Intro to
Private Markets
September 2025
Introduction
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Private markets have become one of the fastest-growing domains of finance, providing a vital source of capital and wealth creation. While public markets allow companies to raise funds by issuing shares or bonds on exchanges, private markets involve privately negotiated investments in businesses. It spans a wide range of strategies from funding early-stage startups to backing large mature companies and manages nearly USD 10 trillion in assets globally.
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Modern private markets trace back to the post–World War II era, when many businesses struggled to secure traditional bank loans. In the United States (US), wealthy families and investment funds stepped in to back promising companies, giving rise to venture capital. This early success established private investing as a viable asset class. By the 1970s, private equity gained momentum with leveraged buyouts of mature firms, later expanding into growth capital, turnarounds, and distressed investing. Over the following decades, the industry further diversified into real estate, infrastructure, and private credit, evolving into a comprehensive source of flexible capital.
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Private markets spread globally in the 1990s. Today, North America and Europe still dominate, but Southeast Asia (SEA) is emerging as one of the fastest-growing regions, driven by rapid economic growth, an expanding middle class, and increasing availability of capital. The 2008 Global Financial Crisis, which exposed vulnerabilities in public markets, further nudged investors towards private assets in search of diversification and lower correlation with public markets.
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In this article, we explore how private markets differ from public markets, define key investment strategies within the private markets, and examine the trends shaping Southeast Asia’s future in this space.
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Outperformance of Private Markets
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Private and public markets differ significantly in risk profile and return potential. Over a 10-year period from September 2014 to September 2024, the median returns on private asset classes globally have outstripped median returns on public asset classes, albeit with a much greater disparity.
There are two key reasons why private markets offer higher risk yet higher reward to investors:
1. Illiquidity Premium
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Smaller pool of buyers: Private markets are not subject to the same stringent disclosure policies and monitoring as public markets. The investor pool for private markets is much smaller than public markets, consisting of either institutional or accredited investors as they are assumed to have better judgement of risk and sufficient financial resources to absorb potential losses. This creates a liquidity issue as private markets investors have a limited number of other buyers they can sell their assets to. Private investors thus require higher returns to compensate for the lack of liquidity, which they can influence via privately negotiated terms with potential buyers of their investments.
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Longer lock-in periods: Companies require private investors to commit long-term because they reinvest these significant capital injections into operational and financial improvements, which take time to realise returns. A private investor withdrawing their capital early would create difficulty for companies to provide the required returns to the investor. Private investors are compensated for the opportunity cost incurred by locking in their funds with higher returns on the upside enjoyed via any realised improvements, which makes the company more attractive upon exit.
2. Uncertainty Premium
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Heightened market inefficiency: The Efficient Market Hypothesis posits that listed stocks trade at their fair value because all available information is already priced into them. Thus, it is impossible to consistently identify undervalued stocks and “beat the market” in the long run. However, private companies do not have observable market prices that adjust in real time to new information. This increases both the possibilities of investors underpricing and overpricing an asset relative to its true value.
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Scale of involvement: Private investors have a far greater role to play in shaping a company’s trajectory than public investors. Equity investors take board seats and are incentivised to advocate for riskier value-creating initiatives to extract maximum value from their shares. Debt investors further leverage the company in hopes that the company may make successful investments with the proceeds. Private investors thus create pressure for the company to take on heightened risk and internalise the risk via their capital commitments. The reward for tolerating and managing this uncertainty is the higher potential upside.
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Common Private Markets Investment Strategies
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In this article, we cover the three most common private markets investment strategies: Venture Capital (VC), Private Equity (PE) and Private Credit (PC). Each strategy differs in the stage of a company targeted, the risk-return profile, the value creation process and the exit method.
Venture Capital
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VC invests in early- to growth-stage startups without significant revenue and earnings traction, yet with high growth potential. Investments may begin as early as the pre-seed stage, up to a stage where the company exhibits stable earnings and cash generation potential.
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As such, companies usually have little name recognition, and deal sourcing opportunities usually emerge via developing professional and personal networks. Investors may attend dedicated events such as demo days and accelerators, receive LP/GP referrals, or even cold email. Investors then undergo due diligence to evaluate the company, with a higher focus on qualitative factors such as product-market fit, market size, and the management team’s capabilities due to the relatively limited historical financials available.
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Investors acquire a minority stake in the company. This is done so that the founders can remain the majority equity holders and key decision makers, as they possess the know-how to develop their product and company.
