Learn with Alto IRA: Private Market Investments

MODUle 2

Investing in private markets

MODULE 2

Introduction

Welcome! This self-paced module explores private market investing: what it is, how it works and how it differs from public markets.

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We’ll cover:

What private markets are
How private and public investments differ
How private investments are structured
Types of private market opportunities
Liquidity, risk and time horizon considerations
How individuals can access private markets
Key questions to ask before investing

1 OF 8: UNDERSTANDING PRIVATE MARKETS

Understanding private markets

1 OF 8: UNDERSTANDING PRIVATE MARKETS

Defining private markets

Private markets involve investments that are not traded on public exchanges like the New York Stock Exchange (NYSE) or Nasdaq.

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Instead of buying shares on an open exchange, investors participate through private transactions, often in companies, loans or real assets that are privately held.

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Private markets are defined by how opportunities are accessed and structured, not by their risk level. They are not inherently riskier or safer than public markets.

1 OF 8: UNDERSTANDING PRIVATE MARKETS

Private vs. public ownership

Public companies are owned by shareholders and traded on public exchanges, with daily pricing and regulatory disclosure requirements. Buying shares of a publicly traded company, like Apple, means you become one of its shareholders. That may come with certain rights like voting, dividends or access to financial statements, depending on the type of stock.

Private companies are owned by founders, management teams and/or private investors. Ownership changes hands through negotiated transactions rather than open-market trades. Investing in private equity means receiving equity in a company in exchange for your investment. For private credit, your investment serves as a loan to the company, which is paid back with interest over a set schedule. Both types of transactions are typically done directly with the company, through a fund, or through a third-party intermediary.

1 OF 8: UNDERSTANDING PRIVATE MARKETS

An expanding private landscape

Many companies now stay private longer than in previous decades, which means a larger portion of business growth may happen before a company ever goes public, if it goes public at all.

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For investors, that creates a longer runway for participating in private market growth.

2 OF 8: HOW PRIVATE MARKETS DIFFER

How private markets differ

2 OF 8: HOW PRIVATE MARKETS DIFFER

How investments are accessed

Public investments can typically be purchased instantly through a brokerage account.

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Private investments are accessed through:

Direct offerings

Private funds

Investment platforms

Self-directed IRAs

Access may involve eligibility requirements, minimum investments and subscription documents.

2 OF 8: HOW PRIVATE MARKETS DIFFER

Pricing and transparency

Public markets provide continuous pricing and standardized disclosures.

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Private markets operate differently:

Pricing is determined through negotiation or appraisal
Valuations are periodic, not daily
Financial information may be limited

2 OF 8: HOW PRIVATE MARKETS DIFFER

QUIZ: True or false?

Private investments typically provide daily liquidity and real-time pricing.

True

False

Answer

False. Private investments generally offer limited liquidity and periodic valuation updates rather than continuous pricing.

2 OF 8: HOW PRIVATE MARKETS DIFFER

Trade-offs between structures

Public markets offer liquidity and transparency.

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Private markets may offer access to differentiated opportunities and added diversification, but with trade-offs like longer holding periods and more limited liquidity.

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These structural differences shape risk, return potential and the overall investor experience.

3 OF 8: HOW PRIVATE INVESTMENTS ARE STRUCTURED

How private investments are structured

3 OF 8: HOW PRIVATE INVESTMENTS ARE STRUCTURED

Ownership models

Private investments are often structured through pooled vehicles such as:

Limited partnerships (LPs)
Limited Liability Companies (LLCs)
Private funds

Investors typically purchase units or partnership interests rather than publicly traded shares.

3 OF 8: HOW PRIVATE INVESTMENTS ARE STRUCTURED

The role of sponsors and managers

Key roles in the private investing process include:

Sponsors, who structure and launch deals
General partners or fund managers, who manage investable capital
Issuers, who are companies raising capital

Manager expertise can play a significant role in outcomes. The possibility that performance suffers due to poor decision-making, execution challenges or operational errors by the manager is known as "manager risk."

3 OF 8: HOW PRIVATE INVESTMENTS ARE STRUCTURED

Fee structures

Private investments may involve layered fees, including:

Management fees
Performance-based compensation
Administrative expenses

Comparing fees between providers and understanding how incentives align between managers and investors is essential to evaluating if a vehicle, fund or platform is the right fit.

