Investment Guide
Private Market Investments for Accredited Investors: Access, Risk, and What to Evaluate
Private market investments, including private equity, private credit, and venture capital, have historically been accessible only to institutional investors and the ultra-high-net-worth. Understanding what qualifies you for access, what these investments actually involve, and what you must evaluate before committing capital is the starting point for any informed decision.
What Are Private Market Investments?
Investments Outside Public Exchanges
Private market investments are securities and fund interests in companies, credit instruments, or real assets that are not listed or traded on public exchanges like the NYSE or Nasdaq. Because these investments are not registered for public sale, the SEC restricts participation to accredited investors and qualified purchasers, individuals and institutions that meet specific income, net worth, or professional criteria.
The three primary categories of private market investments that accredited investors most often encounter are private equity, private credit, and venture capital. Each carries a distinct risk profile, time horizon, and liquidity characteristic that must be understood before any capital commitment is made.
Unlike publicly traded securities, private market investments do not have daily price discovery, standardized reporting requirements, or readily available exit mechanisms. These structural differences create both the potential for differentiated return characteristics and meaningful risks, including the potential for total loss of principal.
Private Equity
Ownership stakes in private companies, often through buyout funds, growth equity, or direct co-investments. Capital is locked up for extended periods, typically five to ten years or longer.
Private Credit
Loans and debt instruments issued to companies outside the public bond market. Includes direct lending, mezzanine debt, and distressed credit strategies. Subject to credit, default, and liquidity risk.
Venture Capital
Equity financing for early and growth-stage companies. Carries the highest risk profile of the three categories. Most early-stage companies fail, and capital may be tied up for a decade or longer before any liquidity event.
The Access Question
Who Qualifies as an Accredited Investor?
The SEC defines accredited investor status under Rule 501 of Regulation D. As of 2026, the primary qualifying criteria are as follows. Meeting one or more of these thresholds is required, but it does not mean any specific private investment is suitable for your situation.
Income Threshold
Individual income exceeding $200,000 in each of the two most recent years, with a reasonable expectation of the same in the current year. For married couples filing jointly, the threshold is $300,000.
Net Worth Threshold
Individual or joint net worth exceeding $1 million, excluding the value of the primary residence. This is the most commonly cited standard and applies regardless of annual income.
Professional Credential
Individuals holding certain FINRA licenses in good standing, specifically Series 7, 65, or 82, qualify regardless of income or net worth. This category was added by the SEC in 2020 to reflect financial sophistication.
Knowledgeable Employee
Directors, executive officers, or employees of a private fund who are involved in the investment activities of that fund may qualify under this category, per SEC Rule 3c-5.
Qualified Purchaser: A Higher Standard
Beyond accredited investor status, some private funds, particularly hedge funds and private equity funds structured under the Investment Company Act, require participants to meet the "qualified purchaser" threshold. This generally means owning at least $5 million in investments. Qualified purchasers gain access to a broader range of fund structures that may not be available to accredited investors alone.
Public vs. Private Markets
How Private Markets Differ from Public Investing
Before evaluating any private market opportunity, investors should understand how these investments differ structurally from publicly traded securities. The table below outlines the key distinctions. These differences are not incidental; they are fundamental to how private market risk manifests and why careful due diligence is required.
| Characteristic | Public Markets | Private Markets |
|---|---|---|
| Liquidity | High. Shares are tradeable on exchanges during market hours. | Low to none. Capital is typically locked for 5 to 12 or more years. Secondary markets exist but are limited and may involve significant price discounts. |
| Investor Eligibility | Open to all retail investors through brokerage accounts. | Restricted to accredited investors or qualified purchasers. Suitability review by the advisor or fund manager is required. |
| Typical Minimums | No minimum for most publicly traded securities. Fractional shares are available. | Generally $100,000 to $5 million or more per fund commitment. Varies significantly by structure and manager. |
| Price Transparency | Continuous real-time price discovery with daily net asset values. | No daily pricing. Valuations are typically reported quarterly and may lag economic reality. |
| Regulatory Disclosure | SEC-mandated public filings including 10-K, 10-Q, and 8-K, with extensive ongoing disclosure. | Limited public disclosure. Information rights are negotiated and investor updates vary by fund manager. |
| Time Horizon | Flexible. Investors can exit in seconds or hold indefinitely. | Fixed. Fund structures typically have defined investment periods and liquidation timelines. |
| Risk Profile | Market risk, sector risk, and company-specific risk. Losses are visible immediately. | Amplified by illiquidity, leverage, information asymmetry, and manager execution risk. Losses may surface slowly or all at once. |
| Fee Structure | Low-cost index funds available. Actively managed funds typically charge 0.5 to 1.5% annually. | Typically 1.5 to 2% annual management fee plus 20% carried interest on profits above a hurdle rate. Fees materially reduce net returns. |
Table reflects general market characteristics as of 2026. Individual funds vary significantly. All investments involve risk, including the potential loss of principal. Past performance does not indicate future results.
