Understanding Private Markets
- Coby Fg
- Aug 18
- 3 min read
Updated: Aug 19
What Canada's Largest Pension Funds Know about Wealth Creation That You Don't.
Why Private Equity Matters
Here’s something most Canadians don’t know: 98% of companies in Canada are private. While we obsess over stocks, the vast majority of wealth lives outside the public exchanges. Only a tiny fraction of Canadian companies are available for investment on the public exchange .
The issue? Public markets are shrinking. In the late 2000s, the TSX had over 1,200 public companies. Today, that number is under 700 👀. Fewer listings mean less & less investment options for retail investors, while the private side keeps expanding.
Private companies also aren’t just mom-and-pop shops. Some of the world’s largest names are privately owned. Think IKEA or SpaceX.
So why don’t you hear about it? Because for decades, private equity was limited to institutions and high net worth investors. Many of these investments required investors to meet high income or net worth thresholds. On top of that, traditional PE funds had multi‑million‑dollar minimums and decade-long lockup periods (imagine not being able to sell your investment for 10 years).
Private Credit
One of the fastest-growing private asset classes today is private credit. Private credit expanded to approximately $1.5 trillion at the start of 2024, up from $1 trillion in 2020, and is estimated to soar to $2.6 trillion by 2029. Usually if you wanted a loan (Line of Credit or Mortgage), you'd go to your local bank. Private Credit is non-bank lending to businesses or individual. Investors can lend to these entities through private credit funds and collect attractive risk adjusted returns between 7-10%.
Why does this matter? More and more companies are borrowing from private lenders instead of banks, and smart investors are taking advantage of the shift. Over the last 10 years, the average yield premium between private and public credit (Bonds) has been 4.2%. Basically, yielding 4.2% more than the average bond annually. Of course, risk is part of the equation. The biggest one is credit risk (the chance that a borrower doesn’t pay back). That’s why understanding who you’re lending to and picking experienced fund managers is key.
Risk in Private Markets
Yes, private market investments hold risk. All investments do. The question is how much, and what does it mean.
In finance, the most common measure of risk is standard deviation, which looks at how much returns swing from the average. Historical risk for private assets measures below equivalent public assets. For example, the standard deviation for private equity over the last 10 years equals 10.1% compared to 16.2% for the Russell 3000 stock index.
Here’s the truth: private equity isn’t automatically “less risky”. Performance results vary widely based on the fund, the manager, and the type of deals. Just like mutual funds, not all PE investments are created equal. Due diligence matters.
Liquidity is the other big piece. In the public markets, you can sell your Shopify shares tomorrow with one click to secondary investor. Private funds? Sometimes you wait years to see cash back. Thankfully, new innovations are coming to the market at the fund level to solve the liquidity issues (Evergreen Strategies: which we will speak about next).
Evergreen Funds
Traditionally, private equity or venture funds locked your money up for 7–10 years.
Evergreen funds are the new innovation that is changing the game. Evergreen funds (also called open-ended funds) allow users to invest and sell their shares on a more frequent basis. What used to be a closed club for institutions is opening up to everyday investors who value liquidity. Basically, instead of investing in a fund and having your cash locked up for 10 years, you can now buy/sell these funds monthly or quarterly.
Let's Talk Returns
Most Canadians are parked in the classic 60/40 portfolio (known as the traditional portfolio). 60% stocks & 40% bonds. Nearly 7 out of 10 Canadian households with investments follow this allocation. Over the past decade trailing annualized return of the 60/40 was 6.9%.
Now, compare that with private markets. Past 15 year annualized returns:
Here’s the kicker; Canada’s pensions already know this.
Canada’s largest pension funds like CPP, CDPQ, and PSP allocate between 50%-70% of their portfolios to private market assets.
Statistically, the average Canadian allocates 0%. Because of this, the average retail investor is paying the hidden “access penalty” for simply being locked out.
The Bottom Line
Both public and private markets matter. Until now, private markets were reserved for the smartest investors. That’s why Venturevest exists. Private market education & access, built for Canadians.
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