4 OF 8: TYPES OF PRIVATE MARKET INVESTMENTS

Types of private market investments

4 OF 8: TYPES OF PRIVATE MARKET INVESTMENTS

Private equity

Private equity involves investing in established private companies with the goal of exiting at a higher valuation.

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Value is often created through operational improvements, strategic expansion or restructuring.

4 OF 8: TYPES OF PRIVATE MARKET INVESTMENTS

Venture capital

Venture capital focuses on early-stage or emerging companies.

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These investments typically involve:

Higher uncertainty
Longer time horizons
Potential for outsized returns
Higher failure rates

Outcomes can vary widely, making due diligence and diversification essential.

4 OF 8: TYPES OF PRIVATE MARKET INVESTMENTS

Private credit

Private credit involves lending directly to businesses outside traditional banking systems or public debt markets.

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Returns are often generated through interest payments, and risk depends on borrower credit quality and loan structure.

4 OF 8: TYPES OF PRIVATE MARKET INVESTMENTS

Real assets

Real assets include tangible investments such as:

Real estate
Infrastructure
Natural resources

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Returns may come from income generation, appreciation or both. Performance can be influenced by inflation and economic cycles.

4 OF 8: TYPES OF PRIVATE MARKET INVESTMENTS

QUIZ: Multiple Choice

Which private market strategy typically generates returns primarily through interest payments?

Venture capital

Private equity

Private credit

Growth equity

Answer

Private credit. Private credit is a debt strategy in which the investment is a loan to a company, repaid with interest

5 OF 8: ACCESSING PRIVATE MARKETS

Accessing private markets

5 OF 8: ACCESSING PRIVATE MARKETS

Ways to access private markets

Private markets can be accessed through a range of vehicles, including private funds, platforms, direct investments and self-directed IRAs. Each comes with its own benefits and limitations, and investors should research their options to determine which align best with their needs and goals.

5 OF 8: ACCESSING PRIVATE MARKETS

What is a self-directed IRA?

A self-directed IRA (SDIRA) is a retirement account that allows investors to hold alternative assets beyond traditional stocks and bonds. SDIRAs function similarly to other IRAs for tax purposes but allow investment in a broader range of assets, including private equity, private credit, real estate and more, subject to IRS rules.

5 OF 8: ACCESSING PRIVATE MARKETS

Eligibility considerations

Different asset classes and offerings have different criteria for participation. Many private offerings are limited to accredited investors, while others may have lower minimums through structured vehicles.

Minimum investment requirements
Accreditation status
Regulatory structure
Custodial requirements (for self-directed IRAs)

6 OF 8: CAPITAL, LIQUIDITY AND TIME HORIZON

Capital, liquidity and time horizon

6 OF 8: CAPITAL, LIQUIDITY AND TIME HORIZON

Capital commitments

Many private funds operate on a commitment model: investors commit a set amount of capital upfront, but funds are drawn over time through capital calls as opportunities arise.

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For direct offerings, the full investment amount is typically due upfront.

6 OF 8: CAPITAL, LIQUIDITY AND TIME HORIZON

Deployment and holding periods

Private investments often have multi-year lifecycles, commonly ranging from 5 to 10+ years.

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This longer duration allows time for operational improvements, business growth or project completion, with the goal of increasing valuation and generating investor returns.

6 OF 8: CAPITAL, LIQUIDITY AND TIME HORIZON

Duration matching

Time horizon matters. Investors may consider aligning illiquid investments with long-term goals like retirement to reduce the risk of needing capital before it's available. This concept of linking investment timelines with liquidity needs around life milestones is called duration matching. Self-directed IRAs can be an efficient vehicle for aligning private investment timelines with retirement.

6 OF 8: CAPITAL, LIQUIDITY AND TIME HORIZON

Understanding liquidity

Liquidity refers to how easily an asset can be sold for cash without significantly affecting its price. Public stocks are generally highly liquid, while private investments are typically illiquid.

