Private assets masterclass: The fundamentals

Introduction of the masterclass – 0:08

Hello, I am Philippe Faget. I am the Head of Private Assets Solutions at VEGA Investment Solutions.

I am delighted today to present this masterclass on the fundamentals of private asset investing.

By the end of this video, you will know what the various private asset classes are, their risk/return profile, and I will give you some insights about how investors may approach them.

 

Introduction to private assets – 0:35

Definition of private assets

Private assets are assets that are not traded and not listed on public markets. For example, stock and fixed income exchanges.

To give you a rough idea, private markets represent around US$14 trillion of assets under management to date, versus US$152 trillion for listed markets.

They still represent a fraction of the global investment assets under management, but they have been growing fast in the last three decades. Assets under management in private markets could potentially increase threefold, exceeding US$30 trillion by 2034.*

Private assets are comprised of private equity, private debt, infrastructure, real estate, and natural capital.

 

Benefits of private assets

The common benefits of private assets include:

• First, a potential for higher returns. Private assets have historically outperformed listed assets, which could be reflected in illiquidity premiums
• Then there is an improved diversification. Actually, investors can access opportunities not available in public markets
• Also, private assets have historically demonstrated low correlation with listed assets, and furthermore, a portfolio comprising multi private asset classes offers even lower correlation with traditional portfolios compared to one that includes only a single private asset class. This is due to the very low correlations observed among different private asset classes

 

Risks of private assets

They also have risks in common:

• Illiquidity, they are long-term investments with fewer exit options
• Transparency: they use private valuations and have no obligation to disclose them as for listed assets
• And complexity: these assets are complex products to access, manage and sell

 

Chapter 1: Private equity – 2:34

Definition of private equity

Private equity is an asset class in which capital is invested in private companies in exchange for equity or ownership. Private companies are not publicly traded or listed on a stock exchange. Private equity is the main asset class in private assets in terms of assets under management. Private equity is on the higher risk/return part of the spectrum.

 

The types of private equity financing

Now, we will explain the different types of private equity. This varies depending on the life cycle of the companies being financed.

• Early-stage financing is called venture capital, and this is when startups are financed. These companies require funding to advance their technology, validate their business model, or secure their initial customers.
• Growth capital refers to more established companies than those in their early venture stage. It generally focuses on enterprises that have identified their market, achieved profitability, and are looking to expand. This expansion can involve international growth, diversifying product offerings, exploring new distribution channels, or pursuing external growth opportunities.
• Buyout refers to the acquisition of established companies that are typically solidly positioned in their industries and generate consistent cash flow. These transactions often utilise leverage, known as a leveraged buyout (LBO), which combines equity with borrowed funds. Buyout funds typically seek to gain majority ownership of the company and focus on enhancing value through various strategies, including improving operational performance, optimising the capital structure, pursuing external growth opportunities, embracing digital transformation and expanding internationally.
• Finally, special situations or turnaround private equity refers to private equity restructuring a company in difficulty.

 

Illustration of a private equity transaction

The overall principle of a private equity transaction is simple: a private equity firm will buy a stake in a company, minority or majority, at a certain price, work to improve the company's operation to create more value, and years later, sell that stake in the company at a higher price. The difference in value is measured as multiples. If the value of the company has increased twofold between when it was bought and when it was sold, the performance of the private equity firm on this transaction will be a multiple of two times. Private equity firms can exit the investment through different methods such as initial public offerings (IPOs), sales to strategic buyers, or secondary sales.

 

Myth busting: private equity is…

Is it illiquid?

True. Private equity investments are mostly illiquid investments with long-term investment horizons. Please note that even if private equity funds typically have a duration of 10 to 12 years, they release capital through distributions to their investors gradually as they complete exits, thereby offering them liquidity. This is changing with the introduction of evergreen funds allowing redemptions under certain conditions. However, it's still advised to stay invested for long periods of time to benefit from value creation.

 

Is it opaque?

Somewhat true because valuations are not public. Investors should make sure that private equity managers have strong internal valuation processes and great reporting capabilities.

 

Does private equity generate high returns?

Also, true. Private equity is on the higher end of the risk/return spectrum. Historically, private equity including venture capital has outperformed all asset classes, both public and private, over the long term.

 

What is your view of private equity as a practitioner?

An allocation to private equity can provide investors with an opportunity to enhance returns, diversify the investment portfolios and access unique growth opportunities, making it an attractive option for those with a suitable risk tolerance and investment horizon.

 

What do you look for in a private equity fund?

