Structure, sizing key to private markets investment

Mike Taylor

Managing Editor and Publisher

28 May 2026

Research and ratings house, Morningstar has issued new research on private markets, arguing that, overall, the net benefits from having private assets in a portfolio depend on structure and sizing.

The Morningstar analysis says that exposures to private asset should be appropriately sized in a portfolio according to their potential returns and risk, liquidity, and correlation with other asset classes.

It also suggests that, for many, superannuation may be the appropriate means of gaining private markets exposure.

The analysis makes the point that private market investments attract a different risk profile than public market investments, and that while the opportunities in private assets are vast, they come with challenges and risks that investors must consider carefully.

“One of the most notable drawbacks of private assets is their low liquidity. Unlike publicly listed assets or traditional managed funds, private market investments cannot be sold quickly to meet an investor’s liquidity needs, making them less suitable for those prioritizing liquidity in their portfolios,” it said.

“It is not uncommon for private market funds to have complicated structures or low transparency. They typically do not provide detailed information about their holdings, primarily due to client confidentiality and commercial sensitivity. As a result, it is harder for investors to fully assess risks and returns.

“Against this backdrop, including private assets in a portfolio can add meaningful complexity to portfolio construction and risk management, necessitating advanced expertise and specialized capabilities in both areas,” Morningstar said.

It also noted that private market investments typically attract higher management fees than their public market counterparts and that this creates a high hurdle making it critical to select skilled external managers who can deliver net-of-fee returns commensurate with the risks inherent in private assets.”

“In private markets, conflicts and principal–agent risk are heightened by the high reliance on specialist managers and pronounced asymmetries of information between investors and managers. Private market structures are often complex, and the roles of investment managers, fund operators, portfolio companies and affiliated service providers may overlap, increasing the potential for conflicts of interest.

“To address these elevated risks, effective conflict management frameworks are essential to uphold the integrity and fairness of private‑market transactions, including robust management of conflicts of interest (e.g., misaligned incentives, related‑party transactions, and the treatment of confidential information),” Morningstar said.