6 OF 8: CAPITAL, LIQUIDITY AND TIME HORIZON

Why liquidity is limited

Private investments lack active public exchanges. Where a public stock can typically be traded instantly when markets are open, private investments may take time to sell. Transfers may require approval, and the pool of potential buyers may be limited. This structural difference contributes to longer holding periods.

6 OF 8: CAPITAL, LIQUIDITY AND TIME HORIZON

The illiquidity premium

Because illiquidity can be a meaningful downside, investors may expect higher returns in exchange for committing capital for longer periods without the ability to sell quickly. This concept is known as the illiquidity premium.

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A higher expected return does not guarantee a higher realized return. Investing comes with risk, including the potential for total loss of capital.

7 OF 8: RISK IN PRIVATE MARKETS

Risk in private markets

7 OF 8: RISK IN PRIVATE MARKETS

Common risks in private markets

Illiquidity risk: Investors may not be able to access their capital quickly, or at all, before a fund exit or maturity event.

Valuation and transparency risk: Because private assets are not continuously traded, valuations rely on models and appraisals. Financial reporting may be less frequent than in public markets.

Execution risk: Private investments depend heavily on management execution, operational performance and economic conditions. Market shifts, financing challenges or regulatory changes can all affect returns.

7 OF 8: RISK IN PRIVATE MARKETS

QUIZ: True or false?

Valuation risk means an investment cannot fluctuate in value.

True

False

Answer

False. Private investments can fluctuate in value even if pricing updates are less frequent.

8 OF 8: DUE DILIGENCE AND PREPARATION

Due diligence & preparation

8 OF 8: DUE DILIGENCE AND PREPARATION

Evaluating the opportunity

Before investing, these questions can help determine whether an offering is the right fit:

What is the strategy?
How does value get created?
What are the risks?
What is the expected timeline?

8 OF 8: DUE DILIGENCE AND PREPARATION

Evaluating the sponsor or manager

Manager experience, track record, incentives and alignment matter significantly in private markets. Thorough due diligence on the sponsor or manager, when applicable, is a key part of evaluating any opportunity.

8 OF 8: DUE DILIGENCE AND PREPARATION

Understanding fees and structure

Private investments may include multiple fee layers. Investors should understand:

Management fees
Performance incentives
Fund expenses
Exit fees

Understanding the full cost helps investors assess how their total capital commitment measures up against the potential return.

8 OF 8: DUE DILIGENCE AND PREPARATION

Adjusting expectations for private markets

Private markets operate differently from public markets, and investors should account for those differences before making a decision. Key considerations include:

Illiquidity
Specific eligibility criteria and minimums
Less frequent pricing/valuations
Structured exits

8 OF 8: DUE DILIGENCE AND PREPARATION

Aligning with goals and risk tolerance

Private investments may be a fit for more sophisticated investors with:

Long time horizons

Higher risk tolerance

Diversification objectives

Not all investors, or all portfolios, are suited for private market exposure.

8 OF 8: DUE DILIGENCE AND PREPARATION

Questions to ask before investing

Before committing capital, investors should consider:

How long will my capital be locked up?
What are the realistic return expectations?
How is the manager compensated?
What happens in downside scenarios?
Does this align with my overall portfolio strategy?

8 OF 8: DUE DILIGENCE AND PREPARATION

Integrating private markets into retirement planning

For long-term investors, private markets may be accessed through vehicles such as self-directed IRAs.

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Investors should understand:

IRS rules and prohibited transactions

Custody requirements

Administrative processes

Private markets can expand opportunity sets, but education and preparation are essential.

MODULE 2: COMPLETE

Nice work, you've completed Module 2!

Nice work, you've completed Module 2! Here's what you covered: what private markets are and how they differ from public markets, how private investments are structured, the main types of private market investments, how to access private markets (including through self-directed IRAs), how capital commitments, liquidity and time horizons work, key risks to understand, and what to evaluate before investing.

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In the next module, we'll go deeper on how self-directed IRAs can serve as an efficient vehicle for accessing private market opportunities.

Investing in private markets

Introduction

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Understanding private markets

Defining private markets

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An expanding private landscape

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How private markets differ

How investments are accessed

Pricing and transparency

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Private investments typically provide daily liquidity and real-time pricing.

Trade-offs between structures

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