Private markets captivate investors with their promise of higher returns and diversification. As private equity and credit offerings continue to evolve and gain media attention, what do financial advisors think about private markets—and how are they incorporating them into client portfolios?
Are Financial Advisors Embracing Private-Market Investing?
Spurred by the equity and bond market declines in 2022, innovation in private-market offerings, and client interest, advisors have been more willing to invest in these markets. In a 2023 survey of more than 200 advisors (of which over 50% were broker/dealers and about 40% were registered investment advisors), Cerulli found that “[d]espite increased awareness and a set of prominent advisors who plan to allocate almost one-quarter of client portfolios to alternative investments through 2025, half of advisors report an alternative allocation of 5% or less.” According to the research, advisors said lack of liquidity, client education, and product complexity/due diligence are fundamental challenges inhibiting greater adoption of private-market investing.
In October 2024, CAIS/Mercer surveyed 550 advisors, including 60% who were RIAs. This survey found that over 90% of advisors are using private markets to some degree. Half of these advisors allocate less than 10% to private markets, while approximately 11% allocate more than 25% to these investments.
Both surveys showed that firm assets under management increased in private markets and that advisors increased their allocations to private markets for clients with higher net worths (accredited investors). Additionally, both surveys indicated that most advisors are planning to increase allocations to private markets. Reasons cited were the attractiveness of potentially higher returns, greater diversification, the opportunity to demonstrate expertise, and client demand. Yet, advisors are cautious about the appropriateness of private-market investments to individual clients as well as educating clients about the risks, especially illiquidity.
In speaking with several advisors, I found an array of opinions.
Advisor Opinions on Private-Market Investing
Just Say No
Kathleen Kenealy, CFP, founder of Katapult Financial Planning, determined that private-market investing was not appropriate for her clients.
“The potential benefits of investing in private [markets]—such as portfolio diversification, the potential for higher returns, the appeal of investing in something that isn’t available to everyone—can sound exciting and attractive,” she says. “But the illiquidity, lack of transparency, high fees, delayed tax reporting make private investments inappropriate for most individual investors.”
Phil DeMuth, Ph.D., author and managing director at Conservative Wealth Management, says, “I would not recommend [private markets] to my clients in the general case.”
DeMuth did test the waters in private equity in his own accounts. “I have been dabbling in VC and PE for a few years,” he says. “I often ask myself why I ever started this journey when I would be far richer if I had stayed in the S&P 500. To be fair, my accountant has made a lot of money off [my] private investments. My tax form is the size of a phone book, and I file in dozens of states.”
Maybe a Little
Marshall Rathmell, CFP, CPA, PFS, senior advisor and managing member of BCR Wealth Strategies, uses private equity for some of his clients, saying, “I have seen an increase in clients interested in the higher expected return that private equity brings to the table. I have been pleased in our research to have found private equity options that I am comfortable with using. I am personally of the belief that I should never recommend something to a client that I would not be willing to do myself. While I do have a private equity allocation in my family’s portfolio, I am still very cautious when determining which clients it is a fit for.”
But he is not a fan of private credit, believing that the bond allocation should be the “conservative” part of the allocation. “Our investment philosophy uses fixed income for capital preservation and rebalancing in a down market,” he says. “While we expect a return, it is not a place to seek excess returns through risk. We see clients’ ability to take risk best used in the additional expected returns that equity brings.”
Mitchell Freedman, CPA/PFS, founder and president of MFAC Financial Advisors, considers private credit a distinct asset class.
“Private credit investments may have a place in some clients’ investment portfolios,” he says. “Such clients should have substantial wealth, and they should be aware that such investments carry more risks than other interest-paying investments. Private credit may be able to provide higher investment returns than more traditional interest-paying investments. Investors should be aware that it is likely that their invested funds will not be as liquid as other types of marketable securities. I look at private credit as more of an institutional investor’s subasset class. I would probably consider it an alternative investment and not necessarily classify it with other fixed-income investments.”
Jared Weinerman, ChFC, financial planner and partner at Impact Financial Planning, also uses private credit but not private equity in his clients’ portfolios. “After developing the foundational elements of an investment portfolio, we’re often searching for ways to add value, diversification, and reliable sources of income,” he says. “Private credit can help to accomplish these goals, with lower ranges of volatility, while providing our clients with quality yield that is independent of stock market performance.”
He warns that private credit isn’t a fit for everyone. “These investments can be viewed as more expensive, complex, and maintain a higher barrier to entry than equities or fixed income,” he says. “Private credit is a good fit for high-net-worth clients due to the accredited investor requirement. Many investors are comfortable with a simple equity and fixed-income allocation; however, incorporating alternatives, like private credit, can introduce diversification and noncorrelated returns that help to bring overall balance and stability.”
All In
Finally, some advisors use both private equity and private credit in their clients’ portfolios.
The views of Ryan Callan, managing partner at Callan Capital, were representative of this group:
“Our clients turn to private markets as a strategic component of their investment portfolios to unlock opportunities that go beyond the traditional public markets. Private markets offer the potential for enhanced returns through investments in sectors and companies not typically accessible to retail investors. These opportunities often include innovative companies in their growth stages or established businesses seeking private equity or debt capital. Additionally, private markets provide diversification, helping to reduce overall portfolio risk by incorporating asset classes that behave differently from public equities and fixed income. Many of these investments have long-term horizons, aligning with our clients’ goals for building enduring wealth while navigating market volatility.”
Advisors Play Crucial Role When Investing in Private Markets
Financial advisors are clearly paying more attention to private markets—but most approach with caution. While the potential benefits of private-market investing—such as enhanced returns and diversification—are appealing, advisors must carefully assess client suitability, risk tolerance, and liquidity needs.
Whether avoiding, dabbling, or embracing alternatives, advisors play a crucial role in evaluating these complex offerings—and protecting clients from unnecessary risk or marketing hype.
This article originally appeared in the Q1 2025 issue of Morningstar magazine. Subscribe here. It’s free.
The opinions expressed here are the author’s. Morningstar values diversity of thought and publishes a broad range of viewpoints.
