Private Markets: the enthusiasm is real — so is the liquidity risk

Long reserved for institutional investors, private markets are now opening up to a broader clientele. The term covers a set of assets that are not listed on a regulated market:

• Private equity: venture capital, growth capital, buyout capital (LBO…)
• Private debt: direct corporate financing, mezzanine debt, real estate debt
• Unlisted real assets: infrastructure (renewable energy, transport, digital networks), real estate and natural resources.

For an individual client, these exposures are accessible through several routes:

• Regulated vehicles accessible to non-professional investors (FCPR, ELTIF, FCPI),
• Specific vehicles, such as evergreen funds, offering periodic redemptions for more flexible liquidity arrangements,
• Dedicated structures, such as feeder funds, enabling investment in strategies historically reserved for institutional investors, with lower entry tickets,
• A variety of holding wrappers, including brokerage accounts (compte-titres), life insurance (via unit-linked policies), or the PER (French personal retirement savings plan).

The French market is dynamic. According to France Invest, private equity and infrastructure players raised €42.9 billion from their investors in 2025, 10% more than in 2024, and invested €36.4 billion in companies and projects.

Private clients still account for a limited share of this, but subscriptions are growing: within the individual-investor segment, €3.1 billion was raised in 2025, of which €2.6 billion via life insurance (+25% year-on-year). Assets under management reached €14.5 billion at the end of 2025, spread across private equity, private debt and infrastructure. These figures cover neither unlisted real estate nor FIP and FCPI vehicles, and remain modest relative to French households’ overall financial savings — but their trajectory is clear.

Private markets are now finding their way into wealth managers’ investment universes: integration into asset allocations, a growing range of accessible vehicles, and sustained client demand. What used to be the exception is becoming a routine topic of conversation between clients and their private bankers.

This enthusiasm comes with a question too often left in the background: liquidity. An unlisted asset cannot be sold whenever one wishes, nor at the price one hopes for — and this constraint takes on particular weight when the time comes to pass it on.

In this context, the banker’s duty of advice is central. They must ensure that every investment is suited to the client’s objective, investment horizon, wealth situation and capacity to absorb losses. We will look in turn at what the democratization of access actually involves, the mechanisms behind liquidity risk, its consequences at the time of succession, and the questions that advisor and client alike must address before any recommendation.

A real democratization — but one that does not change the nature of the asset

Three developments have lowered the barriers to entry: falling minimum ticket sizes, the emergence of vehicles designed for non-professional investors (ELTIF, evergreen funds, feeders), and their growing integration into life insurance contracts.

Asset managers put forward three arguments:

• Diversification: reducing a portfolio’s dependence on listed securities, and therefore on market fluctuations
• The expected illiquidity premium: the additional return an investor should receive in exchange for locking up capital and facing difficulty in reselling
• Access to unlisted companies

These arguments are legitimate. But simplified access does not make the asset liquid. At the heart of the matter lies the significant gap between the liquidity promised by the vehicle and the nature of its underlying holdings. The democratization of access is real, but it is not accompanied by a democratization of liquidity.

The liquidity trap: three mechanisms to understand well

1. The long time horizon. Closed-end funds typically run for around ten years, sometimes extendable. In the early years, the fund invests and returns almost nothing to its investors. Cash returns (“distributions”) only come later, as companies are sold — on dates the investor can neither choose nor anticipate. Exits are currently a point of tension: they remain insufficient, even though they are picking up thanks to new mechanisms such as continuation funds. An investor may therefore have to wait longer than expected to get their capital back.
2. Redemption caps and suspensions. In semi-liquid vehicles, liquidity is offered under conditions: limited frequency, notice periods, redemption caps, possible suspension or deferral. In times of stress, when many investors ask to exit at the same time, these mechanisms kick in — precisely when the need for liquidity is greatest.
3. Valuation. An unlisted asset has no daily market price. Its value rests on models and appraisals. The value shown on a client’s statement is therefore an estimate, not a price at which they could actually sell. Should they wish to exit before the fund’s maturity, they must find a buyer on the secondary market, where already-subscribed fund units are traded. Buyers there often offer a price below the last stated value (known as a discount) — all the more so if the seller is in a hurry or markets are under strain.

Succession: a blind spot

This is where illiquidity reveals itself most abruptly. What was a long-term investment becomes, on death, a very concrete problem for the heirs.

