Alternative Assets: Private Markets
The Exclusive Club Your Pension Fund Just Joined Without Asking You
The most lucrative investment markets in the world are ones most people don't know exist — and for decades, that was entirely by design.
The Idea
When people think about investing, they picture stock markets: tickers scrolling, prices updating by the second, anyone with a brokerage account able to buy in. But a vast and growing portion of the world's investable assets lives somewhere else entirely — in private markets, where companies raise capital without ever listing on a public exchange, and where deals happen away from public scrutiny, regulatory disclosure requirements, and the daily judgment of millions of traders. Private markets is an umbrella term covering private equity (buying and restructuring companies), venture capital (backing early-stage startups), private credit (lending directly to businesses outside the banking system), and private real assets like infrastructure and timberland. What unites them is illiquidity: you can't sell your stake on a Tuesday afternoon because you changed your mind. Capital is locked up for years, sometimes a decade or more. The trade-off offered for that illiquidity is an 'illiquidity premium' — the idea that patient capital deserves better returns than the kind you can exit at any moment. For institutional investors — pension funds, university endowments, sovereign wealth funds — private markets have become a core allocation, not an exotic side bet. Yale's endowment famously pioneered this approach under David Swensen, and for a long stretch it delivered returns that made public equity look pedestrian. What's changed recently is the push to extend private market access to a broader pool of investors — and with it, a more urgent question: does the illiquidity premium still exist, and who actually captures it?
In the World
In 2023, Blackstone — the world's largest alternative asset manager — launched a product called BREIT, a non-traded real estate investment trust explicitly designed to bring institutional-style private market exposure to wealthy individual investors, not just pension giants. It attracted tens of billions in capital. Then, when property values came under pressure and too many investors tried to redeem at once, Blackstone had to gate withdrawals — limiting how much money investors could take out each quarter. It was a vivid demonstration of the central tension in democratising private markets. The illiquidity that generates the premium isn't a bug that clever product design can engineer away — it's structural. The underlying assets (office buildings, data centres, leveraged buyouts) simply cannot be liquidated on demand. When a product promises regular liquidity windows over illiquid assets, someone absorbs the mismatch, and in a stress scenario, that someone tends to be the retail investor who got in last. The BREIT episode didn't sink the product — Blackstone is still raising capital and the strategy is still widely sold. But it crystallised a debate that institutional investors had already been having quietly: as private markets have grown from a niche into a multi-trillion asset class, and as more capital chases the same deals, whether the premium that made the whole proposition compelling is being gradually competed away. The endowment model worked spectacularly when few could access it. Scale changes everything.
Why It Matters
Private markets matter to you even if you never invest in them directly, because there is a reasonable chance a significant portion of your pension already does. Many large defined-benefit and defined-contribution schemes have increased their private market allocations over the past two decades, chasing higher returns to meet long-term obligations. That's not necessarily bad — but it does mean your retirement savings are exposed to valuation methods and liquidity dynamics that are fundamentally different from publicly traded assets. Private market assets are not marked to market daily. Their valuations are updated infrequently, often by the fund managers themselves, which means they can appear artificially smooth and stable during periods when public markets are volatile. This 'volatility laundering' can make a portfolio look less risky than it actually is. Understanding this doesn't mean avoiding private markets or demanding your pension sell out of them. It means being a more clear-eyed reader of what your fund is actually holding, why the reported returns look so steady, and what the real cost of that smoothness might be when liquidity is actually needed.
A Question to Ponder
If an investment's value is only updated a few times a year by the people who sold it to you, how much of what feels like 'stability' is real — and how much is simply the absence of information?
Get a new one of these every morning.
Start learning with Thinkable