You've probably bought a stock or an ETF before — or at least thought about it. You open an app, pick a ticker, tap "buy," and you own a tiny slice of it. That's the public market. It's fast and accessible — what most people think when they hear the word "investing."
Private markets are investments in companies and assets that aren't traded on a public stock exchange — things like private companies, private loans, and infrastructure projects.
Public stock exchanges represent a fraction of the economy. Thousands of companies, billions of dollars in loans, and critical infrastructure — highways, power grids, fibre optic networks — exist outside those exchanges entirely. That's the world of private markets, and it's where some of the largest institutional investors put a significant chunk of their money.
If you've never heard the term, you're not alone. Pension funds, endowments, and the ultra-wealthy have historically dominated private markets. But that's changing.
How private markets work
What makes an investment "private"
The word "private" simply means the investment isn't listed on a public stock exchange. You can't look up its price on a ticker, and you can't buy or sell it with a tap. Instead, these deals happen directly between investors and companies (or projects), often through specialized funds.
Because there's no public exchange involved, private market investments tend to be less liquid — meaning you typically can't access your money for years. In exchange, investors often expect higher returns to compensate for that lack of flexibility. This trade-off has a name: the illiquidity premium.
The three pillars of private markets
Private markets is an umbrella term covering a broad universe of assets that aren't traded on public exchanges. The major asset classes are:
Private equity: buying ownership stakes in private companies
Venture capital: backing early-stage companies with high growth potential
Private credit: lending money directly to companies outside the traditional banking system
Private infrastructure: investing in large-scale physical assets like roads, energy systems, and telecommunications networks
Private real estate: investing directly in property and real-estate-backed assets
Beyond these core categories, private markets extend to a wide range of other assets — sports teams, fine art, wine, and more — that sit alongside the major classes.
Each works differently and carries its own risk-and-return profile. We'll focus on four of the largest and most established categories: private equity, private credit, private infrastructure, and private real estate.
Private equity
Private equity (PE) is the practice of buying ownership in companies that aren't publicly traded — or, in some cases, taking public companies private by purchasing all their outstanding shares.
PE firms raise large pools of capital from investors, then use that money to acquire companies they believe they can improve. The playbook usually looks something like this: buy a company, help it grow (through better management, operational improvements, or expansion), and then sell it for a profit several years later — either to another buyer or by taking it public through an initial public offering (IPO).
There are a few flavours of PE:
Buyouts: a PE firm acquires a controlling stake in a mature company, often using a mix of investor capital and borrowed money
Growth capital: investing in companies that are already profitable but need capital to expand — say, entering a new market or building a new product line
Venture capital (VC): funding early-stage startups that are pre-profit or even pre-revenue, betting on their future potential
The common thread is that investors are putting money into companies you won't find on the Toronto Stock Exchange (TSX) or the New York Stock Exchange (NYSE) — at least not yet.
Private credit
Private credit (PC) — sometimes called private debt — simply means lending money to borrowers outside the traditional bank and public bond markets. Instead of a company borrowing from a bank or issuing bonds that trade publicly, it borrows directly from investment funds. As an investor, you're effectively stepping into the lender's shoes and earning interest in return.
The fund pools capital from investors, lends it out, and earns interest on those loans — and investors get paid a regular stream of income from those interest payments.
The best-known form is direct lending (loans to mid-sized companies), but private credit is much broader than that. It includes:
Lending to companies: straightforward loans to businesses, as well as riskier loans that sit further down the repayment line in exchange for higher returns, and loans to fast-growing startups.
Lending against assets: financing backed by things like equipment, unpaid invoices, consumer loans, or even royalties from music or patents — here the focus is on the value of the asset rather than the company behind it.
Lending for property and infrastructure: loans to fund real estate projects or large infrastructure like roads, utilities, and data centres.
Lending in special situations: rescue financing for companies in trouble, or buying up loans that borrowers are struggling to repay at a discount.
What ties these together is that the loans are privately arranged rather than traded on an exchange, they're harder to cash out quickly, and most of your return comes from interest payments rather than the price of the investment rising.
