[SINGAPORE] Private markets have grown increasingly popular in recent times in South-east Asia, with Singapore accounting for 45 per cent of the private equity market in deal value and volume in 2024.
On Mar 27, the Monetary Authority of Singapore (MAS) unveiled and sought feedback on a framework for retail private market investment funds in a bid to offer a wider set of investment options.
MAS proposed two possible fund structures: a fund structure with direct market investments, or a long-term investment fund-of-funds structure that primarily invests in other private market funds. The deadline for the consultation was Monday (May 26).
What is the appeal of private markets and what are the pitfalls investors should look out for? The Business Times explains:
What are private markets and what are some assets under this asset class?
Private capital markets refer to debt and equity instruments owned by companies which are privately owned.
Unlike public markets, where any investor can buy assets from companies listed on exchanges, bond markets or commodities markets, private markets involve direct investments in companies, projects, or assets that are privately held.
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Here are some key asset classes of private markets:
What are retail private market investment funds?
Retail private market investment funds are investment vehicles to enable individual investors to access traditionally institutional-only asset classes – such as private equity, real estate and infrastructure – through regulated, user-friendly structures.
These funds typically appeal to investors with a longer time horizon, higher risk tolerance, and the ability to tolerate illiquidity. For example, a client on a “growth” mandate, typically with a 50 to 80 per cent equity exposure, might find a 20 per cent allocation to private markets appropriate.
This comes as allocations to private markets from retail investors are expected to rise in the next few years, as access becomes easier and awareness of the space grows.
“Individual investors are also drawn to the potential for enhanced diversification, income stability, and higher long-term returns compared to traditional public markets,” Chin Szu Yi, head of wealth, Asia-Pacific at Schroders, told BT.
What does a typical private market investment lifecycle look like?
Let’s take a private equity fund investment as an example – the timeline would usually span seven to 10 years, though this is subject to market conditions and a fund’s chosen investment strategy.
When all investments have realised its value, or “exited” the fund, it is liquidated and the proceeds are returned to investors.
Do private markets have any edge over public markets?
Yes, private markets offer several distinct advantages, especially for investors pursuing long-term and diversified growth.
Notably, private equity – a major component of private markets – has consistently outperformed public markets during major financial crises, such as the Dot-com bubble in the late 1990s, the 2008 global financial crisis, and Covid-19 pandemic.
Research by Schroders Capital reflected that during those periods, private equity portfolios in fact delivered stronger returns, while experiencing smaller drawdowns and steadier distributions compared to public benchmarks.
Additionally, investing in private markets can help reduce overall portfolio volatility, as they tend to have a lower correlation with public markets. This can make private markets particularly valuable during periods of market stress as a powerful diversification tool.
Private markets also offer access to a broader universe of opportunities that are simply unavailable on public exchanges.
“These include private credit and high-growth, innovation-driven companies staying private for longer, unlocking unique return drivers that public investors cannot access,” Chin said.
Risks of investing in private markets
The most well-known risk of private markets is illiquidity, warned Schroder’s Chin.
“As private assets are not traded on public exchanges, investors should be prepared for their capital to be tied up for extended periods, often seven to ten years,” she explained. “While newer evergreen structures offer some flexibility, redemptions may still be limited in stressed markets to protect the fund and other investors.”
Valuation risk is another consideration to note. Unlike public markets with daily pricing, private assets are valued periodically using models that may not fully capture real-time market conditions, especially during volatility. This can affect its perceived performance and limit visibility.
Market timing also matters. “While private equity has historically done well during crises, near-term uncertainty can slow exits, affect deal flow, and constrain new commitments via the denominator effect,” shared Chin.
Lastly, strategy-specific risks exist, too. Different private market strategies (behind venture capital (VC) compared with infrastructure debt, for example) come with varying risk/return profiles.
“For instance, VC investments are typically high-risk, high-reward propositions, as they involve investing in early-stage companies with innovative ideas but unproven business models,” Mara Dobrescu, senior principal, manager research at Morningstar said.
However, she explained that infrastructure debt investments, in contrast, are generally considered lower risk.
“They typically involve lending to projects like toll roads, bridges, or energy facilities, which often have stable, long-term cash flows backed by government or corporate contracts. The returns on infrastructure debt can therefore be more predictable and lower compared to VC.”