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From the vantage point of a minority investor, VCs take board seats in the company. They create value from a distance at a high level rather than directly interfering with day-to-day operations. Key contributions may include preparing companies for subsequent funding rounds, supporting them with introductions to potential hires and partners, and providing sectoral insights.
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Exits are realised primarily through strategic acquisitions, secondary sales, or IPOs as startups mature. Returns follow a high-risk, high-reward profile: many portfolio companies may fail, but a few “moonshot” successes can generate outsized gains, because the VC entered at a much lower valuation. This portfolio approach reflects an extreme version of the Pareto principle, where a small fraction of investments drives most of the returns. This is especially true in early-stage VCs where it is not uncommon for just one successful investment to return the entire fund.
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Private Equity
PE invests in scaling to mature companies with established revenue streams and typically positive earnings. Investments may begin at the growth stage, up to large-scale companies with dominant market shares. PE funds may also take public companies private via a delisting process.
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A fund’s deal pipeline primarily originates from pitches created by banks or network contacts. With robust historical financials and positive free cash flows expected in the near-term, due diligence is more heavily weighted towards quantitative analysis and detailed financial modelling as compared to VC.
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Investors acquire a significant minority or majority equity stake (i.e., buyout) in the company. Because returns are more certain relative to VC and the founders are no longer as critical to the company’s success, PE investors are willing to deploy more capital to enjoy a larger share of the upside. These transactions are often heavily leveraged, especially in a buyout scenario, as it reduces the amount of investor equity committed. Assuming the investor recovers the same equity value upon exit as a non-leveraged scenario, they will obtain a higher IRR, the annualised rate of return on their investment.
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Should an investor execute a buyout, they become the key decision-makers in the company. PE funds pursue operational and financial improvements via growing revenue, cutting costs, and paying off debt. They may also pursue bolt-on acquisitions where they acquire smaller companies to expand their portfolio company’s scale. All of this is done to enhance the company’s value and to exit the company at more attractive valuations.
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Exits are realised similarly through strategic acquisitions, secondary sales, or IPOs. Returns for a private equity fund can be modelled by a J-curve. At the start of a fund’s life, cash flows are negative as capital is drawn down to make investments. Over time, as the fund grows and exits its investments, the fund begins to generate positive cash flows and “harvests” its investments to return capital to its investors. The curve of returns, dipping negative in the early years before rising above zero, resembles the letter “J.”
Private Credit
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PC invests in scaling to mature companies with stable cash flows and distressed companies in need of liquidity, via offering direct lending outside of traditional banking channels. Companies that access PC funding tend to either be (i) smaller than clients that are traditionally banked, (ii) exhibit poorer credit ratings and thus are at higher risk of default, or (iii) require more complex financing needs than banks traditionally offer.
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A fund’s deal pipeline primarily originates from pitches created by banks or network contacts. Due diligence and financial analysis focus less on the company’s overall market value and more on the company’s ability to generate future cash flows. This is because cash is the defining asset required to pay down debt. A fund will also model a debt waterfall where they analyse how much each creditor in the capital structure will be paid during the loan tenor.
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Unlike VC or PE, creditors do not acquire an equity stake in the company via the initial debt investment. Therefore, creditors do not occupy a board seat and do not participate in the value creation process.
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Exits are commonly realised via the loan naturally maturing, refinancing, or selling partial or full loan exposure to another creditor. Especially when lending to companies with high growth potential, creditors may structure a convertible debt deal, where their debt may be converted into equity upon certain conditions being met. This allows creditors to enjoy the safety net of credit while also potentially participating in the upside of the company later.
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Since returns are agreed upon from the outset, debt returns exhibit a higher floor but lower ceiling relative to equity. Creditors mainly recover value via the following means:
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Interest income: Typically the largest driver of returns and is generally paid out consistently (except Paid-In-Kind scenarios, where it is accrued). Loans are often structured with floating interest rates usually tied to a country’s risk-free rate, plus a fixed margin to reflect borrower risk. Interest rates usually increase as the risk the creditor undertakes increases.
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Upfront fees: Fees charged to the borrower at the time of loan issuance. These reduce the loan risk for the creditor as it immediately recovers a return.
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Structuring fees: Fees charged to the borrower for the creditor’s services to design tailored financing solutions or syndicate the loan by finding other participating creditors to reduce their own commitment.
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Trends and Outlook in Southeast Asia
The 2010s were a banner decade for SEA deal-making, as SEA appeared to have all the ingredients to become the next big success story. These included an increasingly English-educated young population, one of the world’s fastest-growing middle classes, low wages, and attractive foreign investment incentives by SEA governments.
