Consider Opportunities in Private Markets

Courtesy of Capital Group^® | American Funds^®

Financial markets have evolved dramatically over the last decade, spurring a new wave of innovation and opportunity across the investment landscape. Private market investments, such as private equity, private credit and direct lending, have changed sharply. These investments have the potential to provide higher returns and diversified risk compared to traditional public market investments like equities. While private market investments can offer potential benefits, there are unique risks that investors should consider.

Why Invest in Private Markets?

For years, sophisticated investors, including endowments, foundations, sovereign wealth funds and high net worth individuals have invested in private assets due to the potentially higher returns compared to (and diversification from) some public market investments. High net worth investors have sought to benefit from private market investments and meaningfully increased allocations in the space.

Retail investors typically face barriers to these markets, such as high investment minimums, strict eligibility requirements and long capital lockup periods, making these investments complex and less suitable for them.

Private investments have limited liquidity. That means investors may not be able to liquidate quickly and could face sharp discounts to fair value. However, innovative investment managers are working to address these challenges and bring private markets opportunities to a broader set of investors.

The Basics

Private investments cover a wide range of assets with distinctive characteristics. While precise definitions differ, they can be grouped into three broad categories: private credit, private equity and real assets.

Private Investment Opportunities Have Become Too Big to Ignore

Private investment opportunities have swelled in size and may have become too big to ignore. From 2006 to 2023, the alternative investment industry grew from approximately $2 trillion to more than $14 trillion.¹ This growth has been driven by several trends unlikely to reverse going forward. Three important macro trends are:

• Public markets are shrinking: After reaching a peak in the mid-1990s, the number of publicly traded companies has declined. In 1996, there were more than 8,000 publicly traded companies in the U.S. By the end of 2022, that number had dwindled to less than 5,000.²
• IPOs have lost some luster: More companies are sourcing capital from private markets. Companies that once would conduct an initial public offering to finance growth are now selling equity and borrowing directly from private investors. Companies are finding the flexibility and alignment of private investors a welcome alternative to public sources of capital.
• Innovation driving growth: Innovations in fund structures and fintech companies are introducing private investments to new segments of investors, drawing more capital to private markets than ever before.

Private Investment is Thriving

Innovation has helped to mitigate private investment’s liquidity risk. One way is through a pooled investment vehicle, such as an interval fund.

Looking Ahead

The potential value private markets can provide is leading investors, financial professionals and wealth managers to explore opportunities in this growing financial market segment. Understanding its complexities, potential benefits and risks can help identify whether private investments may be appropriate to integrate into a broader investment strategy or portfolio framework. Expanding into this area may be exciting, but careful consideration is essential to finding investments that support financial goals.

¹Source: Cerulli Associates, Pitchbook. Reflects most recently available data as of December 31, 2024. Includes dry powder and funds of funds.

²Source: World Federation of Exchanges database, World Bank. Reflects latest available data as of February 19, 2024.

For financial professional use only. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the interval fund prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies. KKR Credit Advisors (US) LLC serves as the sub-adviser with respect to the management of the fund’s private credit assets. Capital Group (the “Adviser”) and KKR are not affiliated. The two firms maintain an exclusive partnership to manage and deliver public-private investment solutions to investors. Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors. Used with permission from Capital Client Group, Inc.