Private markets: Sorting the wheat from the chaff

Private markets are increasingly being used in client portfolios, as the number of investment options grow rapidly. Michael Karagianis (JANA) analyses these asset classes and explains how to select them in a portfolio.

Private market investments — private equity, private debt, direct infrastructure, and direct property — have long been popular with wholesale investors, as they offer higher return potential, better portfolio diversification, and protection from public market volatility. However, increasingly, the popularity of this asset class is also extending to retail investors, who now have the opportunity to tap into private market opportunities through the likes of ‘evergreen funds’ and listed vehicles.

JANA — an Australian asset consulting and investment advisory firm — maintains a bullish view on private market investing, seeing it as a definite value-add in portfolios.

“Essentially, private markets are any assets that are non-traded on public markets, and all of these private market assets have some common characteristics,” says Michael Karagianis — Head of JANA Wealth. “They are inherently illiquid, which means you need to be cognisant of that illiquidity when investing in these assets. One of the key reasons for investing in private markets is the ability to capture a premium (illiquidity premium) in return for giving up liquidity.”

Looking over the long-term, Michael says each of these private market asset classes has delivered a yield return over and above its public market equivalent. However, he believes private markets are more suitable for sophisticated investors, who understand the illiquid nature of these assets. 

Speaking at the 2026 IMAP Advice in Action Conference, Michael spoke on the topic of ‘Sorting the wheat from the chaff: Which private market investments?’, starting off with an analysis of the different private market asset classes.

By Jayson Forrest

According to Michael, private debt is currently the asset class ‘du jour’. He attributes this popularity to being a relatively recent asset class, particularly taking off post-GFC, when many banks in the U.S. and Europe exited the commercial lending space. The size of the private debt market is approximately US$2 trillion globally and about $200 billion in Australia.

“Private debt has delivered very strong returns, generally being in the high single to low double digits over 15 years. So, returns have been very attractive, producing a margin above the comparable public market,” says Michael.

“Capital losses in the post-COVID period have also been muted. We have not really seen a default cycle in private debt at this point in time. Currently, default rates are quite low, compared to public markets, like the syndicated loan market.”

While JANA doesn’t believe there is any systematic crisis looming in private debt, it has downgraded its view on this asset class from ‘moderately attractive’ to ‘neutral’, due to concern regarding the amount of illiquidity coming through.

Michael explains: “We have seen a lot more issuance occurring in this space. In particular, there has been a focus on the level of issuance that we’ve seen associated with AI in the United States. Therefore, people are getting more nervous about sectoral risk-related issues in the U.S., and as a consequence of that, we’re starting to see spreads widen a little.

“People are understandably worried about concentration risk associated with AI in the United States. Currently, AI is at an 8-10 per cent exposure in the private debt market, having come from about 1-2 per cent only two years ago. This sharp growth is a potential problem for the future, because you can see it continuing to accelerate in the current environment.”

Michael says concentration risk is a definite concern, with currently one in five fund managers in the private debt space in the U.S. having significant exposure to the AI thematic. This means these managers will either do well or be in some trouble with AI.

However, concentration risk also extends to Australia, with the local private debt market having about a 50-70 per cent exposure to real estate development and construction.

“One of the concerns JANA has is the level of investment many Australian investors have in private debt that is concentrated on just Australian fund managers,” says Michael. “So, if we’re talking concentration risk, worry more about the Australian market than the international market.”

Instead, JANA’s view is that if you’re going to invest in the private debt space, look to have a well-diversified pool of managers — three managers is optimal. One of those managers could be Australian, while two should be international (one in the U.S. and one in Europe) to help avoid concentration risk.

According to Michael, over the last couple of years, there has been a significant improvement in valuations in private equity. And while JANA is currently not upgrading its exposure to private equity — remaining ‘neutral’ on this asset class — it believes the vintages (the year that a private equity fund made its first investment) investors can invest in are going to be some of the best that have been seen over the last decade.

Michael points to many opportunities in private equity. These include:

• A buyer’s market — There is an imbalance between capital demand and supply, with significant capital needs for companies that require operational assistance and expansion.
• Attractive valuation — Private equity has had an attractive valuation since 2021-22, particularly for private companies that are complex (corporate carve-outs) or requiring operational improvements.

• Large opportunity set — Small-mid cap buyouts are well positioned, while larger buyouts still face challenges. Given the challenging private equity market, more companies are struggling. This is resulting in complex and stressed opportunities emerging. ‘Take privates’ (delisting from the public market and going private) and corporate carve-out opportunities are on the rise, with corporates selling non-core assets

In Australia, commercial property has been favoured by institutional investors for a long time. JANA believes this year’s Budget changes will probably make commercial property a more attractive opportunity for both wholesale and retail investors.