When evaluating a private equity fund, we look for long-term potential performance, a disciplined and repeatable investment process, deep team expertise, robust risk management and valuation process, and the ability to leverage proprietary insights. We also place great importance on the capacity to execute timely exits to crystallise value as well as the transparency, communication quality, and alignment of interest with investors.

 

Chapter 2: Private debt – 7:24

Definition of private debt

Private debt, also known as private credit, refers to the provision of debt financing to borrowers through channels other than traditional banking institutions or public markets. Private debt comprises both broadly syndicated loans and direct lending. Broadly syndicated loans are typically large loans that are distributed among multiple lenders in the market, while direct lending involves providing loans directly to borrowers, often small to mid-size companies without intermediaries. A vast part of private debt is directly linked to private equity, as many private equity transactions imply some sort of leverage, which means that when a private equity firm buys a company, they will borrow some money to do so and they will go to a private debt firm to get this loan.

Within private assets, private debt is overall on the lower-moderate risk/return part of the spectrum.

 

Illustration of a private debt transaction

A typical private debt transaction will be what is called direct lending. A private debt fund could provide a loan to a company. The borrower will pay coupons and reimburse the principal during the lifetime of the loan or pay it back in full at the end of the loan. Because these transactions are private, the private debt fund and the borrower can agree together on specific terms and conditions and covenants for the loan.

 

Myth busting: private debt is…

An alternative to fixed income

It's true that private debt is an alternative to fixed income. Fixed income investors will find common features between the two. They are both on the lower risk/return end overall, respectively to their markets, listed or unlisted. Private debt investing also implies the repayment of a debt and coupons, but because it's unlisted, it has some features that are characteristic of private debt markets. It is more tailored to participants, more illiquid and more long term.

 

Some investors wonder if it is a threat to credit stability

There have been some concerns lately about the exponential growth of private debt and the retrenchment of more regulated players like banks in the market. This is why, as you would do for any loans, it is a critical step for any investors to always conduct thorough due diligences, for instance assessing the robustness of a firm when they are buying credit products from them.

 

What is your view of private debt as a practitioner?

Private debt remains an alternative to bank lending and continues to generate strong returns in an environment of low default rates and high recovery levels. It retains its role as a substitute for traditional bank credit offering attractive yields and increased access to financing. Industry consolidation and the rise of specialised platforms foster flexible and tailored solutions. Demand remains strong in Europe and in the US, including from non-institutional investors. The asset class benefits from significant illiquidity premiums and low default rates. Opportunistic and unitranche strategies are gaining traction in the context of bank financing diversification for companies. Investors should consider an allocation to private debt funds for their potential to provide higher yields compared to traditional fixed income, along with diversification benefits and access to unique credit opportunities, making it a compelling choice for individuals who can accommodate its associated risk and have a longer-term investment outlook.

 

What do you look for in a private debt fund?

When evaluating a private debt fund, we look for a solid track record of disciplined underwriting, strong potential risk adjusted returns, rigorous credit analysis, and a team with deep experience across market cycles. We also place great importance on the ability to structure protection, effectively negotiate and manage covenants proactively, closely monitor borrowers, and execute timely exits or repayments. In addition, we pay attention to their historical default rates and recovery levels as well as their transparency, communication, and alignment of interest with investors.

 

Chapter 3: Infrastructure – 11:47

Definition of infrastructure

Infrastructure can be defined as essential networks and real assets useful to the community.

 

The types of infrastructure investments

There are lots of different types of infrastructure: economic infrastructure with telecommunication, energy infrastructure with wind farms, nuclear power plants, or social infrastructure with hospitals or schools.

Infrastructure investments can be categorised into three strategies:

• Core investment with focus on stable income generating assets
• Value add investment which seeks to enhance the value of existing assets through operational improvement or strategic upgrades
• Opportunistic investments which target higher risk opportunities with the potential for significant returns through development or redevelopment projects. Infrastructure presents diverse risk/return possibilities depending on projects from low to medium risk/return.

 

Illustration of an infrastructure transaction

Infrastructure investing consists in investing into a specific project. The transaction will be different according to the nature of the infrastructure. One example would be a private investor investing alongside public entities to build a wind farm. Together, they will build a complex arrangement in which they will finance the construction of the wind farm and agree on how the proceeds of the farm once operating will be distributed.

 

Myth busting: infrastructure is…

Led by public investors

Public investors are not the only investors in infrastructures. Infrastructure investing is often a partnership between public and private investors, which is called the PPP for public-private partnership. Because this investment can be huge in size, they need to involve a high number of stakeholders. Public entities alone do not have enough money to finance these infrastructure projects, while private investors will typically grant more trust in a project in which some financing and special advantages are offered by the public counterparty.

