generate objectively measurable operational value creation – the main driver of returns. Their focus on sustainable growth through operational value creation can lead to greater stability.

Leverages for active value creation in private markets

Upon entry, managers make an investment to acquire the company. After approximately 4–6 years, when the company is sold, the aim is for the value of the initial investment to be 2–3 times higher due to the value created.

 

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