“The good news is, that after going through a fairly lean period through 2023-2024, where rising capitalisation rates (as a result of RBA interest rate increases) and a normalisation of the bond market saw commercial property come under considerable stress, we’ve actually come out of that period,” says Michael. “Now, we’re starting to see an improvement in property returns.”

Michael refers to the past five consecutive quarters of positive performance in Australian property, particularly focused on retail and industrial. And while JANA remains ‘neutral’ on Australian property, it believes there are opportunities in this market.

According to Michael, the best opportunities in property are in international markets, particularly in both the U.S. and Europe, where property is not just about retail, industrial and commercial. Instead, he says there are opportunities in sub-sectors, like seniors housing and AI.

Overseas, there is a lot of interest in AI investing in the property sector. Michael says there are two principal themes driving this interest:

1. Direct demand for data centre infrastructure; and

2. Using AI for operational efficiency gains across all sectors.

Looking at unlisted infrastructure, Michael confirms that demand for this asset class remains high, with record fundraising occurring in the market. Historically, infrastructure has been a very good hedge against inflation, which is attractive to investors. As a direct result of that, JANA is seeing infrastructure increasing as an allocation in investor portfolios.

Again, one of the key themes JANA is seeing overseas with infrastructure is with AI, as well as energy transition and energy security.

“However, our research team believes this AI trend is beginning to turn into a ‘gold rush’ moment, with many fund managers moving into infrastructure and focusing on AI,” says Michael. “And as a consequence of that, while the underlying theme is sound and will pay reasonable dividends, in reality, there is going to be a wide dispersion in terms of who will be investing correctly and who will actually blow their capital in this type of situation.”

From that perspective, JANA’s view is that with the AI thematic, it becomes a fund manager and stock selection decision, and not about buying the theme itself in its entirety.

As an asset class, JANA believes unlisted infrastructure is ‘attractive’. And while it remains positive about unlisted infrastructure, Michael emphasises manager selection is absolutely critical in this asset class.

While private markets offer investors many attractive opportunities outside of public markets, Michael cautions that for anyone wanting to invest in private markets, there are three key considerations they need to make.

1. The importance of manager selection

According to Michael, unlike public market investing — largely driven by market beta, which drives manager outperformance or underperformance — private market investing is mainly about appointing the right manager and the right strategies.

“In public markets, about 90 per cent of returns are going to be driven by market beta. However, in private markets, that logic is reversed,” he says. “The top tier managers will deliver the investor the majority of returns, while the remaining managers are going to struggle to beat the benchmark or just deliver benchmark returns. So, it’s all about manager selection.”

According to Michael, top tier managers can command the best access to deals, which will deliver the best returns to investors. He adds that managers with the longest experience have the best connections, with the best deal flow, delivering the best returns.

“We also see those top tier managers not just deliver well, but past performance is actually a good guide to future performance. That is different to what we see in public markets, where there is a tendency for mean-reversion of manager alpha (the tendency of a manager’s excess returns to move back toward a long-term average over time),” says Michael. “So, manager selection is absolutely critical in private markets.”  

2. Diversification is essential

Given the tendency for a relatively higher concentration risk around underlying deal exposure, Michael believes it’s important that private market investments and managers be well diversified.  He advises against focusing on just locally invested private market strategies and instead, actively encourages a higher degree of global investment and use of global managers in private markets.

“This will provide investors with the most experienced managers that have highly diversified portfolios and the best access to deals,” he says. “And don’t just invest in one private market asset class. A private market portfolio allocation should aim for a diverse mix of asset class exposure, as well as managers, geography and underlying strategies.”

3. Private market assets are illiquid

Importantly, investors need to understand that private market investing is about buying assets that are inherently illiquid, with one of the clear benefits of investing in private assets being the ability to capture an illiquidity premium.

Although there has been attempts to open up private markets to a wider range of clients (retail investors) through the use of ‘evergreen funds’ and listed vehicles, Michael says the problem with “democratising private market investing” is you are still dealing with an inherently illiquid asset class. This means investors who have a lower tolerance for illiquidity are still exposed to significant gating risks or liquidity constraints, which can make it difficult for them to exit, should they need to.

“Private markets offer investors access to many investment opportunities and the potential for higher returns,” says Michael. “However, investors should absolutely not be investing in private market assets unless they have an appetite for illiquidity. If investors don’t have this tolerance, then advisers shouldn’t be recommending these types of investments.”

Michael Karagianis is Head of JANA Wealth.

He spoke on the topic ‘Sorting the wheat from the chaff: Which private market investments?’ at the 2026 IMAP Advice in Action Conference.