Privates

   By Guest Blogger Ryan Lewenza

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At Turner Investments we invest 100% of our clients hard-earned savings in ‘publicly’ traded investments, specifically stock and bond ETFs. Public investments refer to companies that have completed an initial public offering (IPO) and trade on an exchange like the NYSE or TSX.

In contrast, ‘private’ investments refer to companies and assets that are not traded on public exchange markets. Over the past few years, these investments have attracted increasing attention from investors, fueling remarkable growth. As illustrated in the chart below, private assets have surged from approximately $1 trillion in 2000 to over $12 trillion today – a twelvefold increase that underscores their rising prominence in the global financial markets.

In fact, President Trump recently signed an executive order allowing for 401k accounts (US RRSP accounts) to now hold these private investments. So, we expect this to fuel even more growth in the years ahead.

Today I’m going to review the key aspects of private investments, the pros and cons, and the risks involved with them. Investment companies and banks see these as the next best thing, but we have some real concerns which we’ll review in today’s blog.

AUM of private investments

Source: Preqin Pro

Private investments can be broken into four main types or categories – private equity, private debt, real estate and real assets.

Private equity is the largest bucket, and this is simply investing in shares of private companies. Here an investor would buy a stake in a private company, say a family-owned manufacturing company, restructure the company so it’s more profitable, then sell the company five years later at a tidy profit.

Private debt consists of loans made directly to companies, which are often unable to secure loans or financing from traditional banks or the public bond markets. Here an investor/portfolio manager would analyze the company to ensure the company is solid and can pay the interest and principal at maturity. They often charge a higher rate of interest (e.g., 10%) to be compensated for the higher risk in lending to a smaller company.

Private debt funds have surged in popularity, driven in part by the prolonged low-interest rate environment of the past few decades. Today, over $2.5 trillion is invested in the private debt markets – a figure that’s expected to climb even higher as traditional banks continue to retreat from lending in these segments. The chart below illustrates this dramatic shift: the cumulative growth in assets under management (AUM) within private credit markets has far outpaced the volume of commercial loans issued by major U.S. banks.

JP Morgan CEO, Jamie Diamond, has been monitoring this large industry trend and decided he wanted a piece of the action, recently announcing that his bank will commit $50 billion of its own capital to lend to these private companies.

Cumulative change in private credit assets under management vs total commercial bank assets

Source: Pitchbook, Federal Reserve

Finally, private investments are common with real estate and real assets. A good example of this is Toronto’s 407 toll road, which is owned by Canada Pension Plan Investment Board, Spanish firm Cintra, and PSP Investments.

Now that we’ve covered what private investments are, let’s explore their advantages, drawbacks, and the key risks investors should keep in mind.

The advantages of private investments are: 1) access to different markets, 2) the potential for higher returns, 3) the potential for lower volatility, 4) increased diversification, and 5) the lower correlation of these investments with public investments, which can help to lower overall portfolio volatility.

Advantages and disadvantages of private investments

Source: Fire Capital Management

According to Mackenzie Investments, over the last 15 years, private equity has delivered a 3.5% return premium to public investments. Many private debt funds aim to deliver annual returns of 6-10%, which is far higher than Canadian and US government bond yields of roughly 3-4%. So, the returns are a big driver of the increased focus from investors.

Another advantage of private investments is that since they are not publicly traded, which comes with real-time pricing, they ‘mark’ their investments and loans less frequently (often monthly or quarterly), which results in lower price volatility of the investments or funds.

Finally, we’re big believers in diversification, which these investments can provide.

Now, there are major disadvantages of these investments, and this has really come into focus recently.

First, these investments can be complex and there is far less transparency and regulation. The investment company Bridging Finance is a good example of this. The company had a fund that invested in private debt by issuing loans to small and medium sized companies. The company was investigated by regulators, and they uncovered fraud at the company.

The company was put into receivership and there’s an ongoing legal battle between regulators and the old owners. This is a good example of the lack of transparency around these funds, and the potential risks. It’s estimated that investors could lose up to 60% of their invested funds because of the fraud.

Second, investments in the private markets are less liquid, which can result in investors having difficulties selling the investments and getting back their cash. We’ve seen several investment funds halt or limit redemptions, known as ‘gating’.

Investment firms Romspen, Hazelview, Trez Capital and Nicola Wealth have all announced a full or partial halt to redemptions. These companies invest in real estate, which can be a very illiquid asset. As investors attempt to redeem their funds and get back their invested capital, this can put stress on the funds as they can’t offload the real estate investments quick enough to meet the redemption orders.

The companies respond by halting redemptions, leavings investors stuck with the investments until conditions improve. In the case of Romspen, which specializes in commercial mortgages, investors haven’t been able to redeem the funds for three years. These investors are completely locked in until conditions improve and the company removes the halt.

One of the key reasons we like ETFs is the liquidity they offer. If a client needs some funds to pay for a reno, or for their kids’ education, we can very easy and quickly sell ETFs, covert to cash and transfer the funds back to their bank accounts. This is a key reason why we avoid these private investments, because there will be times when it will be difficult to sell them, like we’re seeing with these real estate funds.

There are some clear benefits of these private investments such as higher potential returns, increased diversification, and lower potential volatility. However, with these benefits comes some real drawbacks such as the lack of transparency and regulation, and the lack of liquidity.

So, while we’re paying more attention to this growing area, we’ll stick with our bread and butter of public investments like boring old stock and bond ETFs, as the risks outweigh some of the benefits that come with private investments, in our view.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

Source: https://www.greaterfool.ca/2025/09/20/privates/