 

A long-term investment

What about the length of the investment? This is highly dependent on the type of project being financed, but this is indeed the asset class where you will find the longer-term projects compared to all other asset classes. Heavy infrastructure investments like roads or bridges can span over 25 years and more. This is a much longer-term investment horizon that most investors are used to.

 

What is your view of infrastructure as a practitioner?

Infrastructure stands out for its resilience in an inflationary environment and its relevance in a long-term allocation perspective. Structural trends such as energy transition, digital infrastructure, and the reorganisation of globalised supply chains continue to drive capital deployment. The return of trade protectionism strengthens the strategic need for local infrastructure, particularly in sectors such as batteries, clean energy and data centres. Infrastructure assets generally exhibit an even stronger correlation with inflation than with GDP growth, which gives them a favourable position in a stagflationary environment, and some segments such as transportation may be subject to cyclical pressures. Regulated or essential assets continue to benefit from inflation-linked revenues and defensive characteristics. Infrastructure debt currently offers attractive risk-adjusted returns with high recovery rates and low default risk, especially for senior debt.

 

What do you look for in an infrastructure fund?

When evaluating an infrastructure fund, we look for a strong track record of delivering stable and long-term returns. We also look for a disciplined investment process as well as a team with deep technical and operational expertise across assets. We also place great importance on the ability to structure robust contractual frameworks, negotiate and manage concessions effectively, monitor assets proactively and execute timely exits when appropriate. In addition, we pay close attention to how they assess and manage greenfield and brownfield exposure as well as the quality of their transparency, reporting, and alignment of interest with investors.

 

Chapter 4: Real estate – 16:04

Definition of real estate

Real estate investing refers to investment into properties which comprises both land and constructions on this land. Real estate presents diverse risk/return possibilities depending on projects from low to medium-high risk/returns.

 

The types of real estate financing

Real estate main sectors are office, residential, hospitality, retail, and logistics. Data centres are also emerging as a significant sector within real estate. In terms of strategies, transactions can be split by risk/return level and complexity.

• Core investing refers to safe investments into real estate with high demand and stable returns such as city centres or malls
•  Core plus strategies will include more complexity like refurbishment
• Value add refers to investments with significant work being done by the owner, such as repurposing an entire building
• Opportunistic transactions cover the riskiest projects which have unique characteristics depending on the property and objective of the financing

Illustration of a real estate transaction

Real estate transactions will vary widely depending on the assets being financed and their use. An example would be a private real estate fund buying a residential building and arranging a loan in order to take care of property upgrades, leases, and maintenance operation of the building once built. The fund will be paid by leases from the tenants and by selling its participation once value has been created, thanks to the property price appreciation.

 

Myth busting, real estate is…

It’s easy to invest in real estate, you don’t need to go to private markets

Real estate is indeed an asset class everyone is familiar with, since most people aim to own some sort of real estate in their life, but the real estate opportunities available on listed markets and private markets are usually quite different. Private real estate allows investors to finance more complex projects across commercial, logistics and residential than what is available in listed markets.

 

Real estate markets are tense now

Real estate markets have faced significant challenges, particularly in the wake of COVID-19. However, there are promising opportunities in specific sectors along with a broader ongoing recovery at the asset class level.

 

What is your view of real estate as a practitioner?

Investors should consider an allocation to real estate for its potential to provide steady income through rental yields, capital appreciation, diversification benefits, and the hedge against inflation, making it an attractive choice for those looking to enhance their portfolios with tangible assets over the long term.

 

What do you look for in a real estate fund?

When evaluating a real estate fund, we look for a strong track record of delivering attractive risk-adjusted return, a disciplined and repeatable investment process, and a team with deep expertise across property types and market cycles. We also place great importance on their ability to source high quality assets, negotiate and manage leases effectively, maintain strong tenant relationships, oversee operations proactively, and execute timely disposals to crystallise value. In addition, we pay close attention to how they balance core, value add, and opportunistic strategies, the historical default or vacancy rates, as well, the quality of the transparency reporting and alignment of interest with investors.

 

 

Chapter 5: Natural capital – 19:36

Definition of natural capital

Natural capital comprises various sectors, including agriculture and farmland, energy, metals and mining, timberland and water. Natural capital presents diverse risk/returns possibilities depending on projects from low to high risk.

 

Illustration of a natural capital transaction

A natural capital transaction will typically mix private debt and private equity alongside public sponsors to support some projects aiming for a positive impact on nature. For example, by providing financing to small farmers and landowners in Asia to support reforestation.