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However, this momentum was not sustained post-2022 as SEA succumbed to inflationary pressures driven by the Russia-Ukraine war and escalating global tariffs. SEA was particularly sensitive to macroeconomic downturns due to its reliance on foreign investment and trade. These uncertainties caused investor liquidity to dry up in riskier assets in SEA, especially venture capital. Instead, investors have re-allocated to more secure private markets asset classes such as infrastructure and private credit, aiming to preserve capital via risk-adjusted returns.
Defensive Strength of Real Assets
PE funds in SEA invested most actively in infrastructure and real estate in 2024, contributing 60.1% of total deal value. Infrastructure was particularly buoyed by the digital revolution, with the maturing of artificial intelligence capabilities and increased business needs for cloud computing accelerating the demand for digital infrastructure. Exciting recent developments include Malaysia rolling out a second national 5G network and global data centre developer Equinix raising a combined SGD 1.15 billion worth of green bonds in Singapore. Moreover, the top 3 largest SEA PE deals in 2024 all targeted real assets and their developers.
SEA possesses several attractive traits that make it a hotbed for real asset development. It houses one of the world’s fastest-growing middle classes, supporting accelerated demand for essential services such as utilities, transportation, logistics, schools, and hospitals. The healthy population growth creates a supply of manpower who demand relatively low wages to undertake construction efforts. Its favourable geography with easy access to rivers and coasts, along with abundant oil, natural gas, minerals, and timber, also provides it with critical inputs for construction and power generation.
Real assets are considered defensive assets, aiming to preserve capital and offer stable returns. The owner signs long-term contracts with off-takers, granting them the right to use the asset in exchange for regular payments, with the terms of payment fixed prior to signing the contract. This allows real asset investors to achieve almost debt-like stability of cash flows from their equity investments. Additionally, many SEA real asset projects are developed alongside governments in PPPs (public-private partnerships). This is designed to attract external financing as sponsors (i) do not need to risk as much upfront equity, and (ii) governments are more willing and able to commit resources towards ensuring the project’s success, including bailouts should the project be in distress. This provides investors with further confidence amidst the uncertain economic climate. With a USD 102 billion infrastructure gap within SEA to plug, we expect the sector to exhibit further resilient growth.
Expansion of Private Debt.
PC in SEA has traditionally been a far smaller market relative to North America and Europe. The biggest banks in SEA are government-linked and have deep ties with the biggest companies in SEA, which tend to also be government-linked or family-owned legacy conglomerates. Many SEA banks heavily monetise these relationships via a wholesale banking model, where they onboard these companies as recurring clients and take care of their every financing need, from revolvers to corporate credit cards to structured loans. Banks in SEA thus have a far larger share of their region’s credit market at 80%, more than double the share of banks in the US.
However, non-bank lenders are beginning to see potential in the USD 65 trillion credit opportunity in SEA. Microfinance has become far more widely accessible to micro, small and medium enterprises (MSME), which make up 97% of all companies in SEA. The increasing digital penetration rate, emergence of credit scoring technology, and development of regulatory sandboxes have given way to a regional fintech boom. PC is even starting to serve traditional banking clients, as regulatory shifts have forced banks to act more conservatively and give up market share. Worldwide, Basel IV, which ensures tighter lending regulations and will further increase the capital retention floor for banks, has been gradually implemented by the Basel Committee’s SEA members and observers (Singapore, Indonesia, Malaysia). This development has occurred in tandem with more robust local banking regulatory frameworks. While PC is not yet mature enough to regularly compete for banks’ clients, it has emerged as a lender alongside banks to reduce a bank’s loan (and therefore risk) exposure.
With the newly announced US rate cuts by 25bps and market expectations of further rate cuts of up to 50bps by December, we expect demand for PC to remain robust as the cost of borrowing is set to reduce. However, a lower risk-free rate is also expected to create further competition and tighter pricing offered by creditors, reducing the return on loan capital. We thus foresee PC market growth in SEA to be driven by high deal volume rather than high interest income per deal in the near-term.
