Private Markets: What are they and why are they growing?
The global private markets exceeded US$13 trillion in assets under management in 2023, according to McKinsey data. In Brazil, this figure is still relatively small, but it's growing at rates that capture the attention of any serious wealth manager.
For a long time, this universe was restricted to pension funds and American university endowments. Today, Brazilian entrepreneurs who structure their wealth effectively, especially through holding companies, are accessing the same asset classes that institutions like the Yale Endowment have used for decades to outperform public markets.
The practical question is simple: in a scenario of structurally falling interest rates and a volatile stock market, where else can one find returns with lower correlation to the market? The answer increasingly lies in private markets.
What are private markets
Private markets refer to investments made outside of stock exchanges and public debt markets; there are no daily quotes, and no immediate liquidity. In return, investors gain access to businesses, projects, and credit structures that simply don't exist in the open market.
The main categories are:
Private Equity — investment in private companies, with a 5 to 10-year horizon. The manager invests, operationally transforms the company, and sells it for a capital gain.
Venture Capital — a variant of private equity focused on early-stage companies. Higher risk, higher return potential.
Private Credit — direct loans to companies, outside the banking system. In Brazil, FIDCs (Credit Rights Investment Funds) and CRIs (Real Estate Receivables Certificates) structured by specialized asset managers fall into this category. Typical returns range from CDI + 3% to CDI + 8% per year, depending on the risk.
Infrastructure — investment in energy, sanitation, and logistics projects. Predictable cash flow, long-term contracts, inflation protection.
Real Assets — real estate, agricultural land, forests. In Brazil, agribusiness creates specific opportunities in this category.
Each of these classes has a distinct risk profile, time horizon, and legal structure. What unites them all is restricted access and the absence of daily liquidity, characteristics that, paradoxically, are part of the source of return.
Why private market returns are higher
There is an illiquidity premium. Those who agree to lock up capital for 7 years in a private equity fund historically receive between 3 and 5 percentage points more per year than the public stock market. This differential is compensation for foregoing quick exits.
The second factor is the universe of opportunities. In the United States, there are approximately 4,300 publicly listed companies. Private companies with revenues above US$10 million? Over 200,000. The public market is a small fraction of the real economy.
In Brazil, this proportion is even more extreme. B3 lists just over 400 companies with significant liquidity. The country's industrial and service sector comprises hundreds of thousands of businesses that have never gone public, and many of them are precisely where private equity managers find value.
The third factor is management control. In a private equity fund, the manager sits on the board, defines the strategy, and implements operational changes. This is not the case when buying a stock on the public exchange.
How Brazilian business owners access private markets
Here's a practical point many people overlook: access to private markets in Brazil has undergone significant regulatory changes in recent years.
CVM, with Resolutions 175 and 88, modernized the fund framework and expanded structuring possibilities. Private Equity Funds (FIPs), Credit Rights Investment Funds (FIDCs), Real Estate Investment Funds (FIIs), and offshore structures became more accessible to qualified and professional investors.
In practice, a business owner who already has a wealth management holding company has a structural advantage here. The holding company centralizes assets, allows for reinvestment without immediate taxation of distributed profits, and facilitates access to investment vehicles that require a high minimum application, generally between R$ 300,000 and R$ 1 million per fund.
Furthermore, a holding company allows for tax-efficient combination of asset classes. For example, income from FIPs is treated differently for tax purposes when received by a legal entity versus an individual. A well-executed plan captures this difference.
Holding Company + Private Markets: The Combination That Makes Sense
A business owner who distributes substantial dividends to themselves as an individual and then tries to invest in private markets incurs a high cost: the 27.5% income tax on earnings, the regressive tax rate on financial investments (from 22.5% for investments under 6 months to 15% for those over 2 years), and the difficulty of accumulating the necessary capital to access good funds.
With a holding company, profits are retained within the legal entity. This capital can be allocated directly to private market funds and structures without the cost of upfront taxation. The compounding effect over 10 years is substantial.
A concrete example: a holding company with R$ 5 million allocated to private credit at CDI + 5% per year, with income reinvested within the legal entity itself, accumulates significantly more than the same capital distributed as a dividend to an individual and reinvested in conventional fixed income, even if the gross rate is identical.
This difference doesn't come from magic. It stems from tax deferral and access to rates that retail banking doesn't offer.
What Changes When Private Markets Are in Your Portfolio
Including private markets alters three portfolio characteristics:
Correlation — Private credit and infrastructure have a low correlation with the stock market. When the Ibovespa drops 20%, a well-managed private credit fund doesn't necessarily suffer at the same rate. This reduces the overall portfolio's volatility.
Cash Flow Predictability — Infrastructure funds and real assets have predictable periodic distributions, often indexed to the IPCA. For business owners looking to build structured passive income, this has practical value.
Planning Horizon — private markets compel investors to think in 5, 7, or 10-year windows. This discipline alone improves the quality of wealth planning. Capital that cannot be withdrawn tomorrow is not withdrawn impulsively.
Real Risks That Need to Be Factored In
Illiquidity is a tangible risk. If a business owner needs capital in two years to expand their operational business or for an acquisition opportunity, having a significant portion of their assets locked up in 7-year funds creates a problem.
Manager selection also matters more than in public markets. In private equity, the difference between first and third quartile managers is stark, potentially reaching 10 percentage points per year. In indexed equity funds, this dispersion is minimal. In private markets, choosing the wrong manager has a direct consequence on returns.
Furthermore, due diligence in private markets demands more. There are no daily quotes to signal problems. Investors must rely on the quality of the manager's reports and the monitoring process of the MFO or advisor overseeing the portfolio.
The Allocation Institutional Managers Use as a Reference
American university endowments, funds with a truly long-term horizon, allocate between 40% and 60% of their assets to alternative investments, including private markets. The Yale Endowment, a historical benchmark for this strategy, had 58% in alternatives in 2023.
In Brazil, the approach is more conservative due to a history of high interest rates that made fixed income a competitive alternative for decades. With the Selic rate on a long-term trajectory lower than the 2015–2016 cycle, this equation changes.
Managers serving families with complex wealth in Brazil currently work with allocations between 15% and 30% in private markets, depending on the required liquidity and each client's horizon. There isn't a single correct number; there's the appropriate number for each structure.
How to Assess if it Makes Sense for Your Situation
Before any allocation to private markets, three questions need clear answers:
First: what liquidity timeframe can your total assets accommodate? If there are foreseeable capital consumption events in the next 3 years—business expansion, real estate purchase, planned succession—the percentage allocable to illiquid assets is smaller.
Second: is the legal structure appropriate? A holding company is the most efficient vehicle to access and hold these investments. Doing this as an individual incurs tax and operational costs that erode part of the additional return.
Third: who will select and monitor the managers? Private markets are not an off-the-shelf product. The quality of the advisor who oversees the portfolio, evaluates the funds, and monitors the lifecycle of each investment is crucial for the final outcome.
Private markets are a globally established asset class that gained stronger traction in Brazil as the capital market matured and regulations evolved. Business owners who understand how it works and how to efficiently structure access have an additional tool to build wealth consistently.
If you want to understand how this allocation would work within your specific wealth structure, Jera Capital can map out the opportunities and necessary adjustments to make the strategy make sense for your particular situation.