 

Myth busting: natural capital is…

Linked to COP

Natural capital investing is often linked to public investors trying to make progress on a sustainability-linked agenda. Governments and other public entities can incentivise private investors to invest in this asset class to help improve the positive externalities this investment brings to people and the planet.

 

Finance has no positive impact on nature

Impact investing, meaning investing with an intention to lead to positive environmental or social outcome, has precisely a mission to make and measure positive impact on society and the environment. For example, impact funds will report the number of jobs that were created as a result of their investments or the quantity of carbon sequestered or CO2 emission avoided, so the model is quite robust to ensure that these investments actually report on a set of extra financial criteria.

 

What is your view of natural capital as a practitioner?

Natural capital is either seen as a distinct sub-private asset class or a sub-category of sustainable private debt/equity investing. Most natural capital projects mix both private equity and debt. It’s an interesting asset class for investors with strong convictions who want to make a difference with their investments. Investors should consider an allocation to natural capital investments for their potential to deliver sustainable returns, support environmental conservation, provide diversification benefits and address the growing demand for responsible investment strategies, making them an appealing option for those seeking to align their portfolios with ecological values and long-term growth.

 

What do you look for in a natural capital fund?

When evaluating a natural capital fund, we look for a strong track record of generating sustainable long-term returns through responsible stewardship of land, ecosystems, and biodiversity assets. We check that funds rely on a disciplined investment process and a team with deep scientific, ecological, and financial expertise. We also place a great importance on their ability to structure robust conservation frameworks, manage natural resources responsibly, monitor environmental outcomes rigorously and execute timely exits.

 

Chapter 6: Multi private assets – 22:44

Can you invest in multiple private asset classes at the same time?

You can combine different private assets investments into a single investment. This is called multi private assets investing.

 

What are the advantages of multi private assets investing?

Multi private assets investing presents several advantages. It allows you to navigate across private asset classes depending on macroeconomic context. When the environment is particularly favourable to private equity, for example, you would invest, say 70% in private equity and only 10% respectively in private debt, infrastructure, and real estate. If the market shifts and becomes unfavourable to private equity, you will decrease your allocation to this asset class and increase the allocation to other asset classes. You can manage changes in asset allocation by adjusting the allocation of newly invested money, recycling distributions, or selling assets in the secondary market. This allows you to benefit from evolutions in economic and private market trends. On a practical level, it allows you to combine your private assets investments into one solution. It makes it easy to manage and a good point of entry for non-specialised investors. It allows you as well to maximise diversification. With one product, you could access multiple asset classes. This diversification enables you to spread and limit risk. Your "eggs are not in the same basket".

 

What are the drawbacks?

Multi private assets investing implies diversification, which means that when one asset class outperforms, even if you increase allocation to that asset class, you will get an inferior return compared to being invested fully in the outperforming asset class. So, this implies selecting a manager able to navigate successfully across the different private asset classes with a strong asset allocation and valuation process.

When accessing multiple private assets through a fund of funds, it's important to be mindful of the fees involved and make sure that the fund of funds portfolio makes a concerted effort to minimise cost. For example, this can be achieved by investing in underlying funds with institutional low-fee classes and avoiding carried interest or performance fees at the fund or funds level.

 

Conclusion – 25:10

Private assets present diverse opportunities to invest in various sectors and finance the real economy while seeking to generate strong returns.

Advice to private assets investors

My advice to investors who are considering investing in private assets would be:

• Think about the right risk/return you are looking for as well as your liquidity needs
• Consider your investment objectives and investment horizons. Is it capital appreciation, steady income, or both? Medium or long-term investment?
• Does it match your values in terms of sustainability?
• Compare managers, check their credentials, track record, and for retail investors, consider checking with a professional advisor
• Education is crucial when it comes to private assets. For retail investors, being supported by an advisor is important. Investors should only invest in products they fully understand

 

Private markets outlook

As the assets under management in private markets continue to grow, there is an increased interest in opening these markets traditionally reserved to institutional investors to retail investors. This move, known as the democratisation or retailisation of private markets, is fuelled by three drivers: First, investors looking for diversification in their investment opportunities. Second, governments pushing to drive capital to support the real economy through favourable regulation. And lastly, product innovation, allowing to design private assets with features that are adapted to individual investors. This includes injecting some degree of liquidity into these products known to be largely illiquid. So far, we expect that these markets will continue to grow boosted by these new investors. Now is an exciting moment to see this opportunity arising.

 

*Source: Preqin, 2025.