For many advisors well-versed in public markets, private capital investing can appear daunting. With unfamiliar structures, limited transparency, and multi-year lockups, private markets are often perceived as opaque, inaccessible, or excessively risky. These perceptions have historically discouraged advisors from engaging with the asset class despite compelling evidence that, when understood and implemented correctly, private market strategies can enhance long-term performance and portfolio resilience.
In this article, we’ll clarify the real risks of private investing, dispel common misconceptions, and highlight how these risks differ not necessarily exceed those in public markets. In doing so, it reframes private market risk not as a reason for avoidance, but as a call for informed engagement.
The Myth of Excessive Risk
One of the most persistent myths about private markets is that they are categorically riskier than public investments. While it’s true that private investments lack daily pricing and are not traded on open exchanges, these characteristics do not automatically translate into higher investment risk. In fact, private equity and private credit often exhibit lower observed volatility than their public counterparts, largely because they are insulated from short-term market fluctuations and headline-driven pricing noise.
However, this lower volatility should not be confused with lower uncertainty. The true risks in private markets are less about market beta and more about the following:
Illiquidity
Manager dispersion
Information asymmetry
Long-term commitment and capital pacing
Each of these risks is real but manageable with the right strategy and tools.
Understanding Illiquidity—and the Premium It Offers
The most widely cited risk in private markets is illiquidity. Unlike public equities, which can be sold intraday, capital committed to a private fund is typically locked up for 8–12 years. Investors may receive periodic distributions as investments are realized, but there is no secondary market with guaranteed pricing or immediate exit.
This illiquidity, however, is precisely why private investments tend to outperform over the long term. The so-called illiquidity premium refers to the additional return investors can earn by accepting the trade-off of locking up capital. Academic studies and institutional data sets confirm that private equity, for instance, has historically delivered higher net returns than public market equivalents particularly in top-quartile funds.
From a portfolio construction perspective, illiquidity should be framed not just as a risk, but as a return-enhancing feature for clients with long-term horizons and stable capital bases.
The Real Risk: Manager Dispersion
While public equity fund performance typically clusters near benchmarks, private fund performance exhibits much wider variation. The difference in returns between top- and bottom-quartile private equity funds can exceed 1,000 basis points, a level of dispersion that makes manager selection the single most important decision in private investing.
This makes private market diligence fundamentally different from selecting a low-cost ETF or assessing a 5-star mutual fund. Advisors must evaluate GPs on factors such as:
Historical performance and consistency
Team stability and succession planning
Sector and geographic expertise
Alignment of interests (e.g., GP co-investment)
Fee structures and transparency
Without robust data, advisors risk selecting underperforming managers or committing capital to strategies that don't align with client objectives.
Risk ≠ Volatility
Public market risk is often measured in terms of volatility, the degree to which asset prices fluctuate over time. In private markets, risk is better understood as uncertainty of outcome over a long time horizon. This includes uncertainties around exit timing, valuations, macro conditions, and GP execution.
Interestingly, because private assets are not marked to market daily, they can serve as effective volatility dampeners in a diversified portfolio. This is especially relevant for clients who are long-term oriented and can tolerate illiquidity in exchange for potentially higher compounded returns.
Debunking Other Common Myths
Several other myths frequently deter advisors and clients from exploring private investments:
“Private markets are only for institutions.”
While historically true, this is changing. New fund structures, feeder vehicles, and platforms now allow qualified individuals to access high-quality private funds at lower minimums.
“There’s no transparency.”
While private markets lack public disclosures, modern platforms and data providers such as CEPRES offer rigorous, fund-level analytics, risk attribution, and performance benchmarking. Advisors are no longer flying blind.
“The fees are too high.”
While private funds often charge higher fees, these must be evaluated in the context of net returns. Many top-performing funds justify their cost through alpha generation, and lower-fee vehicles may not deliver comparable results.
Tools to Manage Risk Intelligently
Advisors need not become private equity experts to guide clients effectively. What’s needed is access to institutional-grade data, diligence frameworks, and risk analytics that enable them to:
Benchmark fund performance against peers
Assess historical capital calls and distributions
Understand exposure by sector, geography, and deal type
Align fund strategies with client-specific liquidity and return objectives
Platforms like CEPRES are helping to close this gap, enabling advisors to make evidence-based decisions using data once reserved for large institutions. Its AInsights tool provides AI-powered, data-backed insights that can help boost analytical efficiency and decision-making for LPs.
Private market risk is not a barrier to entry it’s a challenge that rewards preparation. With the right education and tools, RIAs, wealth managers, and consultants can navigate private investments with the same rigor and confidence they bring to public portfolios. By dispelling outdated myths and embracing a more nuanced understanding of risk, advisors can unlock a powerful set of strategies that offer real value to their clients over time.
Want to know more? Learn how CEPRES Market Intelligence can help you maximize private equity returns, mitigate risks, and uncover hidden portfolio opportunities.
Read the next article in the series How to Talk About Private Markets with Clients.
