Private markets have moved from the margins of portfolio construction to the centre. Institutions, family offices and sophisticated individuals are allocating more to private equity, private credit, infrastructure and real assets in search of yield, diversification and inflation protection.
Alongside that shift, the risks of private markets have increased in scale and visibility. Regulators in the UK and Europe have highlighted concerns around leverage, valuation practices and conflicts of interest. Global reports show private markets growing rapidly, yet with uneven transparency and liquidity.
For professional investors, the question is not whether private markets matter. They already do. The question is whether the risks are properly understood and controlled.
This guide sets out 10 core risks that sophisticated investors should consider before committing capital and explains how WIUS thinks about mitigating them within private credit.
1. Illiquidity
Illiquidity is the defining feature of private markets. Capital is locked up for years, often through fund structures or long dated notes. Secondary markets exist but are limited, pricing can be opaque, and exits are not guaranteed.
Even regulators now underline that investors must fully understand liquidity constraints in private assets, especially as semi liquid and evergreen funds grow.
For investors, this is not inherently negative. Illiquidity can support higher return targets and more stable capital bases. The risk arises when:
- Liquidity needs are not matched to holding periods.
- Structures promise more frequent redemptions than the underlying assets can support.
- Portfolios over-allocate to illiquid assets without adequate buffers.
Private equity risks: long fund lives and delayed distributions.
Private credit risks: limited ability to sell positions quickly if conditions change.
2. Over-leverage
Private markets frequently use leverage at the asset, fund or portfolio company level. In private equity, leverage is used to enhance returns and support acquisitions. In private credit, leverage may appear where funds use borrowing facilities or where underlying borrowers are already highly geared.
Research from the CFA Institute and others has highlighted how opacity and permanent leverage can depress long term returns and complicate risk management in private capital.
Over-leverage amplifies downside. When cash flows weaken or valuations fall, highly leveraged structures can erode equity value quickly and, in stressed cases, trigger covenant breaches or restructurings.
For sophisticated investors, leverage should be treated as a tool, not a default setting. The key questions are who controls it, at what level, and how quickly it can be reduced if conditions deteriorate.
3. Lighter regulation and less transparency
Private markets sit under a different regulatory framework compared to public securities. Disclosure requirements are lighter, valuation practices vary, and governance standards depend heavily on the manager.
The European Central Bank has noted that private market funds tend to be less regulated because they are often closed ended, targeted at institutional investors and have limited redemption features. The UK Financial Conduct Authority has separately warned about conflicts of interest in the valuation of private assets and the potential misuse of unrealised performance metrics.
For professional investors, lighter regulation does not mean absence of oversight. It means that more of the responsibility for scrutiny sits with the allocator. The risk is that poor practices remain hidden for longer or only emerge under stress.
4. Manager risk
In private markets, the skill and discipline of the manager are central. Returns depend on the quality of sourcing, underwriting, structuring, monitoring and exit execution.
Manager risk arises from:
- Weak underwriting standards.
- Inadequate resourcing as assets grow.
- Strategy drift away from the original mandate.
- Misalignment of incentives between manager and investors.
Recent analysis on private equity and private credit for retail investors has stressed that complex structures, significant leverage and limited liquidity mean these strategies require a high level of manager capability and investor sophistication.
For allocators, manager selection and ongoing oversight are as important as asset selection.
5. Market and macro risk
Private markets are not insulated from economic cycles. They may be less exposed to daily volatility, but underlying cash flows still depend on fundamentals.
- In private equity, weaker growth or higher rates can pressure earnings and exit valuations.
- In private credit, rising default rates or sector specific downturns can impair borrowers.
- In real assets, changes to regulation or demand can alter long term income projections.
The key distinction is that public market repricing happens visibly and quickly, whereas private market adjustments often lag. That delay can create a perception of stability that does not fully reflect underlying conditions.
Sophisticated investors need a realistic view of how portfolios might behave across cycles, not just in base case projections.
6. Counterparty risk
Counterparty risk arises whenever performance depends on the actions, solvency or integrity of another party. In private markets this includes:
- Borrowers in private credit transactions.
- Portfolio companies in private equity.
