Diversification is a cornerstone of effective investing, reflecting the principle of not putting all your eggs in one basket. By spreading investments across different areas, investors aim to achieve a better balance between risk and return. The most common level of diversification is across asset classes such as equities, bonds, property, and cash, with diversified portfolios widely regarded as a way to optimise long-term outcomes.
Increasingly, investor portfolios also include exposure to Private Markets, which are now recognised as an important component of sizeable and sophisticated investment strategies. Allocations to Private Markets typically range from 0% to 20%, depending on an investor’s wealth, experience, and risk appetite. These investments can provide access to opportunities that are not available in public markets and can enhance overall portfolio diversification.
Within Private Markets, there are several core asset classes, including private equity, private credit, real estate, and infrastructure. Private equity itself covers a broad spectrum, from established businesses to early-stage companies that rely on venture capital for growth. In the UK, retail investors can gain exposure to these early-stage opportunities through government-backed schemes such as SEIS, EIS, and Venture Capital Trusts (VCTs), which support start-up and scale-up businesses.