Private markets can offer diversification and potentially higher returns — but they are not right for everyone. Here is a framework built around four key factors to help you decide whether private market investments belong in your portfolio.
You may have noticed that private markets — once the exclusive domain of pension funds, endowments, and ultra-wealthy families — are becoming more accessible to individual investors. New fund structures, lower minimums, and regulatory changes have opened doors that were firmly shut a decade ago.
But access is not the same as suitability. Just because you can invest in private markets does not mean you should. The characteristics that make these investments attractive — long holding periods, limited liquidity, and exposure to assets outside the public markets — are the same characteristics that make them inappropriate for many investors.
This article lays out a practical framework for evaluating whether private markets belong in your portfolio. It is built around four factors: time horizon, liquidity needs, portfolio size, and risk tolerance. If the answer across all four is favourable, private markets may be worth exploring. If even one factor raises a red flag, it is worth pausing before committing capital.
What are private markets?
Private markets refer to investments in assets that are not traded on public stock exchanges. Where public markets let you buy and sell shares of companies listed on exchanges like the Toronto Stock Exchange (TSX), private markets involve assets that do not trade on any exchange at all.
The major private market asset classes include:
Private Equity (PE): investing in companies that are not publicly listed, often through buyouts, growth equity, or restructuring strategies.
Venture Capital (VC): a subset of PE focused on early-stage and high-growth companies, typically in technology or life sciences.
Private credit: loans and debt instruments issued outside of traditional banking channels, often to mid-market companies.
Private real estate: direct ownership or fund-based investment in commercial, residential, or industrial properties — distinct from publicly traded Real Estate Investment Trusts (REITs).
Private infrastructure: investments in physical systems like toll roads, energy grids, airports, and telecommunications networks.
Investors typically access private markets through pooled fund structures, such as Limited Partnerships (LPs), where a General Partner (GP) manages the fund and Limited Partners contribute capital. Some newer structures — including interval funds and semi-liquid vehicles — have lowered traditional minimums, but the underlying illiquidity of the assets remains.
The key distinction from public markets is straightforward: you cannot sell your private market holdings whenever you want. That single constraint shapes nearly every suitability consideration that follows.
Four factors that determine whether private markets are right for you
There is no single test for private market suitability. Instead, it comes down to four interconnected factors. Think of them as a checklist — each one needs to pass for private markets to make sense in your situation.
Time horizon
Private markets reward patience. Traditional closed-end funds typically lock up your capital for 7 to 10+ years, and some strategies extend even longer. Capital is called over several years, deployed into assets, managed through a value-creation period, and eventually returned through exits. Newer evergreen (open-ended) structures — such as interval funds and other semi-liquid vehicles — have softened this rigid lifecycle, offering periodic subscription and redemption windows rather than a fixed end date. But even where a formal lock-up is shorter or absent, the underlying assets still take years to mature.
That is the more important point: the case for a long time horizon is not only about whether you can access your capital, but about whether the investment has time to perform. Private assets generally need a longer holding period to generate a reasonable level of return — value is created gradually through operational improvements, growth, and eventual exits. If your investment horizon is short, the likelihood of outperforming public markets is materially lower, regardless of how liquid the structure appears.
This favours investors investing for goals well into the future. If you are in your 30s or 40s and investing for retirement decades away, you have time for these assets to run their course. The same applies to anyone investing for a goal that is 10 or more years out — a child's future education, for instance, or long-term wealth accumulation inside a Registered Retirement Savings Plan (RRSP).
Conversely, private markets are a poor fit if your horizon is short — whether because you need access to your capital within 5 years, or simply because a short holding period leaves too little time for the assets to deliver. If you are approaching retirement and planning to draw down your portfolio, or saving for a home purchase in the next few years, the mismatch between your timeline and the investment's nature works against you.
Key question: can you stay invested for 7 to 10 years — both able to forgo the capital and willing to give the assets time to perform?
Liquidity needs
Time horizon and liquidity are related but distinct. Time horizon is about when you need the money. Liquidity is about whether you can afford to have it locked up at all, given your broader financial picture.
Private market investments are illiquid by nature. Most fund structures involve capital calls — the GP draws down your committed capital over time, sometimes with little notice. Once deployed, that money is inaccessible until the fund distributes returns, which may take years. Even semi-liquid structures that offer periodic redemption windows often impose redemption caps, limiting how much you can withdraw in a given period.
Before committing to private markets, you need a clear picture of your liquid reserves. That means:
An emergency fund covering 3 to 6 months of essential expenses, held in cash or near-cash instruments.