- Trade counterparties in commodity and infrastructure deals.
Unlike listed securities that trade on exchanges with central clearing, many private transactions involve bilateral contracts. If a counterparty fails, enforcement may require legal action in specific jurisdictions and can take time.
Recent commentary on private credit has emphasised that the very features that attract investors, such as bespoke structures and reduced intermediation by banks, also require active monitoring of counterparty risk and documentation quality.
7. Concentration risk
Private market portfolios can become concentrated in a few managers, strategies, sectors or geographies. Ticket sizes are larger, minimum commitments are higher, and diversification takes time.
Concentration is not always obvious. Investors may believe they are diversified across multiple funds, yet exposure could cluster in:
- Similar sectors or themes.
- The same underlying companies through co-investments.
- Common sources of financing or exit routes.
For sophisticated investors, concentration risk should be assessed at both the fund level and the total portfolio level. Scenario analysis needs to consider what happens if a particular theme or strategy underperforms across several allocations at once.
8. Currency risk for global investors
Private market allocations are often cross border. Commitments may be denominated in foreign currencies, while underlying cash flows are generated in local currencies.
Currency risk can appear in several ways:
- Mismatches between the investor’s base currency and fund currency.
- Local revenue streams that weaken in real terms when converted.
- Hedging strategies that do not fully cover drawdown and distribution timings.
In volatile FX environments, currency moves can materially affect returns, particularly where hedging is partial, expensive or unavailable.
Professional investors need a clear policy on currency exposure in private markets, including how to handle capital calls, distributions and long dated commitments.
9. Reinvestment risk
Private markets are not a single transaction. They are a sequence of commitments, capital calls, distributions and new allocations. Reinvestment risk appears when:
- Capital is returned during periods of lower opportunity.
- Investors are unable to redeploy into strategies of similar quality.
- Cash drag increases as distributions rise and new deals slow.
This is particularly visible at the portfolio level in private equity, where fund vintages perform differently across cycles, and in private credit, where repayments can accelerate during benign periods.
Allocators need a plan for pacing commitments and maintaining exposure without being forced into weaker opportunities just to avoid sitting in cash.
10. Execution and operational risk
The final category is often overlooked. Execution risk covers the operational processes that sit around private market investing, including:
- Documentation, settlement and custody arrangements.
- Valuation policies and audit processes.
- Compliance with investor eligibility and regulatory requirements.
- Data and reporting frameworks.
Errors here can damage returns just as much as poor asset selection. Regulators have flagged operational weaknesses, particularly around valuation and conflict management, as a focus area in their reviews of private assets.
For sophisticated investors, assessing the operational strength of managers and intermediaries is essential, not optional.
How WIUS approaches private market risks in private credit
WIUS operates in a focused segment of private markets, providing access to litigation-backed and asset-backed private credit for professional, high net worth and institutional investors. Within that scope, risk management is built into every stage of our process.
Structured for capital protection
- Security and collateral: Structures are designed with clear security packages over assets, receivables or case proceeds, rather than relying purely on unsecured exposure.
- Conservative assumptions: Loan-to-value ratios, recovery expectations and timelines are modelled conservatively, with stress testing against adverse scenarios.
Rigorous due diligence
- Manager and partner selection: WIUS works with established legal and structuring partners whose track records and operational capabilities have been vetted in depth.
- Counterparty analysis: Borrowers and counterparties are reviewed for financial strength, governance and alignment.
Governance and transparency
- Documented processes: Investment decisions follow a documented framework, with independent review at each stage.
- Reporting: Investors receive structured information about performance, risk metrics and material developments at regular intervals.
Portfolio construction discipline
- Diversification: Within our strategies, exposure is spread across multiple cases, assets or structures, reducing concentration risk.
- Pacing: Opportunities are selected on merit, not to fill quotas. Capital is committed only where structure, collateral and counterparties meet WIUS standards.
Next steps for sophisticated investors
Private markets can play a powerful role in institutional and professional portfolios, but only when the risks of private markets are understood alongside the opportunities. Private equity risks and private credit risks are not reasons to step away. They are reasons to demand better structures, stronger governance and more disciplined partners.
