Investing in private markets: returns, risks, and access

Investing in private markets means allocating a portion of your savings to companies that are not listed on a stock exchange. Long reserved for institutional investors and high-net-worth individuals, this asset class is now becoming accessible to retail investors, with entry tickets as low as 100 euros. Private markets encompass private equity, venture capital, private debt, and secondary funds. They are increasingly attracting savers looking for diversification, potential returns that outperform the stock market, and exposure to the real economy. This guide covers how it works, its benefits, its risks, and the various ways to get started.

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What is private market investment?

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Private market investment refers to taking an equity or debt stake in companies that are not admitted to trading on a stock exchange. Unlike a listed stock that can be bought and sold daily, shares in a private company are traded over-the-counter, without daily pricing or an organized market.

This asset class covers several realities: financing a startup in the seed phase, supporting an SME in its growth phase, acquiring a mature company, or lending to businesses via private debt. The common thread among these investments is their partial decorrelation from stock markets and their long investment horizon, typically 8 to 10 years.

Private markets are playing an increasingly important role in individual wealth allocation. They complement more traditional assets like listed stocks, bonds, or life insurance by providing an additional performance driver and diversifying sources of return.

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The different forms of private market investment

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Private markets are not a single asset class but a family of solutions with varied risk and return profiles. Here are the main types accessible to investors.

Private equity

Private equity involves investing in unlisted companies at various stages of their development. It encompasses several strategies, from growth capital to leveraged buyouts of mature companies. It is the largest segment of the private market in France. To learn more, consult our dedicated guide on investing in private equity.

Venture capital

Venture capital funds innovative startups with high growth potential, often in tech, artificial intelligence, or healthcare. The risk profile is higher than traditional private equity, but the targeted multiples are also greater. This approach relies on a few major successes to offset projects that do not succeed. Learn how venture capital works.

Private debt

Private debt involves lending directly to companies, bypassing traditional banking channels. Investors receive regular interest payments, making it a sought-after solution for generating income with lower volatility than equity. It serves as an attractive diversification component within a private market allocation, through private debt funds.

Secondary funds and pre-IPO

Secondary funds acquire stakes held by other investors in existing funds, often at a discount and with a shorter time horizon. Pre-IPO strategies target mature companies preparing for their stock market debut. These strategies offer exposure to private markets with a specific liquidity and risk profile, through secondary private equity.

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Why invest in private markets? The benefits

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Private equity is appealing due to several advantages that make it a relevant complement to a traditional asset allocation.

Potential for returns higher than the stock market

This is the primary draw for savers interested in private equity. According to data from France Invest and EY, French private equity delivered an average annual net return of 12.4% over 10 years, compared to 8.6% per year for venture capital over the same period. For comparison, the CAC 40 with dividends reinvested grew by approximately 8.9% per year over the long term. These figures illustrate the historical performance gap between private equity and public markets, though they are not a guarantee of future results. Past performance is not indicative of future results, and invested capital is not guaranteed. To learn more, read our analysis of private equity returns.

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Market decorrelation and volatility

Since private equity securities are not traded daily, their valuation does not react to short-term stock market fluctuations. This low correlation helps smooth out a portfolio and reduces its overall volatility. During periods of market turbulence, private equity can act as a buffer, provided you are willing to accept reduced liquidity in return.

Financing the real economy

Investing in private equity means directly financing companies, SMEs, and projects that contribute to the development of the real economy. Your savings help support growth, innovation, and job creation, with a concrete and measurable impact. This dimension gives your investment purpose, beyond the simple pursuit of financial performance.

Tax benefits

Certain private equity vehicles offer tax benefits. FCPIs and FIPs (local investment funds) provide an 18% income tax reduction on the amount invested, subject to caps and holding requirements. Other vehicles, such as FPCI, offer capital gains tax exemptions after a minimum holding period, typically 5 years. The tax treatment depends on the chosen vehicle and the individual investor's situation, so it should be verified on a case-by-case basis.

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Risks and drawbacks to consider

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Private equity offers an attractive risk-return profile, but it comes with constraints that every investor must consider before getting started.

Non-guaranteed capital

Investing in private companies carries a risk of partial or total loss of capital. A funded company may face difficulties, see its valuation drop, or default. According to INSEE, about 69% of newly created businesses survive beyond 5 years, which serves as a reminder that the risk of failure exists and must be mitigated through diversification.

Low liquidity and a long-term horizon

Private equity is a low-liquidity investment. Shares cannot be easily resold before the fund's maturity, and invested capital is locked away for a long period, often 8 to 10 years. You should therefore only invest savings that you do not need in the short term, in line with your overall wealth management goals.

Entry requirements and fund selection

Historically, private equity funds required minimum investments of 200,000 to 1 million euros, reserving this asset class for institutional investors. Furthermore, performance varies significantly between funds, making the selection of the manager and strategy crucial. Gaining access to the most sought-after funds remains a key challenge for individual investors.

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How can you invest in private equity?

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There are several ways to invest in private assets, each with different minimum investment requirements, tax implications, and levels of diversification.

Investment vehicles (FPCIs, mutual funds)

Access is most often provided through specialized funds. FPCIs (Professional Private Equity Funds) allow you to invest in a diversified portfolio of private companies managed by an investment firm. Other mutual funds, such as FCPIs or FIPs, target specific themes while offering tax benefits. These vehicles pool subscriptions from multiple investors to build a diversified portfolio.

Via life insurance

Some life insurance policies now offer unit-linked funds invested in private equity. This path allows you to include private equity within a tax-advantaged wrapper and incorporate it into a broader asset allocation. However, the selection remains limited and depends on the options provided by the insurer.

Directly in private companies

It is finally possible to invest directly in the capital of a private company, becoming a shareholder with voting rights. This approach requires specialized expertise, often a high minimum investment, and the ability to select and monitor companies. Unlike a diversified fund, it concentrates risk on a limited number of holdings.

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