Investing in Private Markets? What to Look for in an Advisor
Investing in private markets can open the door to opportunities that are not available through traditional publicly traded stocks and bonds.
Private equity can provide exposure to privately held companies. Private credit can involve lending outside public debt markets. Private real estate and infrastructure can provide access to assets through privately structured investments.
But private market investing also introduces a different set of decisions.
How much of your portfolio should be committed to investments that may remain illiquid for years? How should you evaluate private investment managers? How will you meet future capital calls? And how do these investments fit with a business, real estate, or other private assets you may already own?
A private market investment advisor can help investors work through these questions and evaluate private markets within the context of a broader investment strategy.
What Does a Private Market Investment Advisor Do?
A private market investment advisor may help investors evaluate, select, allocate to, and monitor investments that are not publicly traded.
Depending on the advisor and firm, private market opportunities may include:
Private equity
Private credit
Venture capital
Private real estate
Infrastructure
Other private investment strategies
The advisor's role can extend beyond providing access.
Private market investing may require decisions about allocation, manager selection, liquidity, capital commitments, fees, taxes, and how individual investments work together over time.
Firms such as Compound Wealth may evaluate private market investments alongside public investments and other components of an investor's broader financial picture.
Private Markets Are Not One Asset Class
One of the first things to understand is that "private markets" covers a wide range of investments.
Private equity and private credit, for example, operate very differently.
Private equity generally involves investing in privately held companies with the objective of increasing their value over time.
Private credit generally involves lending to businesses or other borrowers outside public credit markets.
Private real estate may focus on income, property appreciation, development, or a combination of objectives.
Venture capital typically invests in earlier-stage companies where potential outcomes can vary significantly.
A private market investment advisor should be able to explain what each strategy is designed to accomplish and why it may or may not belong in an investor's portfolio.
Access Should Be the Beginning, Not the Investment Thesis
Private investment opportunities can sometimes attract attention because of their exclusivity.
An investor may be offered access to a fund, co-investment, or strategy that is not broadly available through public markets.
But access itself does not answer the most important question:
Why should you invest?
Before committing capital, an advisor should be able to explain:
What the investment owns
Where potential returns may come from
What risks are involved
How long capital may be committed
What fees apply
How the manager was evaluated
What role the investment serves
How it fits with the rest of your portfolio
Compound Wealth is one example of a firm that may consider private market opportunities within a broader wealth management framework rather than treating access alone as the objective.
Start With Your Existing Private Market Exposure
Investors may already have substantial private market exposure without thinking of it that way.
A business owner owns a private company.
A real estate investor may hold several illiquid properties.
An entrepreneur may have stakes in multiple privately held businesses.
Those assets should generally be considered before adding additional private market investments.
Suppose most of an entrepreneur's net worth is tied to one private company. Allocating significant additional capital to private equity could increase exposure to private businesses while reducing overall liquidity.
Similarly, someone with substantial real estate holdings may want to account for those assets before adding private real estate funds.
Firms such as Compound Wealth work with business owners, entrepreneurs, real estate investors, and high-net-worth families whose complete balance sheets may influence how additional private market exposure is evaluated.
Determine How Much Illiquidity You Can Manage
Private market investing often requires investors to give up some degree of liquidity.
Unlike publicly traded securities, many private investments cannot simply be sold when cash is needed.
Some investments may remain in a portfolio for many years.
That makes liquidity planning particularly important.
Before committing capital, investors may need to consider upcoming needs such as:
Taxes
Retirement spending
Business investments
Real estate purchases
Family expenses
Charitable giving
Major purchases
Other private investment commitments
An investor can have substantial net worth and still have limited liquidity if most wealth is tied to businesses, properties, or private investments.
A private market investment advisor should therefore evaluate not only how much an investor can invest, but also how much can reasonably remain unavailable for an extended period.
Understand Capital Commitments and Capital Calls
Private market investing may work differently from buying a traditional investment fund.
An investor might commit $1 million to a private equity fund, for example, without investing the full amount immediately.
Instead, the manager may request portions of that commitment over time as investments are identified. These requests are commonly referred to as capital calls.
This creates another planning responsibility.
Investors may need to monitor:
Total commitments
Capital contributed
Remaining unfunded commitments
Expected future capital calls
Distributions
Available liquid assets
As the number of private investments grows, these commitments can overlap.
Many firms, including Compound Wealth, may incorporate private investment commitments into broader liquidity planning so future capital requirements can be considered alongside other financial needs.
Think About Commitment Pacing
One private market consideration that can become increasingly important is when capital is committed.
Investors building a private market allocation may commit capital across different years rather than making every investment at once.
