Why investors need to build portfolios, not just pick stocks
The FCA recently announced the upcoming launch of PISCES —a new type of private stock market designed to bring “an organised marketplace” to private company shares, enabling them to be traded “easily and efficiently.” It’s a timely move, reflecting the reality that companies are staying private for longer.
Aimed at a broad spectrum of investors—from institutions to high-net-worth individuals and sophisticated retail—PISCES aims to expand access to high-growth companies and broaden the investor base, through facilitating secondary trading of private company shares.
These goals reflect a wider global shift in sentiment. Across the U.S. and in the UK, there’s growing momentum to democratise private markets and channel more capital to growth businesses. Regulators on both sides of the pond are exploring how to give defined contribution pensions greater access to private markets investments and platforms like iCapital, Moonfare, and Titanbay have led the way in opening private markets to the private wealth segment. Meanwhile, evergreen fund structures are proliferating across the asset management industry.
However, while greater access and liquidity are welcome developments, institutional investors have not achieved long-term outperformance by trading private company stocks. They’ve done so by building diversified portfolios with top-tier asset managers.
A step in the right direction
The benefits of expanding access to private markets investments are clear. More capital flows to private businesses, whether directly via initiatives such as PISCES or via asset managers. More opportunity for individual investors. The returns are compelling: according to a report by CAIA, on Private Equity performance between 2000 and 2023 private equity allocations by state pensions produced a 11.0% net-of-fee annualised return over the 23-year period ending June 30, 2023, exceeding by 4.8% the 6.2% annualised return that would have been earned via public markets.
However, these returns are by no means a given. The performance gap between top and bottom quartile private markets funds is wider than for other asset classes. For instance, a report by McKinsey & Company showed the spread between top and bottom PE Managers to be 15.2%.
As the late David Swensen, Yale’s legendary CIO, cautioned: “The best private equity firms outperform public equity by a wide margin. The worst underperform by even more. Without the resources to identify superior managers, investors are better off avoiding the asset class altogether.” David Swensen, Pioneering Portfolio Management, 2009
And that’s the problem, while PISCES and the rise of private wealth focused platforms are progress, they don’t fully address the challenges that investors face today. Private markets still lack a functioning, scalable market through which they can compare, select and invest into private markets opportunities.
Institutions have won through scale, access and insight
What has driven consistent outperformance for institutions isn’t simply access to curated fund offerings or stock picking individual companies. Rather, it’s access to top-tier managers, rigorous due diligence, and the ability to write large tickets for long-term, stable capital allocations to the asset class. This partnership focused approach creates certainty for managers and helps to generate alpha for investors.
In contrast, smaller investors who lack the scale and sophistication of institutions, are often channelled into feeder funds that introduce complexity and fees—without delivering access to the best opportunities.
Why the private markets need an international exchange
To fully democratise access, our view is such that the market needs an international exchange for private funds—one that addresses key barriers including:
1. Lack of Common Standards: Investors need reliable, comparable data. Without standardised reporting and benchmarks, manager selection remains difficult for all but the largest and most sophisticated investors.
2. Fragmented Ecosystem: The current market infrastructure is a patchwork of disconnected systems and service providers. For fund managers, this means distributing to, onboarding and servicing investors remains manual, costly, and hard to scale—especially with smaller ticket sizes.
3. Lack of Secondary Liquidity: The ability to switch, rebalance, and actively manage portfolios is critical. As ‘godfather of secondaries’ Jeremy Coller recently noted, secondaries could represent the majority of private markets volume by 2040. Yet today, investors (of all sizes) still lack an efficient, standardised way to trade their interests.
Sonata One: Putting the “market” in private markets
Our goal is to change the paradigm of private markets investing through bringing the entire fund lifecycle together in one hub, underpinned by globally compliant standards. We envision a future where:
- Investors—whether institutional, family office, or retail—can select, subscribe, settle, see, and ultimately switch their fund interests, all in one place, with access to human support as needed.
- Fund managers access to a broader, more flexible pool of capital, allowing them to raise money more efficiently and cost-effectively
- Private markets become more transparent, scalable, and inclusive, driving more capital to growing businesses and giving all types of investors the opportunity to diversify into private markets assets.
The benefits of private markets derive not from picking stocks or accessing a limited pool of opportunities within a handful of marketplaces, they come from building long-term partnerships with the right managers. But for that to work at scale, a market must exist—one where capital and data flow efficiently, where standards are universal, and where all participants have the visibility and support, they require to participate with confidence. That’s what we’re building at Sonata One.
