Private markets face a concentration test
With cracks beginning to show in the public markets, investors are looking for a diversified alternative which can offer downside protection against tech disruption. But private markets might not be much better.
The concentration of capital in major tech companies within public markets is causing vulnerability concerns among investors, as evidenced by the selloff of companies like Samsung and SK Hynix. This has led to a growing interest in alternative investments, such as private markets, which offer diversified return profiles. However, private markets are not immune to concentration risks, particularly in the tech sector.
According to Uday Karri, Vice President, Research & Development at MSCI, the top 10 holdings in the MSCI Global Venture Capital Index accounted for 17.7% of index NAV in Q1 2026. Additionally, the software sector within private markets has also seen significant allocations, with large US buyouts increasing their software investments from less than 20% to nearly 50% during the covid-19 pandemic.
This tech concentration in private markets is not unique to a specific region, as European and smaller US buyouts have also experienced similar trends. For investors accustomed to the liquidity of public markets, investment trusts are being considered as a potential solution. However, these vehicles are also facing activist pressure, as seen with the ousting of the board of Edinburgh Worldwide Investment Trust (EWIT) by hedge fund Saba Capital.
One potential solution is to make even more fragmented bets, minimizing the risk of any single company dominating a portfolio. Listed private equity funds like HarbourVest Global Private Equity (HVPE) and Pantheon International (PIN) have adopted this approach, maintaining small positions in a large number of individual companies to avoid concentration risks.
Written by urgent.news from Private Equity Wire's reporting — not their text. Machine-written; read the original for the full account.
