Private markets are often misunderstood—especially when it comes to how they are valued and how they behave during periods of market stress.
A common misconception is that private investments appear more stable simply because they aren’t priced daily. In reality, they are valued differently—not less rigorously.
How Private Market Valuations Work
Unlike public securities that fluctuate minute by minute, private investments are typically valued quarterly using disciplined, institutional processes. These valuations rely on:
- Discounted cash flow analysis
- Comparable public market data
- Third-party appraisals
- Real transaction activity and market inputs
Importantly, these methodologies are governed by global accounting standards and reviewed by auditors and independent valuation experts. The goal is to reflect fair value based on fundamentals, not short-term market sentiment.
Why Private Markets Behave Differently
The key difference between public and private investments lies not just in pricing frequency, but in structure and underlying drivers.
Private market investments are typically:
- Long-term in nature, reducing the pressure to react to short-term volatility
- Less exposed to market sentiment, such as panic selling or momentum trading
- Driven by fundamentals, including cash flow, asset quality, and operational performance
As a result, private investments often experience less frequent and less severe price swings, particularly during periods of market stress.
Resilience Through Market Cycles
History shows that private markets have held up differently during major downturns:
- During the 2008 financial crisis, public equities experienced significant declines, while diversified private investments generally saw more moderate drawdowns.
- In periods of rapid market stress, such as the 2020 COVID selloff or 2022 rate-driven downturn, private assets were impacted—but often less dramatically and with a steadier recovery path.
This resilience is not due to “hidden risk,” but rather to the structure and underlying characteristics of the investments themselves.
The Role of Private Markets in a Portfolio
Private investments can complement traditional equities and bonds by introducing:
- Diversified return sources, including income-generating assets and long-term growth opportunities
- Lower correlation to public markets
- Potential downside protection, particularly in private credit and real assets
- More consistent income streams in certain strategies
They can also help investors stay disciplined. Because private investments are not priced daily, they may reduce the temptation to react emotionally during market volatility—an often overlooked driver of long-term outcomes.
How Much Should You Allocate?
There is no one-size-fits-all answer, but many portfolios benefit from a measured allocation to private markets.
A practical framework may look like:
- Conservative investors: 5–15%
- Balanced investors: 15–25%
- Growth-oriented investors: 20–35%
Diversifying across private credit, private equity, and real assets can further enhance outcomes.
Key Takeaways for Investors
- Private markets are not “less volatile” because they hide risk—they reflect risk differently
- Valuations are grounded in disciplined, audited, and globally regulated processes
- Historically, private investments have shown less severe drawdowns and strong recovery characteristics
- They can play a valuable role in building more resilient, diversified portfolios
Our Approach
Through our partnership with Harbourfront Wealth, Rothenberg provides clients with access to institutional-quality private market investments—opportunities that have historically been less accessible to individual investors.
For a more in-depth perspective, we encourage you to read the full article by David Ferreira, CFA, Portfolio Manager, on the Harbourfront Wealth website: How Private Markets Really Work: Valuations, Volatility, and the Case for Resilience – Harbourfront Wealth Group
