General · Global
The main risks of private-market investing
A balanced look at what can go wrong, and the questions to ask before you commit.
Summary
The main risks are loss of capital, illiquidity, valuation uncertainty, limited information, concentration, and reliance on the sponsor.
- You can lose some or all of the money you invest.
- Prices and valuations are estimates, not live quotes.
- Always read the documents and take independent advice.
Can you lose all your money?
Yes. Private investments can lose part or all of their value, and returns are uncertain.
Companies fail, borrowers default, projects overrun and legal claims are lost. Diversification can reduce the effect of any one failure but cannot remove the risk.
What is liquidity risk?
Liquidity risk is the risk that you cannot sell or withdraw when you need to.
There is usually no public market, and exits depend on the sponsor, other investors or events outside your control. See our guide to lock-ups for how this works.
Why is valuation harder?
Private assets are not priced continuously, so reported values are estimates.
Valuations can be infrequent and rely on models and judgement. A reported value is not the same as a price you could obtain, especially in a stressed market.
What about the people and structure?
Outcomes depend on the skill, integrity and incentives of the sponsor or manager, and on the legal structure.
Ask who runs the investment, how they are paid, what conflicts exist, what protections investors have, and how decisions are made. Look for clear documents and independent oversight where possible. Fees at several levels can also reduce returns.
Frequently asked questions
How can I reduce the risk?
Only invest money you can afford to lose, spread commitments, read the documents, and take independent advice. None of these removes the risk.
Are private investments regulated?
The activity is regulated in many countries, but the investments themselves remain exposed to loss and are not insured. Regulation does not remove investment risk.
What should I ask a sponsor?
Ask about track record, fees, conflicts, valuation method, reporting, exit routes and what happens if things go wrong.
Where can I read more about risks?
See our Risk warning, and the documents for each opportunity.
This article is general information for eligible investors. It is not investment advice or an offer. Capital is at risk. See our Terms and Risk warning.
