The value of your investment can go down as well as up and you may get back less than you paid in. Laws and tax rules may change in the future.

You might hear some investments or ‘assets’ called private. This is because they aren’t bought and sold on public markets like the London Stock Exchange. Instead, this happens on private markets. Until recently, it’s been difficult for many people to include private assets in their pension investments. Instead, they’ve only been available to some institutional investors (for example, those who manage certain kinds of investment funds) and very wealthy individuals.

A big part of the economy

But private assets make up a very large part of the UK and world economies. So if privately owned businesses thrive, pension savers could miss out on investment growth by not being able to invest in them easily. And the trends and events that affect private markets can be quite different from those that affect public markets. So those same savers could miss out on diversification opportunities from investing in private assets. By their nature, they are long-term investments, usually made with the aim of meeting long-term goals.

Below, we talk you through the most common types of private assets, how they’re different from public investments, and why and how they’re becoming more open to pension savers.

What is private equity?

When it comes to understanding the differences between public and private investments, equities (shares in companies) are a good place to start. You can trade public equities (sometimes called listed equities) on a regulated market like the London Stock Exchange. Often, these will be shares in large, well-known businesses.

If you buy some listed equities and later decide you want to sell them at the market price, you can usually do it quickly. Many of the funds that are currently available to invest your pension savings in are made up either partly or wholly of listed equities.

Private equities, on the other hand, aren’t listed on an exchange. For these, it can take much longer to find a buyer if you’re selling, or indeed to find a seller if you’re buying.

The role of private equity fund managers

Typically, a specialist private equity fund manager will buy a stake in a company and may be closely involved in managing it. They’ll use their expertise, network and connections to try to increase its value and make a profit by selling their stake at a later date. The whole process can be long and complex. When they get involved at an early stage it’s known as providing venture capital. They do this because they believe the company has strong growth prospects.

  • Possible risk

    Money could be tied up for a long time and an individual investor might not be able to sell a private equity investment exactly when they want to.

  • Possible reward

    Investors may earn a higher return than they could on listed equities for accepting this risk. They might have the chance to invest in a company at an earlier stage than they could otherwise, profiting from any future growth.

Real assets – another type of private equity

Infrastructure equity, or investing in 'real assets', is another type of private equity. It means investing in projects, which are often government-backed, to create the things that are most important for society, including hospitals, schools and roads.

Private credit – all about private bonds

It’s also possible to invest in private bonds (loans to companies). We usually refer to this as private credit. In this way, businesses can borrow money privately, from a specialist fund, rather than from a bank. The public equivalent is known as a corporate bond, and you can read more about these in our guide to bonds.

Unlike private equity investors, private credit investors don’t get a stake in the company in return for lending it money. Instead, any profit comes from interest paid to them by the borrower in return for the loan. They might also make a return at the end of the loan if their agreement says the borrower has to pay back more than they originally borrowed.

  • Possible risk

    Private credit is not as easy to trade in as traditional corporate bonds, which can be bought and sold on listed markets.

  • Possible reward

    Lenders may receive higher interest payments than they would on a corporate bond.

Why now for private assets?

As we mentioned earlier, private assets represent a sizeable chunk of the UK and global economies and they could provide important growth, diversification and long-term investment opportunities for pension savers. But in the past, it was difficult for individuals to access them. The reasons for this included high initial costs and the length of time before they produced a return.

Several of the barriers that prevented pension savers from investing in private assets are being removed, however. Regulations have changed and new ways to access the asset class are emerging. One of these is a new type of fund.

The new funds are run by experienced managers and they pool investors’ money, so they have enough buying power to make large investments. Being made up of 'units', they can be bought and sold more quickly than individual investments in private assets.

Pension providers will use them alongside more traditional investments in equity and bond funds. By doing so, they aim to boost individuals' pension savings and provide better outcomes for customers.

More about investments

We have many guides, tools and articles that can help you understand investing and support your long-term goals.

  • Diversification

    Having a mix of investments across asset classes and countries could help smooth returns and reduce how much your money goes down or up in value.

  • Where to invest

    Not sure where to invest your money? Our guide gives you an overview of your options to help you decide what’s best for you.

  • Understanding investment risk

    All investments come with some sort of risk: discover what we mean by this and learn how you can find out how much risk you might be comfortable taking.