WIUS focuses on a defined segment of private credit, where litigation-backed and asset-backed opportunities can be structured to protect capital while targeting attractive risk-adjusted returns.
If you would like to discuss how WIUS approaches risk in private credit and how our strategies might fit within your wider allocation, book a private consultation with the WIUS team.
Frequently asked questions
1. Are private markets inherently riskier than public markets?
They are different rather than inherently riskier. Private markets involve illiquidity, lighter regulation and more complex structures, but they also allow investors to negotiate collateral, covenants and governance that are not available in public securities. For sophisticated investors with long horizons and strong due diligence, private markets can complement public assets rather than replace them.
2. What are the main private equity risks that institutional investors focus on?
Key private equity risks include illiquidity over long fund lives, leverage at the portfolio company level, valuation uncertainty, and dependence on exit environments. Allocators pay close attention to manager discipline, sector exposure and alignment of incentives across the fund life cycle.
3. What distinguishes private credit risks from those in public credit?
Private credit risks include borrower default, covenant breaches, illiquidity and documentation quality. However, investors can negotiate bespoke security, covenants and information rights. Public credit offers greater liquidity and price transparency, but less control over individual structures. Recent commentary from large managers has highlighted that the same illiquidity and limited regulation that attract investors also require careful monitoring.
4. How does WIUS manage illiquidity risk in its strategies?
WIUS operates strategies that are designed to be held to maturity, with defined terms, cash flow expectations and exit routes. We focus on structures where the underlying assets or claims have clear resolution pathways, and we communicate expected time horizons transparently to investors before commitments are made.
5. How can investors assess manager risk in private markets?
Investors should examine track record across cycles, team stability, investment process, governance structures and alignment of interests through fee design and personal commitments. Independent references, operational due diligence and clarity on risk management frameworks are also important. WIUS works only with partners whose capabilities have been evaluated against these criteria.
6. Are private markets suitable for all investors?
No. Private markets and WIUS opportunities are suitable only for professional, high net worth, sophisticated and institutional investors who can tolerate illiquidity, complexity and the possibility of capital loss. They are not designed for investors who require short term access to capital or who lack the resources to evaluate private strategies properly.
Further Reading
You may find the following external resources useful for additional context on private market risks and institutional allocation trends.
- European Central Bank – “Private markets, public risk? Financial stability implications of a growing sector” (2024)
Analysis of how rapid growth, lighter regulation and opacity in private markets can affect financial stability, including discussion of liquidity, leverage and valuation risk. https://www.ecb.europa.eu/press/financial-stability-publications/fsr/special/html/ecb.fsrart202405_03~bc23a48dbc.en.html - McKinsey & Company – “Global Private Markets Report 2025: Braced for shifting weather”
Overview of recent developments in global private markets, including fundraising trends, performance dispersion and the challenges of deploying capital in a more uncertain macro environment. https://www.mckinsey.com/industries/private-capital/our-insights/global-private-markets-report - BlackRock – “The risks and opportunities in private credit” (2025)
Insight into private credit’s growth, the role of illiquidity and complexity, and the trade offs investors face when allocating to private credit strategies. https://www.blackrock.com/us/financial-professionals/insights/the-growth-in-private-credit
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Disclaimer
Disclaimer: This content is for general information only and does not constitute investment advice or a recommendation. All investments involve risk, and your capital is at risk. Opportunities discussed are intended for professional, high net worth, sophisticated and institutional investors only. Private market investments can be illiquid and complex, and you could lose all invested capital.
Written by Ben Gilbert
Co-Founder, WIUS Capital
Ben is a serial entrepreneur with more than 20 years of experience founding and scaling companies across telecoms, energy, and agritech. He has raised over $500 million for projects spanning five continents and developed innovative technology to solve challenges in renewable energy and agriculture. At WIUS Capital, Ben brings his global business development expertise and hands-on approach to structuring exclusive private credit opportunities and supporting companies in accessing strategic growth capital. Recognised for his integrity and innovation, Ben continues to build long-term relationships that deliver meaningful results for investors and businesses alike.
Meet the Founders: https://wiuscapital.com/meet-the-founders/