Risks and Challenges
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North America and Europe's private markets have benefited from decades of thriving activity involving the world’s most notable unicorns and buyouts. However, SEA private markets are still highly niche and have yet to build a robust, credible track record. SEA private markets investors are thus more likely to take a “wait-and-see” approach and be more sensitive to macroeconomic pressures, thus causing liquidity to be scarce.The following three factors provide more colour into the liquidity crunch facing SEA:
A sluggish SEA IPO market with little growth stocks
The SEA IPO market faces a chicken-and-egg problem. There are a lack of headline growth-based IPO successes in the region, discouraging investors from allocating more to venture funding and disincentivising more visionaries from becoming entrepreneurs, again leading to poor IPO exits. This phenomenon exists primarily because of a combination of the stock markets being newer and a more risk-averse, less individualistic culture than in the West. SEA equity markets tend to reflect investor preference for highly established sectors such as financials, real estate and industrials, which generate consistent dividend yields. Meanwhile, it produces less listings in growth industries like technology, which tend to be volatile stocks reflecting the uncertainty of the future of technology. In an age of digitalisation, most startups are leveraging technology and innovation to solve sector-specific problems. The few technology breakouts in the region, such as Sea Group and Grab Holdings, have often chosen to list on foreign stock exchanges (NYSE and NASDAQ respectively) to access the increased liquidity of the West. Because North America and Europe dwarf SEA in terms of generating technology mega-IPOs, they attract far more investors with higher risk appetites and actively trade to profit from volatility, thus injecting more liquidity into the equity markets.
Commonplace startup fraud denting investor confidence
Prominent cases of fraud among SEA startups have shaken confidence in the private markets. The most recent notable example was eFishery, an Indonesian aquaculture startup backed by Temasek and valued at a peak of USD 1.4 billion in Q2 2023. The startup was found to have faked nearly USD 600 million of sales since 2018. It dissolved shortly after, and founder Gibran Huzaifah was arrested in August 2025. When interviewed by Bloomberg, Huzaifah revealed that he took advice from fellow founders who successfully raised funds by forging financials, suggesting that unethical behaviour is not an uncommon occurrence. The difficulty of discovering such fraud lies in the trouble required to conduct on-site audits, the “private” status shielding the companies from public scrutiny, and the underdeveloped corporate governance frameworks in SEA. Politics and business in SEA are often highly intertwined with deeply entrenched family legacies, reducing the urgency of top-down governance reform. Such high-profile scandals have created increasing skepticism among investors regarding the integrity of the private markets.
Rise of US protectionist trade policies
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We view the short-term liquidity outlook to continue to be dampened, compounded by SEA bearing the brunt of Donald Trump’s protectionist trade strategy. Several SEA countries have been targets for tariff hikes as they possess a comparative advantage in producing goods with crucial strategic weight, such as pharmaceuticals, agriculture, apparel, electronics, and semiconductors, widening the US trade deficit. Moreover, Trump has blamed them for being enablers for China’s “transshipment” strategy, acting as an intermediate point for goods heading from China to the US to evade heavy tariffs levied on Chinese goods.
Major production hubs are feeling the pinch, with apparel factories in Binh Duong, Vietnam, seeing export orders worth over USD 708 million cancelled over the four days before the 46% tariffs on Vietnam exports went into effect in April 2025. Nearly two-thirds of US manufacturers reported foreseeing mass layoffs at their Vietnamese operations in the near future in February, even before the heightened April tariffs were levied. These supply chain disruptions will also cause upstream cost pressures for regional businesses that outsource production to a network of intermediate and final goods producers across SEA. Further liquidity is thus highly contingent on whether SEA can (i) sell more goods to existing buyers, (ii) ink more free trade deals with other countries that could potentially become buyers, or (iii) pass on the costs to price-sensitive consumers.
Conclusion
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Private markets represent a fast-growing, exciting global opportunity, providing vital capital at every stage of a company’s development. Its flexibility allows investors to choose which investment strategy best suits their risk profile, and the opportunity to be more involved with the company’s trajectory can net private investors a larger return than the public markets.
However, SEA is still a relatively immature ground for the private markets. Here, investors are less likely to take risks, and the domain often experiences steep declines during macroeconomic downturns. While the bearish current outlook has dissuaded several investors from traditional private equity, asset classes that provide fixed income-like returns, such as real assets and private credit, have become highly attractive opportunities.
To increase confidence among investors, SEA will need to build a pool of forward-thinking entrepreneurs and a steady track record of reputable exits, in much the same way as Europe in the 1990s. Robust corporate governance is crucial to provide transparency to investors about the financial health of the target and how its proceeds are used. With plenty of pent-up dry powder from the difficult post-COVID years and incoming US rate cuts, private markets have the opportunity to position themselves as a defining investment strategy in SEA.
Authors:
Vernon Goh
Jatin Singh Kodial ( Associate 25/26)
Uttkarsh Podar ( Associate 25/26)
Ishita Gupta ( Analyst 25/26)