How Alternative are Private Markets?

Private markets are often seen as offering unique diversification benefits, but do they truly provide exposures distinct from public markets? This research collaboration with Ludovic Phalippou (Oxford), William N. Goetzmann (Yale), and Elise Gourier (ESSEC and CEPR) introduces a novel framework to uncover eight latent “private factors” across nearly 5,000 private funds. These factors challenge traditional classifications and show that only some strategies, particularly energy and European-focused funds, earn meaningful risk premia. Several private factors show weak correlation with public markets, supporting their role as true diversifiers. The study offers institutional investors a roadmap to rethink portfolio construction, risk management, and benchmarking by adopting a factor-based view of private markets.