• Inheritance tax is paid in cash. The estate declaration and payment of duties must occur within short deadlines. If a significant share of the financial estate is tied up in illiquid assets, heirs may lack the available cash to meet this deadline.
• Commitments not yet called. In many closed-end funds, the investor commits to an amount that is called progressively over the years. Heirs may find themselves obligated to fund future capital calls, without having chosen this investment or understanding how it works.
• The difficulty of division. Fund units are not easily divisible and are hard to value on the date of death. With several heirs whose liquidity needs and risk appetite differ, joint ownership can become a source of tension, and ensuring equal treatment among heirs is more delicate than with listed assets.
• The gap between declared and realizable value. The value used for the estate declaration may differ from what heirs can actually obtain upon resale. They may end up paying duties on a value higher than what they actually receive from the sale.
• Transfer clauses. Depending on the vehicle, the transfer or assignment of units may require the management company’s consent or compliance with specific conditions, which further lengthens the process.

An illiquid investment must also be assessed for how it is passed on.

The importance of the duty of advice

Offering private markets to a client is not an ordinary act of distribution. The duty of advice, as framed by the MiFID II directive and, for life insurance contracts, insurance distribution regulation, takes on particular significance here. Below are the questions a private banker must ask before making any recommendation.

• On the client’s objective

It all starts with a simple question that too often remains implicit: what does the client actually expect from this investment? Return, diversification, exposure to an asset class, a tax advantage, or simply the wish not to miss out on a trend they keep hearing about?

The private banker must verify that this objective is compatible with capital being locked up for several years — otherwise even the best strategy in the world will remain unsuitable.

• On overall liquidity

It is not enough to look only at the amount invested in private markets; it must be weighed against the client’s entire estate and that estate’s liquidity. The private banker must determine what share of the financial estate is genuinely available in the short and medium term (including by factoring in business assets and real estate), by mapping foreseeable needs (a property purchase, retirement horizon, support for relatives, upcoming tax deadlines) in order to assess whether further diversification into private markets is warranted.

• On the client’s capacity to bear losses

Private markets carry a risk of capital loss, compounded by a risk of prolonged lock-up. The private banker must verify that the client can absorb both without their situation being affected. This objective capacity is distinct from subjective tolerance: it is useful to look at the client’s past experience, particularly how they reacted during difficult market periods. For an asset one cannot easily “exit,” this reaction matters even more than for a listed security.

• On the client’s understanding of the product

The vocabulary of private markets is specific: capital call, investment period, redemption suspension, secondary market, discount. The private banker cannot simply have the client sign the information document: they must make sure — rephrasing where necessary — that it has genuinely been understood, particularly regarding the conditions and limits on redemptions and on future payment commitments. This explanation is essential to the advisory process.

• On the client’s family and estate situation

Investing in private markets requires addressing the question of transmission, since that is where illiquidity weighs most heavily. The private banker must seek to assess the heirs’ capacity to absorb these investments, including their ability to meet potential future capital calls. It is also useful to simulate the succession including these assets, together with their uncalled commitments, to verify that heirs will have the liquidity needed to settle inheritance duties without being forced to sell on unfavourable terms.

• On sizing and documentation

There remains the question of how large this allocation (“pocket”) should be. It must be calibrated to the client’s liquidity and loss-bearing capacity — not to the appeal of expected performance, nor to the amount the client wishes to invest. Staggering subscriptions over time also helps diversify across vintage years and avoid concentrating the commitment in a single market period. Finally, the private banker records their reasoning in the client’s file: profile, suitability analysis, the product’s target market, warnings given. This documentation protects both client and advisor, and forces a clear articulation of why the recommendation is suitable.

Commercial pressure exists: market enthusiasm, fundraising targets, some clients’ appetite. Yet the private banker must remain able to advise against an investment, or to propose a lower amount than requested. That is what gives their advice its value.

Conclusion

Private markets have a legitimate place in a diversified estate, provided they are approached for what they are: long-term assets, with limited liquidity, whose value cannot be read the way a listed security’s can. The point is neither to reject them nor to rush into them, but to answer three simple questions before every investment: how much to lock up, for how long, and what impact this would have on the client’s situation — including in the event of death?

For the client, this is an opportunity for a full wealth and estate review. For the private banker, it is an opportunity to demonstrate that their role is not limited to providing access, but consists of guiding, sizing and, at times, saying no.