Private markets in 2026: Where to invest?

Key Concepts

• Private Equity: Investment in companies not listed on public stock exchanges.
• Diversification: Spreading investments across different asset classes, geographies, and industries to reduce risk.
• Evergreen Funds: Private equity funds accessible to retail investors with lower minimum investments.
• Illiquidity: The difficulty of quickly converting an investment into cash, characteristic of private equity.
• Market Concentration: A situation where a small number of companies dominate a market, particularly relevant to the S&P 500.
• Exit Strategy: The plan for eventually selling a private equity investment to realize a return.

The Case for “Boring is Bullish”: Private Equity vs. Public Markets

The interview with Eric Hirsch, Co-CEO of Hamilton Lane, centers on the argument that private equity offers a compelling alternative to the current state of public markets, which he characterizes as overly concentrated and volatile. Hirsch contends that while public markets are fixated on daily fluctuations, private equity is making “quieter moves” that offer significant benefits, particularly in terms of diversification.

Public Market Concentration & Volatility

Hirsch highlights a critical issue in public markets: an excessive reliance on a small number of companies – specifically, seven companies driving the performance of the entire market. He states that investors in passive equity strategies are effectively “staking their entire savings to seven companies who are all focused on one theme.” This concentration, currently at levels not seen since the late 1960s/early 1970s, is further exacerbated by the high correlation between these dominant companies, including significant “inner dealings” between them. He points out that the top ten companies in the S&P 500 account for almost 40% of the index’s total market capitalization. This contrasts with earlier periods of concentration where the dominant companies operated in uncorrelated industries (e.g., IBM and Exxon). This concentration leads to increased volatility, as the performance of the entire market is heavily dependent on the fortunes of a few key players.

The Role of Private Equity in Fueling the Economy

In contrast to the public markets, Hirsch emphasizes that private equity is actively “financing and acquiring the businesses that fuel our economy,” including local retail, manufacturing, and power suppliers. While there are approximately 4,500 public companies in the US, the returns in the S&P 500 are generated by a very small subset. Private equity, therefore, provides capital to a broader range of businesses, contributing to a more diversified economic base.

Accessing Private Equity: Democratization through Evergreen Funds

Historically, private equity was largely inaccessible to individual investors, being primarily an “institutional investor game.” However, Hirsch notes a significant shift with the emergence of “evergreen funds.” These funds offer retail investors access to private equity with relatively low minimum investments – Hamilton Lane, for example, offers an infrastructure fund with a $500 minimum. This “democratization” of private equity is seen as a positive development, allowing a wider range of investors to benefit from its potential.

Managing Expectations: Illiquidity and Investment Horizon

Hirsch stresses the importance of managing expectations for investors new to private equity. Unlike the minute-by-minute liquidity of public markets, private equity investments typically have a longer investment horizon. The process of acquiring, improving, and ultimately selling a private company typically takes 4 to 5 years to achieve significant returns. Therefore, private equity is not suitable for investors needing immediate access to capital. He notes that institutional investors allocate 20-25% of their assets to private equity, while individual investors currently have approximately 0% exposure. He suggests individuals consider mirroring the allocation strategies of sovereign wealth funds, pension funds, banks, and insurance companies.

Diversification Beyond Public Indices

Hirsch argues that the benefits of private equity extend beyond simply providing access to different companies. Private equity investments typically involve smaller companies (market caps in the single billions of dollars, rather than trillions) and a wider array of industries. This broader exposure helps build a more appropriately diversified portfolio, mitigating the risks associated with the concentration in public markets. He emphasizes that diversification is about getting exposure to a “much smaller company base” and “across a much, much wider array of industries.”

Canadian Market Resilience & Economic Correlation

Addressing a question about the relative resilience of the Canadian market, Hirsch suggests that the performance of both public and private markets is closely tied to the underlying economy. He attributes the Canadian public market’s strength to its greater diversification across industries and sectors, benefiting from the relative strength of the Canadian economy.

Synthesis & Main Takeaways

Eric Hirsch presents a compelling case for incorporating private equity into investment portfolios, particularly in the current market environment. The core argument is that the concentration and volatility of public markets necessitate diversification, which private equity uniquely provides. While acknowledging the illiquidity and longer investment horizon associated with private equity, he highlights the increasing accessibility of these investments through evergreen funds and encourages investors to consider the allocation strategies of large institutional investors. Ultimately, Hirsch advocates for a more balanced approach to investing, recognizing that “boring” – a diversified portfolio including private equity – can be “bullish” in the long run.