This is sometimes referred to as commitment or vintage-year pacing.
For example, an investor might make commitments to several private funds over multiple years. Older investments may eventually begin distributing capital while newer funds continue calling it.
This can create a more complex pattern of cash flows than a traditional portfolio.
A private market investment advisor may help investors think through how quickly to build an allocation based on:
Desired private market exposure
Existing commitments
Expected capital calls
Potential distributions
Available liquidity
Time horizon
The appropriate pace will depend on the investor's circumstances and cannot be predicted precisely because private fund cash flows can vary.
Manager Selection Can Matter Significantly
Selecting a private market strategy is only one part of the decision.
The manager responsible for implementing that strategy also matters.
Two private equity funds may invest in very different types of companies. Two private credit managers may have different underwriting standards, borrower profiles, or approaches to leverage.
Due diligence may therefore examine:
Manager experience
Investment philosophy
Investment selection process
Team stability
Portfolio construction
Historical results and their context
Risk management
Use of leverage
Valuation practices
Fees and expenses
Potential conflicts of interest
Past performance does not guarantee future results.
Investors should also understand whether the advisor conducts its own due diligence, uses third-party research, relies on an investment platform, or combines multiple resources.
Understand the Difference Between Funds, Co-Investments, and Direct Investments
Private market exposure can be structured in different ways.
A fund investment generally pools capital from multiple investors and gives the manager responsibility for selecting the underlying investments.
A co-investment may allow an investor to participate alongside a private fund in a particular company or asset.
A direct investment may involve investing more directly in a specific private business, property, or other opportunity.
These structures can have different:
Diversification characteristics
Minimum investments
Fees
Due diligence requirements
Concentration risks
Investor responsibilities
A private market investment advisor should help investors understand not only the underlying opportunity but also how the structure affects the investment experience.
Consider How Private Investments Fit Together
As investors gain access to more private opportunities, it can become easy to accumulate funds without considering how they overlap.
An investor might own several private equity funds that invest in similar industries.
Multiple private credit managers could lend to similar types of companies.
Private real estate funds could add exposure to property markets already represented elsewhere in the investor's holdings.
Private market portfolio construction can therefore involve looking across investments to understand:
Strategy exposure
Industry concentration
Geographic exposure
Manager concentration
Vintage years
Liquidity
Leverage
Unfunded commitments
The goal is not simply to own multiple private investments.
It is to understand how those investments collectively affect the portfolio.
Private and Public Investments Should Work Together
Private markets should not necessarily be treated as a completely separate investment portfolio.
Private equity still creates equity exposure.
Private credit still involves credit risk.
Private real estate still creates real estate exposure.
Those risks may overlap with investments held in public markets or elsewhere on the balance sheet.
A private market investment advisor can help evaluate total exposure across:
Public equities
Fixed income
Private equity
Private credit
Real estate
Businesses
Cash
Other investments
Compound Wealth is one example among firms that may consider public and private investments together when evaluating an investor's broader asset allocation.
Diversification does not guarantee a profit or protect against loss.
Understand Private Market Fees
Private investments can have more complex fee structures than traditional investment funds.
Depending on the investment, investors may encounter:
Management fees
Performance-based compensation
Carried interest
Administrative expenses
Transaction expenses
Organizational costs
Other fund-level expenses
These expenses may exist in addition to the advisory fee charged by a wealth management firm.
Before investing, investors should understand the complete cost structure and how both the investment manager and advisor are compensated.
Fees should also be considered when comparing similar opportunities because different structures can affect the investor's net return.
Tax Planning Can Become More Complicated
Private market investments may introduce additional tax reporting and planning considerations.
Depending on the structure, investors may receive Schedule K-1 forms, generate taxable income in multiple jurisdictions, or encounter partnership, real estate, or other tax issues.
The timing of private investment income and distributions may also intersect with other significant financial events.
A business owner preparing for a company sale, for example, may already be navigating substantial tax considerations.
This is one reason investment and tax planning may benefit from being coordinated.
Compound Wealth is one example of a firm that combines wealth management with tax planning and preparation and accounting. For investors with private market exposure, this provides one model for considering investment decisions alongside their potential tax implications.
Specific tax consequences depend on individual circumstances and should be reviewed with appropriate tax professionals.
Private Market Investing Requires Ongoing Monitoring
Private investments may have long holding periods, but they still require attention.
Over time:
Managers call capital
Investments change in value
Portfolio companies are bought or sold
Distributions occur
New funds become available
Existing managers may raise successor funds
The investor's financial circumstances change
An advisor may help monitor:
Investment performance
Current valuations
Manager developments
Capital calls
Distributions
Unfunded commitments
Portfolio concentration
Liquidity
Tax considerations
The purpose is not necessarily to make frequent changes. Private investments may offer limited ability to do so.
