Learn about private market investments

 

Private market investments aren’t traded on stock markets or bond markets. Instead, investors invest in things like private companies and private property, and funds which invest in these and other private market investments.

Some of our Scottish Widows Lifetime Investment options, available to workplace pension customers, will invest in private market investments. We’re using specialist funds that are authorised by the UK financial services regulator, the Financial Conduct Authority (FCA). 

Private markets offer investments in many different things which can diversify an investment portfolio. Think of it as not having all your eggs in one basket. By spreading your money across different types of investments, if one investment goes down in value, others might go up or stay stable.   

Private market investments also offer potentially higher returns than investments that are traded on stock markets or bond markets. Because money is tied up for longer, private market investments often offer what’s known as an ‘illiquidity premium’. This is the extra return investors demand for putting money into an investment that’s hard to sell quickly.   

These investments can involve supporting businesses that are solving real-world problems, like clean energy, affordable housing or better healthcare. Private investors often work closely with the companies they invest in, helping guide them towards better environmental, social and governance (ESG) practices.

Risks

In comparison to investments traded on stock markets or bond markets, private market investments have some additional risks and are less easy to sell in the short term. 

This can be less of an issue for pension funds, because people usually don’t use their pension savings for many years.

Some private market investments might not end up being profitable and, unlike other types of investments, it’s harder to know how they’re performing. Fees for managing private market investments can also be more expensive than other types of investments.

As with any investment, the value of private market investments is not guaranteed and can go down as well as up, and may fall below the amount paid in.

Common types of private market investments

  • Private equity is when investors buy some or all of a private company with the aim of helping it grow, improve or turn around.   

    Investors aim to grow or improve a company’s profitability. They may do this by helping it run better, cut costs, or expand into new areas or products, for example. Later, they hope to sell their share of the company or list it on the stock market for a profit.   

    It’s a bit like buying a house that needs work, renovating it, and selling it for more money later. 

  • Venture capital is money that investors give to new or growing companies, usually start-ups, that they think have a high potential to succeed. Start-ups often need money to build their product or grow their business.   

    Investors offer that money in exchange for a share of the company. If the company grows and becomes successful, the investors can sell their share for a profit later.  

    Think of it as a high-risk, but potentially high-reward way to get in at the start of the next big thing. Like the next Google, Facebook or Uber. 

  • Private real estate investments are direct investments in property, like office buildings, apartments, warehouses, or shopping centres.   

    Investors put money into a building or project, often through a private fund or partnership, to earn rental income and potential profits from rising property values.

  • Private companies may need money for growth, acquisitions or for their operations.   

    Private debt involves lending money directly to companies rather than going through public market investments like bonds traded on bond markets.   

    Investors loan money to a company and earn returns through regular interest payments. 

  • Investing in infrastructure is when money is put into building or improving things that help a country or community work properly.   

    This includes anything from roads and bridges, power lines and energy grids, to water supply systems, public transport, airports, seaports, hospitals, schools, and communication networks.   

    Infrastructure projects can generate predictable, long-term income for investors.

  • Natural capital refers to the natural resources and ecosystems that support life and the economy, such as forests, rivers and oceans, clean air, soil and farmland and biodiversity (all living things in nature).   

    Investing in natural capital means putting money into protecting, restoring or sustainably using nature. Examples include planting trees to restore forests, protecting coral reefs to support marine life, investing in clean water projects to protect rivers and lakes and supporting sustainable farming that keeps soil healthy.   

    Natural capital investments help both the planet and the economy by making sure nature stays healthy for future generations.