Private market assets are increasingly making their way into public funds, as part of a financial industry trend known as public/private market convergence.
Now, products like interval funds, nonlisted REITs, and tender offer funds are being offered to larger groups of investors than ever. Going forward, they may also play a larger role in your retirement accounts.
According to their backers, the potential benefits of private market investing seem promising—enhanced returns, portfolio diversification, and possibly lower volatility. However, private market exposure can bring risks and trade-offs that might be unfamiliar to people who are only used to working in public markets.
Private markets allow investors to access companies whose shares are not traded on public exchanges, or invest in the bonds or loans from those companies. Until recently, those assets and their returns were only available to institutional and high-net-worth investors, but off-limits to most public funds and individual investors.
“The issue, at least historically, with private markets is that they were priced very infrequently, typically quarterly, and they were very illiquid, very hard to trade,” says Morningstar principal Brian Moriarty. These liquidity concerns came to the forefront in the first quarter of 2026, as redemption requests from investors in retail-focused private credit funds reached an all-time high.
Here, we explore some of the key aspects of how these vehicles work and the shifting investment landscape.
How Can Private Market Investments Fit Into My Portfolio?
Despite their recent surge in popularity, semiliquid offerings aren’t necessarily a great fit for every investor’s portfolio, says Morningstar senior research analyst Chris Tate. “Maintaining a long-term investment horizon is the name of the game in private assets. These securities trade far less frequently than in public markets, and this unreliable liquidity can put investors looking for a quick exit in a crunch,” he says.
As Moriarty explains, ideally, investing in private markets should bring greater rewards as a trade-off for accepting greater risk and less liquidity.
Exchange-traded funds are another option for gaining exposure to private markets, but there are some trade-offs involved.
“Because they’re so liquid, the ETFs that are offering access to private assets have a much smaller private asset bucket or sleeve than would be in an interval fund,” Moriarty says. “So it will, or should, earn less than the interval fund, because it owns less in private assets. The interval fund should earn more than the ETF that holds private assets, and then that ETF that holds private assets should earn more than the ETF that doesn’t.”
Individual investors may not have to take any special steps to invest in private market assets—they may have been in your portfolio all along. As Morningstar principal Jack Shannon details, mutual funds have been investing in private companies in a venture-capital-like fashion for at least three decades.
For investors who want a more active approach, one typical path is to find a fund that contains private market assets, such as a closed-end fund or an ETF. Because private assets are complex financial instruments that can lack transparency, a trusted financial advisor can help you find the combination of private market returns, fees, risk, and liquidity that fits your investing goals. Shannon recommends investors do the following:
- Consider how much liquidity you need in your portfolio.
- Look for investment products from well-known providers.
- Focus on providers who offer both reasonable fees and clarity about what they are selling. “Are they offering direct lending? Are they offering private equity? Are they offering asset-backed lending? All these things are different,” he says.
What Risks and Regulatory Issues Come With Private Market Investing?
Morningstar portfolio strategist Amy Arnott summed up two of the main concerns about private market investing: transparency and liquidity.
“Investors who buy into publicly traded stocks or bonds are getting both transparency about what they’re investing in plus a ready source of liquidity,” she says. “Private capital investments, on the other hand, are often opaque and illiquid by design.”
Transparency and Disclosures
Public companies are, well, public. They are regulated by the government and accountable to shareholders. “To ensure these companies remain accountable to shareholders, public companies are required to disclose information about their performance, which makes it easy to see their financials, revenue, and more,” says Morningstar Chief Markets Editor Tom Lauricella.
Private companies are under fewer requirements to disclose information about their ownership or structures (which can be complex). In addition, performance information for private market assets is generated differently from that for public ones.
“Measuring performance for private equity and private debt is not straightforward,” Arnott says. “Most industry benchmarks use internal rates of return, which aren’t really comparable to traditional performance measures like total return.”
Liquidity
Unlike stocks or public funds, certain private funds have different levels of
. Restrictions may make them difficult or impossible to sell on short notice. “If you have the financial wherewithal to give up liquidity and buy an interval fund, those lock your money up for at least a quarter, certainly longer,” Moriarty says.
Fees
Pairing a lack of disclosures with complex structures can affect the fees that come with private asset investing. For investors, it can be difficult for investors to know ahead of time exactly what they will be paying for, or how much.
An interval fund, for example, might own private equity or credit directly, or it may own those assets through other vehicle types, such as a special-purpose vehicle or a private fund.
“You get this nesting effect of private funds, SPVs, and other things. Sometimes the SPV might own another SPV, which owns the equity,” Moriarty explains. “These things can be layered, which means that at each layer, there’s a fee, but it doesn’t need to be disclosed. Often, people end up paying more than they realize. The actual fee impact, taking all the levels together, could be 5% or more.”
