Private capital is in fashion. Efforts to improve retail investors’ access to this long-elusive corner of the market have been underway for some time and in recent years, the floodgates have finally started to open.
In the US and Europe, according to some estimates, non-accredited investors – that is, those who are neither institutional nor high-net-worth – now hold around $1 trillion in private assets. Perhaps surprisingly, Europe accounts for the vast majority of this figure[1].
I hesitate to suggest something of a cult has developed, since the word “cult” tends to have pretty negative connotations. Nonetheless, it seems reasonable to say this type of investing has become quite the rage – and we really ought to ask ourselves why.
In large part, of course, sheer novelty is responsible. After all, there tends to be a clamour for anything the wider public must patiently wait to get hold of – whether it’s a certain kind of investment, the latest pair of Air Jordans or tickets to an Oasis reunion gig.
However, another factor may be much less readily understood. I have in mind here the popular narrative that argues private assets’ lack of live valuation is central to their appeal.
This represents a remarkable about-face from the previous consensus, which held that the very same characteristic might constitute a big disadvantage. In my view, the earlier interpretation is far nearer the mark – and anyone seeking evidence need to look no further than the sphere of global infrastructure.
Exposing the volatility mirage
The underlying attractions of investing in infrastructure are broadly acknowledged. As the foundation of economies worldwide, this is an asset class that can offer diversification, stability, inflation mitigation and growth.
Beyond agreement on this basic point, alas, there’s no shortage of debate. Maybe above all, the issue of whether the optimum route to infrastructure returns lies in listed or unlisted securities remains fiercely contested.
To an extent, all the bickering misses a vital truth. Ultimately, both approaches can play a useful role in enhancing portfolio performance. Why squabble over the vehicle when what genuinely matters is the asset itself?
Look more closely, though, and it’s interesting to note how quickly much of the cachet routinely attached to unlisted infrastructure struggles to stack up. In particular, the idea that this side of the divide is spared the worst of market volatility soon falls apart under meaningful scrutiny.
The purported logic is essentially this: listed infrastructure is subject to live valuation, ergo its daily returns are likely to be more variable over the short term, ergo unlisted infrastructure must be the safer option. Right?
Hardly. My colleagues and I call this bizarre notion “the volatility mirage”. It’s nothing more than an illusion. The reality is that any external force that influences the economics of infrastructure assets will do so in all relevant markets, regardless of whether they’re listed or unlisted.
Benefiting from a bogus narrative
With no mean irony, the volatility mirage has proved so compelling of late that investors in listed infrastructure now stand to benefit from it. Rising demand for private assets has left their public counterparts trading at a conspicuous “volatility discount”.
In tandem, listed infrastructure has underperformed global equities since the start of the COVID-19 pandemic. This is manifestly at odds with much of investment history, during which it has regularly delivered greater cash flow and smaller drawdowns over time.
As a result, the asset class in which our fund invests currently sits at an absolute and relative low in valuation. We believe this clearly lends itself to both tactical and strategic allocations.
In addition, let’s not forget the scope for active position sizing and portfolio optimisation, which listed infrastructure offers. Let’s not forget, too, the absence of barriers to exit and the flexibility to adjust allocations in light of macroeconomic events.
I ought to stress that none of the above is intended to condemn private assets, less still to undermine private infrastructure specifically. Private investing as a whole continues to serve a crucial economic purpose, not least when companies simply aren’t ready to go public or find themselves in need of restructuring expertise.
Even so, it’s important to appreciate why the frenzy for unlisted assets – irrespective of whether it amounts to a cult or something a lot less dramatic – might be unhealthy. Fashion may have its followers – often justifiably so – but it can risk blinding investors to potentially significant opportunities in other arenas.
[1] See, for example, Deloitte: “Increasing retail client exposure to private capital investing”, April 2025 – https://www.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-predictions/2025/private-capital-investing.html.
Tim Humphreys is co-manager of the IFSL Marlborough Global Essential Infrastructure Fund. The views expressed above should not be taken as investment advice.