Introduction
Private markets continue to move beyond institutional portfolios. High-quality offerings are available to private wealth investors that address prior hurdles via attractive current yields, lower minimum investment sizes, simplified investment processes, timely tax reporting, and some liquidity. In addition, regulatory changes have expanded access for a much broader investor base. Many of these offerings grant investors access to a very large portion of the U.S. economy: over 87% of companies with revenues above $100M are privately held.¹ Limiting a portfolio to public markets means excluding over 17,000 companies generating revenues above $100M.²
Investors can also earn higher returns. Research suggests private market alternatives may offer enhanced returns of 2.5% to 4% versus comparable public market strategies.³ While the amount of the illiquidity premium remains debated, investors can assess whether they believe there will be an increased level of return when committing capital to private market alternatives.
Furthermore, private investments may reduce portfolio volatility, and traditional 60/40 stock/bond portfolios may exhibit higher volatility than portfolios that include private market alternatives.⁴ These investments tend to exhibit more muted responses to market turbulence. For instance, data from Bloomberg and Cambridge Associates indicated that private equity exhibited approximately half the volatility of its public market equivalent during COVID.⁵
How Private Market Investment Funds Are Structured
The structure of investment funds that focus on private investments typically takes one of four forms. Each carries risk/return characteristics, eligibility requirements, and limited liquidity profiles. Understanding these distinctions is essential before making any recommendation.
A Guide to Private Market Liquidity
The following table provides a brief summary of the market practices applicable to each of the investment vehicles listed below. It is not intended as a complete description of market practice and any applicable law or regulation.
| Credit Interval Fund | Credit Tender Offer Fund | Non-Listed REIT | Non-Listed BDC | |
| Typical Investment Strategy | Credit investments (with some being liquid for mandatory redemptions) | Credit investments | Investment properties with a focus (e.g., multifamily, office, industrial, retail) | Private loan investments |
| Portfolio Objective | Primarily current income | Primarily current income | Current income and capital appreciation | Primarily current income |
| Investor Eligibility | All investors | All investors | All investors | All investors |
| Liquidity | Typically (a) quarterly or semi-annually and (b) 5% (quarterly) of outstanding common stock | Typically quarterly up to 5% of outstanding common stock, at the discretion of the fund’s board | Typically monthly or quarterly, subject to a maximum %, at the discretion of the fund’s board | Typically quarterly up to 5% of outstanding common stock, at the discretion of the fund’s board |
The Benefits of Illiquidity
If investors allocate to a fund that is subject to redemption restrictions, a key question is whether they may expect to be adequately compensated. The answer typically turns on the illiquidity premium for the investments that the fund makes: the potential for higher returns that exceed what a comparable liquid investment strategy could offer.
Questions to Ask Before Recommending
Use these as a starting point when evaluating suitability of less liquid funds with a client:
• Following this allocation, would less than 20% of your overall portfolio be considered illiquid?
• Do you have any significant financial obligations (tuition, home purchase, healthcare) in the near term?
• If exiting this investment for cash became temporarily inaccessible, how would that affect the rest of your financial plan?
• Do you understand that redemption windows are a feature, not just a constraint, of how these funds are managed?
Conclusion
Funds that invest in private investments can be a powerful tool for investors. Financial advisors can make sure the investor is a fit before the investment is made. Accessibility has expanded faster than education, and that gap can be addressed. The conversation matters as much as the allocation to avoid unsatisfied investors.
Sources
1. S&P Capital IQ as of September 30, 2025
2. S&P Capital IQ as of April 20, 2024, as presented by Apollo Academy’s “The Daily Spark.”
3. Cambridge Associates, as of December 31, 2024, as presented in Goldman Sachs Asset Management, “When Public Meets Private: The Strategic Role of Alternatives” (2025)
4. Blackstone Insights – Essentials of Private Markets as of December 31, 2024
5. Bloomberg, Cambridge Associates for the period 6/30/2003 to 6/30/2023, as presented by Blue Owl’s “Diversifying with Private Markets Toolkit.”
Disclosures
Past Performance is Not Indicative of Future Results.
Prospect Capital Management L.P.
Headquartered in New York City, Prospect is an SEC-registered investment adviser that, along with its predecessors and affiliates, has a more than 30-year history of investing in and managing high-yielding debt and equity investments using both private partnerships and publicly traded closed-end structures. Prospect and its affiliates employ a team of approximately 100 professionals who focus on credit-oriented investments yielding attractive current income. For more information, call 212.448.0702 or visit prospectcap.com.
This information is educational in nature and does not constitute an offer to sell or the solicitation of an offer to buy any securities. Prospect is not adopting, making a recommendation for, or endorsing any investment strategy or particular security. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. All investing is subject to risk, including the possible loss of principal. Prospect cannot guarantee that the information herein is accurate, complete or timely. We make no representation or warranty in respect of any information derived from the third-party sources which has not been independently verified.
