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The performance gap between public and private markets is often attributed to the illiquidity premium. Investors accept reduced flexibility in exchange for a higher expected return. Indeed, private assets often require multiyear lockups and are more complex to exit. But this explanation is incomplete.

Most investors allocate only a portion of their portfolios to private markets, thereby mitigating the true impact of illiquidity. Additionally, innovations such as secondary markets are enhancing liquidity options. If the illiquidity premium were the sole driver of returns, greater demand and improving exit mechanisms should logically reduce it. Yet outperformance has persisted, suggesting another factor is at work.

The Complexity Premium: Creating Value Through Skill

A deeper driver of private market returns lies in what Schroders has termed the “complexity premium.”

 This refers to the return earned not for taking on more risk, but for successfully navigating complexity through skill and operational enhancement.

This concept mirrors the value creation process in private equity: investing in an underperforming or sub-optimized asset and improving its fundamentals through active management. Consider the example of a dated property in a prime location. A passive owner may rely on market appreciation. A skilled investor, however, may renovate, rezone, or restructure its use, generating higher returns through active transformation.

In private markets, this principle applies not only to real estate but across asset classes. The performance differential stems from specialized teams adding value over the holding period through strategic, operational, and financial interventions.

In contrast, public market investors, especially those without a controlling stake, often have limited ability to influence management decisions. Voting structures and corporate governance limitations dilute investor power, rendering them largely passive participants. This lack of influence limits value creation opportunities and underscores the strategic advantage of private market investing.

Private market investing is not a single act but a sequence of high-skill stages, each of which contributes to the complexity premium:

: Access to quality deals requires strong relationships and exposure to opportunities not widely available to the public.

: Not all deals are created equal. Discerning quality requires rigorous due diligence, sector experience, and the ability to identify hidden risks or upside.

: Value is created through active oversight, including strategic shifts, capital restructuring, or operational improvements.

: Realizing value is as important as creating it. This requires positioning the asset attractively for the right buyer at the right time.

Because these skills are not broadly distributed, it is natural that investors with the ability to execute them successfully should earn a premium.

Contrary to assumptions, private markets are not opaque by default. While public companies are required to disclose earnings and filings, private investors often gain deeper access to financials, management, and strategy during due diligence and ongoing monitoring. This closeness allows for more informed decision-making, especially when investing alongside aligned partners.

However, transparency alone does not ensure returns. The true differentiator is how information is applied through judgment, insight, and execution.

The strong performance of private markets isn’t just about locking up capital for a few years. It reflects the ability of skilled teams to unlock value through a multi-stage process of identifying, enhancing, and exiting investments.

At The Family Office, we bring over two decades of experience navigating the complexity of private markets. With over $2.1 billion in assets under management and a global network of partners, our team specializes in co-investments across private equity and private credit. We offer our clients access to select opportunities where complexity is not a barrier, but a gateway to value.

Beyond Illiquidity: The Real Drivers Behind Private Market Outperformance

Download this factsheet to learn more about private equity, including:

Private Equity Factsheet

The traditional 60/40 portfolio (60% stocks and 40% bonds) was once the golden standard for investing. Historically, this structure relied on a 

negative correlation between stocks and bonds

 to manage volatility. However, in today’s high-inflation, high-rate environment, both asset classes often move together, undermining diversification benefits.

In his 2025 annual letter to investors, Larry Fink, CEO of BlackRock, advocated for a 50/30/20 model (50% stocks, 30% bonds, and 20% private assets).

This shift reflects a broader recognition that private markets offer essential diversification, alpha generation, and inflation resilience.

The Power of Private Markets for Retirement Resilience

Private markets, including private equity, private credit, real estate, and infrastructure, are increasingly critical components of modern retirement portfolios. In an environment where traditional public assets face persistent headwinds, private markets provide differentiated sources of return, lower correlation to listed assets, and enhanced downside protection during crises.

At The Family Office, we recognize that private market investments require careful selection and rigorous due diligence. Rather than focusing purely on headline returns, we prioritize global diversification, risk mitigation, and access to top tier opportunities across private equity, private credit, real estate, and infrastructure. Our investment approach aims to enhance portfolio resilience, achieve steady income, and deliver sustainable long-term outcomes for investors navigating uncertain markets.

The Power of Early Private Market Investing

When it comes to retirement planning, time is the greatest asset investors have. Early investment in private markets amplifies the power of compounding, offering the potential to transform moderate starting sums into substantial retirement assets. Unlike cash savings, which simply preserve nominal value, high-quality private investments provide access to differentiated growth opportunities. Starting early maximizes the potential benefits of the illiquidity premium, strengthening the foundation for long-term financial security.

Scenario Analysis: The Impact of Early Private Market Investing

When considering retirement planning, it is essential to account for both growth potential and the erosion of purchasing power over time. Inflation and rising costs gradually reduce the real value of money, meaning that $500,000 today will not have the same purchasing power in 10, 20, or 25 years.

The following illustrative scenario showcases the compounding impact of early investment in private markets:

(Calculated using the compound interest formula A = P(1 + r)^t with r = 10%)

While $500,000 held in cash would preserve its nominal value, its real purchasing power would steadily decline in an inflationary environment. By contrast, early private market investing can help mitigate inflation’s impact, unlock long-term growth potential, and enhance future purchasing power.

 to estimate your projected retirement income, simulate scenarios, and take the first step toward a more secure financial future.

Building a resilient retirement portfolio requires foresight, discipline, and the right strategic partners. At The Family Office, we empower investors with tailored private market solutions designed for today's volatile environment.

Our team is ready to help you design a portfolio that meets your long-term retirement goals and adapts to an ever-changing market. 

Plan your Ideal Portfolio

Contact Our Expert Financial Advisors

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