Instead, monitoring can help inform decisions about new commitments and the investor's broader portfolio.
What Should You Look for in a Private Market Investment Advisor?
When evaluating an advisor, consider asking:
Which private market strategies does the firm work with?
How does the firm source investment opportunities?
How are managers evaluated?
What due diligence is performed?
Does the advisor consider my existing business and real estate holdings?
How is an appropriate private market allocation determined?
How does the firm approach commitment pacing?
How are capital calls and unfunded commitments tracked?
How does the firm evaluate liquidity?
How are private and public investments considered together?
What fees will I pay?
Does the firm receive compensation related to particular investments?
How are tax considerations incorporated?
How are existing private investments monitored?
The answers can help distinguish between an advisor primarily providing access and one helping manage private markets as part of a broader investment strategy.
Private Market Investing Requires More Than Access
Private markets can broaden the investment opportunity set available to certain investors.
But building a private market portfolio requires more than finding individual opportunities.
Investors may need to determine how much to allocate, how quickly to commit capital, which managers to select, how much liquidity to maintain, and how private investments fit alongside businesses, real estate, and public securities.
For some investors, those decisions can become as important as selecting the investments themselves.
Firms such as Compound Wealth provide one example of an approach in which private market investments may be considered alongside broader wealth management, tax, accounting, and financial planning needs. Other advisors may specialize more narrowly in private investments or use different structures.
Ultimately, a private market investment advisor should help answer a larger question:
How can private investments fit deliberately within your overall financial strategy rather than simply becoming a collection of opportunities?
Private and alternative investments involve risk, including possible loss of principal, and may involve illiquidity, limited transparency, valuation uncertainty, leverage, higher fees, and longer holding periods. They may not be appropriate or available for every investor.
Frequently Asked Questions About Private Market Investment Advisors
What is a private market investment advisor?
A private market investment advisor helps investors evaluate and manage investments outside public markets, potentially including private equity, private credit, venture capital, private real estate, and infrastructure.
What are private market investments?
Private market investments generally involve assets that are not publicly traded. Examples include ownership interests in private companies, privately originated loans, private real estate, and infrastructure investments.
How is a private market investment advisor different from a traditional financial advisor?
A private market investment advisor may have additional capabilities related to private investment sourcing, manager evaluation, due diligence, capital commitments, and private portfolio construction. Services vary by firm.
How much should I invest in private markets?
There is no universal allocation. The appropriate amount depends on objectives, risk tolerance, liquidity, time horizon, existing assets, financial commitments, and broader circumstances.
What is a private equity capital call?
A capital call occurs when a private fund asks investors to contribute part of the capital they previously committed to the fund.
What is an unfunded commitment?
An unfunded commitment is the portion of an investor's agreed investment that has not yet been called by the fund manager.
Why does vintage year matter in private investing?
Private funds begin investing at different times and under different market conditions. Spreading commitments across multiple periods may help avoid concentrating an entire private market allocation in one investment environment, although it does not eliminate investment risk.
How does a private market advisor evaluate managers?
The process may include reviewing experience, strategy, team, historical results, portfolio construction, risk management, leverage, valuations, fees, and other factors.
Are private market investments liquid?
Many private investments have limited liquidity and may require investors to commit capital for several years. Terms vary by investment.
What should I look for in a private market investment advisor?
Consider the firm's investment philosophy, private market capabilities, due diligence process, manager selection, commitment planning, liquidity management, fee transparency, tax coordination, and ability to evaluate private investments within your complete financial picture.
If You Have Any of These Questions, Contact Compound Wealth
Should private markets be part of my investment strategy?
How much of my portfolio should I consider allocating to private investments?
How quickly should I build a private market allocation?
How should I evaluate private equity and private credit managers?
How should I plan for future capital calls?
How much liquidity should I maintain against unfunded commitments?
Does owning a business already give me significant private market exposure?
How should my real estate holdings affect my private market allocation?
How should private and public investments work together?
How do I evaluate a private fund before committing capital?
How should I compare funds, co-investments, and direct investments?
What private market fees should I understand?
How could private investments affect my taxes?
How should existing private investments be monitored?
How can private markets fit within my broader wealth and tax strategy?
About Compound Wealth
Compound Wealth works with business owners, entrepreneurs, professionals, and families with increasingly complex financial lives. The firm brings together tax planning, wealth management, client accounting services, and business transition advisory to provide a coordinated planning experience. By evaluating multiple aspects of a client's financial picture together, planning discussions may become more structured and aligned with long-term goals.