Why would a company choose this route? A few reasons:
Speed and flexibility: private lenders can often structure deals faster and with more customized terms than a bank
Access: some companies — especially mid-sized businesses — may not meet a bank's lending criteria or may need a type of financing that banks aren't set up to provide
Certainty: borrowers deal with a single lender or a small group rather than navigating a complex syndication process
For investors, the appeal is steady income. Private credit returns tend to be less volatile than equity returns because they're based on contractual interest payments rather than fluctuating company valuations. That said, there's always the risk that a borrower doesn't pay you back — credit risk is real.
Private infrastructure
Private infrastructure means investing in large-scale physical assets that societies depend on — things like toll roads, data centres, airports, electricity transmission lines, renewable energy projects, water treatment facilities, and telecommunications networks.
These assets share a few characteristics that make them distinctive:
Essential services: people need electricity, clean water, and internet access regardless of economic conditions, which creates relatively predictable revenue
Long lifespans: a highway or power grid operates for decades, generating income over a very long time horizon
High upfront costs: building a wind farm or a fibre optic network requires enormous capital — more than most individual companies want to finance on their own
That last point is why private capital plays such a big role. Governments and utilities can't always fund every project they need through taxes or public debt. Private infrastructure investors fill the gap, providing capital in exchange for a share of the long-term cash flows these assets produce.
For investors, infrastructure can act as a partial hedge against inflation. Many infrastructure contracts include clauses that adjust payments upward with inflation — if the cost of living rises, your income from a toll road or utility concession may rise with it.
Private real estate
Private real estate means investing directly in property — or in funds that own property — rather than buying shares of a publicly traded real estate company or REIT. This includes apartment buildings, office towers, warehouses and logistics centres, retail space, and increasingly specialised assets like student housing and data centres.
A few characteristics make private real estate distinctive:
Income plus appreciation: returns come from two sources — the rent tenants pay (ongoing income) and any increase in the property's value over time (appreciation). The mix depends on the strategy.
A spectrum of risk: it ranges from stable, fully leased "core" properties that behave a lot like a bond, to "value-add" and "opportunistic" strategies that involve renovating, repositioning, or developing property from the ground up — higher risk, but higher potential return.
Tangible, long-lived assets: like infrastructure, real estate is a physical asset with a long life, and demand for space — to live, work, and store goods — tends to persist through economic cycles.
For investors, private real estate can offer steady income, diversification away from stocks and bonds, and some protection against inflation, since leases often include rent escalations and property values tend to rise with the broader price level. As with other private assets, the trade-off is liquidity — you can't sell a building with a tap on your phone — and returns depend heavily on the manager's skill in selecting and managing properties.
How private markets differ from public markets
Here's a side-by-side comparison of the key differences:
Feature | Public markets | Private markets |
|---|---|---|
| Where they trade | Stock exchanges (e.g., TSX, NYSE) | Direct deals, private funds |
| Liquidity | High — buy or sell in seconds | Low — money typically locked up for years |
| Transparency | Extensive — public filings, quarterly reports | Limited — less regulatory disclosure |
| Access | Open to anyone with a brokerage account | Historically restricted to institutional and accredited investors |
| Minimum investment | As low as the price of one share | Often $25,000 to $10 million or more |
| Pricing | Real-time market prices | Periodic valuations (quarterly or less) |
| Regulation | Heavy — securities commissions, continuous disclosure | Lighter — exempt from many public market rules |
| Return profile | Market-rate returns with daily volatility | Potentially higher long-term returns with less visible (but real) volatility |
Neither is inherently better. Public markets give you flexibility and transparency. Private markets may offer higher returns and diversification — but they demand patience and a higher tolerance for uncertainty.
Why institutional investors love private markets
If private markets are illiquid, opaque, and hard to access, why do the world's most sophisticated investors pour money into them?
The short answer: they've historically delivered.
Pension funds, university endowments, and sovereign wealth funds have been the biggest players in private markets for decades. They have long time horizons — a pension fund investing on behalf of a 30-year-old won't need that money for 35 years — which makes the illiquidity trade-off much easier to stomach.
Take the Canada Pension Plan (CPP) Investments, the organization that manages the retirement savings of over 22 million Canadians. As of 2024, roughly half of its portfolio was allocated to private markets — spanning private equity, private credit, infrastructure, and real estate. The Ontario Teachers' Pension Plan (OTPP) follows a similar approach.
Why do they do it?