Enough liquid investments (stocks, bonds, ETFs, or high-interest savings) to meet any goals in the next 5 years.
No reliance on the capital you are considering committing — it should be money you genuinely do not need to touch.
If your portfolio is also your emergency fund, or if a capital call at the wrong moment would force you to sell other holdings at a loss, private markets introduce risk that has nothing to do with the underlying investments themselves. It is a structural risk — the risk that illiquidity creates problems elsewhere in your financial life.
Key question: do you have enough liquid reserves that locking up this capital would not affect your ability to handle emergencies or meet near-term goals?
Portfolio size
Private markets work as a component of a diversified portfolio, not as its foundation. Most institutional investors — pension funds and endowments that have decades of experience in private markets — allocate somewhere between 10% and 40% of their total portfolio to private assets. For individual investors, the principle is the same: private market allocations should be a meaningful but minority share of total investable assets.
This creates a practical threshold. If a fund requires a minimum commitment of $25,000 to $100,000, that commitment needs to be a reasonable percentage of your overall portfolio. Committing $50,000 to a private market fund when your total investable assets are $75,000 means two-thirds of your wealth is illiquid and concentrated in a single strategy. That is not diversification — it’s concentration risk.
A more appropriate scenario might look like this: an investor with $500,000 in total investable assets allocates a meaningful but minority share across private assets, while keeping the remainder in liquid, diversified public market holdings. How large that share can reasonably be depends on how diversified the private exposure itself is. A private allocation spread across multiple strategies can reasonably run to 20% to 30% of total investable assets; for more concentrated private positions — a single strategy or a small number of assets — a cap closer to 20% is more appropriate. The goal is for the private allocation to add diversification without dominating the portfolio.
It is also worth considering that some private market opportunities require investors to meet accredited investor thresholds under Canadian securities regulation. National Instrument 45-106 (NI 45-106) sets out the criteria: generally, an individual needs net financial assets exceeding $1 million (excluding the value of their primary residence), or net income before taxes exceeding $200,000 in each of the two most recent calendar years (or $300,000 combined with a spouse). Not all private market funds require accredited investor status — some newer retail-oriented structures do not — but many still do.
Key question: is the amount you are considering committing a reasonable minority share (roughly 5% to 20%) of your total investable assets?
Risk tolerance
Every investment carries risk, but private markets introduce risks that are qualitatively different from what most public market investors are accustomed to.
Illiquidity risk: you cannot exit when markets turn or your circumstances change.
Valuation uncertainty: private assets are not priced daily on an exchange. Valuations are typically reported quarterly and are based on estimates, not market transactions. You may not know the true value of your holdings until they are sold.
The J-curve effect: many close-end private market funds show negative returns in the early years as management fees are charged and investments have not yet matured. Returns typically improve in later years — but the early-period losses can be unsettling.
Manager risk: returns in private markets are heavily dependent on the skill of the fund manager. The spread between top-quartile and bottom-quartile PE managers is far wider than the equivalent spread among public equity fund managers.
Concentration risk: some funds invest in a small number of companies or assets, meaning a single failure can have an outsized impact on returns.
If you are comfortable navigating this kind of complexity — and you understand that private market returns unfold over years, not months — these risks may be acceptable. If short-term portfolio fluctuations cause you significant stress, or if you prefer investments where you can see a clear, daily market price, private markets are likely to create more anxiety than value.
Key question: are you comfortable with illiquidity, infrequent valuations, and the possibility of negative returns in the early years of a fund's lifecycle?
Who typically invests in private markets?
Historically, private markets have been dominated by institutional investors. Canadian pension funds — including some of the largest in the world — have allocated heavily to private equity, infrastructure, and real estate for decades. University endowments, sovereign wealth funds, and family offices followed similar strategies, drawn by the potential for higher long-term returns and diversification benefits.
For individual investors, access was traditionally limited to those who met accredited investor criteria under Canadian securities law. NI 45-106 established who could participate in exempt market offerings, and the income and asset thresholds effectively restricted private market access to high-net-worth individuals.
That picture has been shifting. New fund structures — including interval funds and offerings under prospectus exemptions — have lowered minimum investment requirements and broadened eligibility. Some private market funds now accept commitments as low as $10,000 to $25,000, and a growing number are available to retail investors without accredited investor status.
Still, the typical individual investor in private markets tends to share certain characteristics: a portfolio large enough to absorb an illiquid allocation, a long investment time horizon, a stable financial situation with adequate liquid reserves, and a willingness to accept the complexity and risk that come with non-public assets.
