Some of this is due to the way private portfolios are marked. However, some outlooks for the S&P 500 over the next decade suggest 5% to 6% returns, depending on the analyst.Īnother advantage of investing in the private markets is reduced volatility. He said the net investment rate of return averages 20% in the private markets. Of course, one is the rate of return, especially among the top quartile of performers. Henderson highlights three advantages of investing in the private markets. Benefits of investing in the private markets He also noted that such businesses might not be able to survive over the next 24 to 36 months. Someone who has a clear path to achieving a profitable and healthy, growing business will see continual valuation increases and large markups on funding rounds."īusinesses growing in unscalable ways and pouring money into sales and marketing are feeling the pain of markdowns on their future valuations. "… A handful of companies are being rewarded for growth but with a clear line of sight to profitability. "This growth-at-all-cost mindset over the last four or five years has started to taper," he said. Logan states that what he's been seeing suggests far more reasonable growth expectations with a focus on bottom-line profitability. He's been looking at recent market commentary, especially what's been coming out of the technology space. We're not seeing private companies valued at 100 times forward revenue, so it's more reasonable, more tangible to achieve." Their forward multiples were close to historical highs, and normal valuations are more reasonable. "There needed to be a reset in valuation and a reset within the private as well as the public markets. "I do think some private markdowns, some decrease in valuation, is healthy," Henderson clarifies. As a result, PE managers will see the value of their portfolios decrease, even though most of them haven't yet. They will have to take down rounds, which means they will have to accept financing at lower valuations.
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