Diversification: private market returns don't move in lockstep with public stocks and bonds, which helps smooth out a portfolio's overall performance
Higher long-term returns: over extended periods, private equity and infrastructure have historically outperformed their public equivalents — though past performance never guarantees future results
Compensation for risk and illiquidity: private assets are generally riskier and harder to cash out than public ones, and their higher expected returns are viewed as compensation for both. Just how much of that return is specifically a reward for illiquidity is debated, but there's broad agreement that greater risk explains at least part of it — and investors who can afford to take on that risk and wait are well positioned to capture the reward
It's worth noting that these results aren't guaranteed. Private market performance varies widely depending on the fund manager, the vintage year (when the fund was launched), and economic conditions. Picking the right fund matters enormously — arguably more than in public markets, where index funds have made "average" returns accessible to everyone.
Can regular investors access private markets?
For a long time, the answer was mostly no.
Securities regulators — including the Ontario Securities Commission (OSC) and provincial regulators across Canada — have historically limited private market investments to accredited investors. In most Canadian provinces, that means individuals with a net income above $200,000 (or $300,000 combined with a spouse) or net financial assets exceeding $1 million. The logic is straightforward: private investments carry higher risk and less regulatory protection, so regulators want to ensure participants can absorb potential losses.
High minimums have been another barrier. Many private equity and infrastructure funds require investments starting at US$250,000, US$1 million, or more — well beyond what most retail investors can commit.
But the landscape is shifting. Over the past several years, new fund structures have emerged that package private market investments into more accessible formats:
Interval funds and semi-liquid funds: these allow periodic (though limited) redemptions, reducing the lock-up burden
Feeder funds and funds of funds: these pool smaller individual investments and channel them into institutional-grade private market funds
Lower minimums: some newer vehicles have brought entry points down to $25,000 or less
Regulatory attitudes are evolving too. Regulators around the world — including in Canada — are exploring ways to responsibly broaden access to private markets without removing the protections that exist for a reason.
Access is expanding, but it's still far from as simple as buying an exchange-traded fund (ETF). Due diligence, fees, and lock-up periods remain real considerations.
Risks to understand before investing
Private markets can offer genuine portfolio benefits, but they come with risks that are different from what you'd face in public markets. Many of these are common across private assets.
Illiquidity: this is the big one. When you invest in a private fund, you typically can't touch your money for years. You can't sell your position on a bad day (or a good one). If your financial situation changes and you need cash, you may not be able to access it.
Limited transparency: public companies file quarterly earnings, disclose executive compensation, and face ongoing regulatory scrutiny. Private companies don't. You'll have far less information to work with, and valuations happen infrequently — sometimes only annually.
Leverage: private funds often use borrowed money to boost returns. Leverage can amplify gains, but it cuts both ways — it magnifies losses too, and adds sensitivity to interest rates and refinancing conditions.
Higher fees: private funds typically charge both a management fee (often around 1.5% to 2% of assets) and a performance fee. The performance fee usually kicks in only once returns clear a hurdle rate (commonly 5% to 8%), after which the manager takes a share of the gains above that level (often around 20%). These fees can meaningfully eat into your net returns.
Manager selection risk: in public markets, you can buy an index fund and get "average" market returns. In private markets, the gap between top- and bottom-performing managers is enormous. Choosing the wrong manager can mean the difference between strong returns and significant losses.
Beyond these, there are tax implications to consider. Private market investments can generate more complex tax reporting than a typical index fund — including different types of income, foreign-sourced income, and timing that doesn't always line up neatly with the tax year — so it's worth understanding the treatment in your situation, ideally with a tax professional.
None of these risks are reasons to avoid private markets entirely. But they're reasons to go in with your eyes open and a clear understanding of what you're committing to.
The bottom line
Private markets represent a large (and growing) part of the global economy. They fund the companies, infrastructure, and lending that shape everyday life, even if most people never see it happening.
Understanding how private equity, private credit, and private infrastructure work does more than prepare you for a potential investment. It gives you a clearer picture of where money flows, why pension funds invest the way they do, and what people actually mean when they talk about "alternative investments."
Whether private markets belong in your portfolio depends on your financial situation, your time horizon, and your comfort with the trade-offs — especially illiquidity and higher fees. But the more you understand how this side of the economy works, the better equipped you are to make informed decisions about your own money.