When private markets are not a fit
It is just as important to know when to say no. Private markets are likely not appropriate if any of the following apply:
Your time horizon is short. Private assets are long-term investments — their return profile is usually realized over an extended holding period, as value builds gradually through growth and eventual exits. Over shorter horizons, they may underperform publicly traded assets, regardless of how liquid the fund structure appears. So if you have a near-term goal — a home purchase, a career change, upcoming retirement income — private markets are unlikely to be the right fit, even in an evergreen fund that offers some liquidity.
You do not have an adequate emergency fund. Investing in private assets without a cash cushion means you may be forced to exit at an inopportune time if an unexpected expense arises — and because these are long-term investments whose returns play out over years, an early exit can mean leaving before the asset has had time to perform. A cash reserve keeps the rest of your financial life from depending on capital that's better left invested.
An illiquid commitment would be disproportionate to your total portfolio. If locking up $25,000 or $50,000 represents more than 20% to 25% of your investable assets, you're carrying more liquidity risk than the diversification benefit justifies — too much of your wealth sits in assets you can't readily access if your circumstances change.
You are uncomfortable with complexity and opaque valuations. Private market investments do not come with the transparency of daily market pricing. If not knowing the precise value of a holding would cause you significant concern, these investments may not suit your temperament.
You are investing money you cannot afford to lose. While total loss is uncommon in diversified private market funds, individual investments can and do fail. Capital committed to private markets should be money you could lose without materially affecting your financial security.
None of these factors is a permanent disqualifier. An investor with a short time horizon today may have a long one in five years. Someone whose portfolio is too small now may reach an appropriate threshold later. Suitability is not static — it evolves with your circumstances.
How to evaluate a private market investment
If you have determined that private markets are a reasonable fit based on the four factors above, the next step is evaluating specific opportunities. Not all private market funds are created equal, and due diligence matters more here than in public markets, where regulatory disclosure requirements are more extensive.
Consider the following when assessing a fund:
Fund structure and terms: understand the lock-up period, capital call schedule, distribution waterfall, and any early redemption provisions. Know exactly when and how your money will be deployed and returned.
Fee structure: private market funds typically charge a management fee (often 1% to 2% of committed or invested capital) plus carried interest (commonly 20% of profits above a hurdle rate). Understand how fees are calculated and what impact they have on net returns.
Track record: look at the GP's historical performance across previous funds, paying attention to Net Internal Rate of Return (IRR), distributions to paid-in capital, and consistency across vintage years. Just as important is understanding how those returns were generated — was the performance driven by genuine skill, or by favourable market conditions and timing? Comparing a manager against their peers within the same vintage year helps answer this: it shows whether they consistently outperformed others investing in the same environment, or simply rode a good market. Past performance is not predictive, but a manager who beats their peers across multiple vintages reveals real experience and discipline.
Diversification within the fund: a fund that invests across 15 to 20 companies or assets spreads risk more effectively than one concentrated in 3 to 5 holdings.
GP commitment: does the GP invest its own capital alongside yours? Alignment of interests — where the manager's money is at risk alongside investor capital — is widely considered a positive signal.
Reporting and transparency: how frequently does the fund report valuations and performance? What level of detail is provided? Opaque reporting should be a concern.
Common misconceptions about private market investing
A few persistent myths can distort expectations. It is worth addressing them directly.
"Private markets always outperform public markets." This is not guaranteed. While above median private equity funds have historically delivered returns above public market equivalents, and bottom-quartile funds have often underperformed. Returns depend heavily on manager selection, the vintage year (when the fund was raised relative to market conditions), and the specific asset class.
"Only the ultra-wealthy can invest." This was largely true a decade ago, but access has broadened considerably. Lower minimums and new fund structures have opened private markets to a wider range of investors. That said, minimum commitments still apply, and many opportunities remain restricted to accredited investors under NI 45-106.
"Private markets are too risky." Risk is not a single dimension. A diversified private credit fund lending to established mid-market companies may carry less volatility than a concentrated public equity portfolio. The real question is not whether private markets are risky in the abstract, but whether the specific strategy, manager, and fund structure align with your risk tolerance and financial situation.
"You need to be an expert to invest." While private markets are more complex than buying an ETF, you do not need a finance degree to participate. What you do need is a willingness to do your homework — understanding the fund's strategy, fees, risks, and terms before committing capital. If a fund's materials are not clear enough for you to understand what you are investing in, that itself is useful information.
Private markets are neither a guaranteed path to higher returns nor an inherently dangerous corner of the investing world. They are a distinct asset class with characteristics that suit some investors and portfolios — and not others. The framework above is a starting point: assess your time horizon, liquidity, portfolio size, and risk tolerance honestly, and the answer will usually become clear.
