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The great democratisation: Can private markets deliver for everyone?
Explore how the democratisation of private markets could reshape investment opportunities for retail investors.
Read time: 7 mins Added: 20/03/26
Private markets are in the spotlight, with momentum growing to widen access for “retail” investors through wealth platforms.
This push for democratisation – primarily of private equity and credit, but also extending to real estate and infrastructure – is being driven by multiple factors, including an increased focus by the UK government to bolster savers’ provision for their future needs and to increase investment in domestic assets to stimulate growth.
The Leeds Reforms announced in July 2025 and launched from the Lloyds Banking Group hub in the city will allow Long-Term Asset Funds (LTAFs) – open-ended investment funds designed for long-term, illiquid assets such as private markets – to be included in Stocks and Shares ISAs from April.
In February, Scottish Widows, which is part of Lloyds Banking Group, launched two new investment options for workplace pension members, enabling them to tap into private market opportunities via LTAFs.
The UK is not acting alone; in the US, President Trump issued an executive order1 in August 2025 allowing 401(k) pension plan managers to offer alternative investments, including private markets, to savers.
The UK’s efforts to broaden access to private markets sit alongside other measures announced to boost retail participation, including the planned lowering of the cash ISA limit from April 2027 for individuals under 65 and the launch of an industry-led educational campaign to raise awareness of investment opportunities.
Why private markets?
Private market investments have long been promoted as offering two key benefits: higher returns and enhanced diversification.
According to the British Private Equity & Venture Capital Association, UK private capital funds2 delivered an internal rate of return (IRR) of 15.8% per year over the 10-year period to the end of 2024, well ahead of the FTSE All-Share’s return of 6.2% and the MSCI Europe Index’s 8%.
Industry experts and many academic studies also argue that private markets enhance diversification, as their low correlation to public markets helps reduce portfolio volatility.
Some asset classes have enhanced benefits. For instance, private credit agreements typically have covenants, which, when coupled with regular reporting, offer greater transparency and protection over the lifetime of the deal.
However, it is important to note that other studies3 highlight the selective use of public or private indices for benchmarking returns or suggest returns can be eroded by relatively high and opaque costs.
Equally, the key diversification benefit of private market assets – lower volatility – is questioned by some4. They argue that return profiles in private equity are artificially smoothed by the illiquidity of private equity funds and that in reality they may more closely align with public markets, for example.
Policy meets portfolio
While the aim of making it easier to access private markets – in order to benefit from potentially higher returns enjoyed by the institutional market – is broadly welcomed, it could give rise to some concerns.
Under a voluntary expression of intent agreed between the government and some UK pension providers in May 2025, 10% of their defined contribution default funds are to be invested into private markets by 2030. Of this 10%, half is intended for UK-based investments. While this supports domestic growth, it also underscores the need to balance such objectives with pension funds’ fiduciary responsibilities to deliver risk-adjusted returns for savers.
By contrast, LTAFs are not subject to any UK investment quota, though the government sees them as vehicles to “support the UK’s future success”5.
The new Scottish Widows funds launched in February invest in a range of private market investments, tapping into opportunities worldwide that make use of local networks and experts. Scottish Widows will also look to leverage Lloyds Banking Group’s capability in originating and deploying capital and managing UK-based private market assets.
A shifting environment
Despite some academic research supporting the long-term outperformance of many private market asset classes, other market observers argue that past outperformance may not be sustained. For example, private equity returns were buoyed by a long period of ultra-low interest rates – a trend reversed by the inflation surge following the pandemic. While interest rates have fallen steadily since August 2024, most economists do not expect a return to pre-Covid levels in the foreseeable future.
There are also concerns about valuation opacity. With unlisted assets, valuations are inherently more subjective, and critics argue this can lead to overstated returns. Although conditions are now improving (most notably in the US), the backdrop of a softer IPO market has exacerbated this dynamic, contributing to a steep rise in secondaries6 and continuation funds. Concerns over valuations mean today’s entry point may not deliver returns similar to past private equity vintages.
The booming private credit market may present fewer concerns. Unlike private equity, private credit offers a more transparent path to targeted returns due to fixed coupons and maturities, albeit there is a cap on this return.
Private credit has grown significantly since the financial crisis, caused in part by stricter regulatory requirements being placed on the banking sector, making it harder for banks to compete with private credit firms who benefit from certain cost advantages. Private credit firms operate with greater flexibility and are less constrained by regulatory frameworks than traditional banks.
However, as the market continues to expand, there are growing calls for increased regulation given potential systemic risks – the private credit market has yet to experience a complete financial cycle. The collapse of First Brands and Tricolor in 2025 has also focused attention on standards in the private credit market.
Reflecting these concerns, the Bank of England launched its second System-Wide Exploratory Scenario (SWES), focusing on private markets, in December 2025. This initiative aims to assess how systemic risks potentially posed by private markets could impact financial stability and the provision of finance to UK corporates. In January, the House of Lords Financial Services Regulation Committee, which conducted an inquiry into private markets in 2025, said that there is a need for improved data and scrutiny to better understand risks posed by non-bank lenders.
The case for a targeted approach
Despite current controversies, private markets are expected to continue to grow given structural factors. These include the lower liquidity risk and funding costs enjoyed by private credit funds whose investors commit capital for many years, and the reluctance of many fast-growing companies to subject themselves to the scrutiny and constraints of the public markets.
Moreover, private markets may continue to offer diversification benefits and the potential for higher returns when compared to public markets (although, as noted earlier, much depends on the specific assets or indices referenced). Private markets’ structural limitations – illiquidity, reduced transparency, and higher costs than public markets – will also persist, although democratisation could improve transparency and bring costs down over time.
The experience of Blue Owl’s BOOC II fund, which is marketed to retail investors, illustrates the issues that can arise when redemption demands meet the more limited liquidity typical of private market investments. Retail investors need to be aware that, unlike public markets, the option to exit quickly may not be available when market conditions become challenging.
The government wants to shift savers out of low-return cash accounts and into higher-yielding investments. However, given that many retail investors are less familiar with private markets, caution may be warranted. What matters most therefore is identifying the appropriate role for private markets within investor portfolios and ensuring each type of investor has access to the necessary information to make informed decisions about risks and returns.
Importantly, the government has pledged to strengthen investor education and improve risk warnings. But careful stewardship will be needed to ensure that greater access does not come at the expense of appropriate protection.
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1. Trump opens US retirement plans to crypto and private equity investments – www.FT.com
2. Private Capital continues to outperform public markets over the long term, despite a more challenging 2024 – www.ukprivatecapital.co.uk
3. An Inconvenient Fact: Private Equity Returns & The Billionaire Factory – www.papers.ssrn.com
4. Political Pressures, Catering, and Return Distortions in Private Equity – www.papers.ssrn.com
5. Leeds Reforms to require financial system, boost investment and create skilled jobs across UK – www.gov.uk
6. How the evolution of secondaries is shifting the lending landscape – Lloyds Corporate & Institutional
Lloyds Banking Group is a financial services group that incorporates a number of brands including Lloyds Bank and Scottish Widows. More information on Lloyds Banking Group can be found at lloydsbankinggroup.com.