The Access Gap
Why Private Markets Have Been Institutional Territory
For most of the past several decades, private market investments were the near-exclusive domain of university endowments, pension funds, sovereign wealth funds, and ultra-high-net-worth families with dedicated family offices. Several structural realities reinforced this divide.
First, manager access. The most sought-after private equity and venture funds often have closed investor bases and raise capital from a small number of established relationships, not from public offerings. Gaining access requires either a prior institutional relationship or an intermediary with established fund manager relationships.
Second, minimum commitments. The typical private equity fund raises capital in minimum commitments of $1 million to $5 million per investor, placing most opportunities beyond the reach of individual accredited investors without institutional backing or a multi-manager allocation vehicle.
Third, due diligence capacity. Evaluating a private fund requires analysis of legal documents such as LPAs and PPMs, manager track records, portfolio company diligence, fee structures, and liquidity terms. Without the infrastructure of an institutional investment office, most individual investors lack the resources to conduct this work independently.
Context: Defiant's Approach
Institutional Access for Qualified Clients
Defiant Capital Group's team includes CFA charterholders and professionals with backgrounds in investment banking, private equity, and multi-family office environments. Our private markets work spans direct company investments, private equity and credit funds, venture capital, and niche alternatives, sourced through longstanding manager relationships rather than public distribution channels.
We conduct our own due diligence process, evaluating the people running the fund or company, the conviction behind the investment thesis, the risk-return justification, and the alignment of interests between manager and investor, before any opportunity is brought to clients.
Private market investments involve significant risk and are suitable only for qualified investors who can bear the potential loss of their entire investment and tolerate extended periods of illiquidity. Suitability is assessed on an individual basis.
Our Private Investment Approach
Learn how Defiant sources and evaluates private opportunities
Due Diligence Framework
What to Evaluate Before Committing Capital
Accredited investor status grants access. It does not substitute for judgment. The following framework reflects the dimensions any sophisticated investor or their advisor should analyze before making a private market commitment.
The People Running the Investment
The most important variable in private market investing is typically the quality and integrity of the investment manager or management team. Key questions: What is the team's relevant experience? Do they have aligned incentives, meaning have they personally co-invested their own capital? What is their track record in comparable market cycles, and how have they navigated losses? People-first evaluation is not optional.
Liquidity Constraints and Time Horizon
Every private market investment has a time horizon that must be understood at entry. Private equity funds typically have ten-year fund lives, often with extension options. Venture funds may require even longer. Before committing, investors must be certain that the capital being deployed will genuinely not be needed for the duration of the investment, because early exit is rarely possible without accepting a significant discount, and in many cases is contractually prohibited.
Fee Structure and Its Impact on Net Returns
Private funds typically charge both a management fee, often 1.5% to 2% of committed or invested capital annually, and carried interest, typically 20% of profits above a minimum return hurdle. These fees meaningfully reduce net investor returns and must be factored into any return expectations. A fund that generates a 15% gross return could deliver substantially less on a net-of-fee basis depending on the fee structure and deployment timing.
Legal Documents: LPA, PPM, and Capital Call Terms
The Limited Partnership Agreement (LPA) and Private Placement Memorandum (PPM) govern the relationship between the investor and the fund manager. They define capital call schedules, where investors typically fund commitments over years rather than all at once, distribution waterfalls, voting rights, key-person provisions, and termination rights. Reading and understanding these documents, or having legal counsel review them, is not optional.
Portfolio Context: Concentration and Correlation
Private market investments should be evaluated not just in isolation but in the context of the investor's total portfolio. Founders whose net worth is concentrated in a single company, for example, may be adding correlated risk rather than true diversification by investing in private equity funds within the same industry — and those also working through succession planning for founders should ensure both strategies are evaluated together. Those who are entrepreneurs should also review private market investments for founders, which addresses these portfolio dynamics in a founder-specific context. Understanding how a private investment interacts with existing exposure is a prerequisite, not an afterthought.
Tax Treatment and Reporting Complexity
Private market investments generate K-1s, not 1099s, and often deliver complex tax reporting that can include unrelated business taxable income (UBTI), state-level filing obligations across multiple jurisdictions, and character of income that varies year-to-year. Investors holding private fund interests in tax-exempt accounts should specifically verify whether UBTI exposure could create taxable income within the account. Tax planning for private market investors requires close coordination between a financial advisor for founders and the investor's CPA.
Risk Disclosure
The Risks of Private Market Investing: A Clear-Eyed Summary
Any educational resource on private markets that does not address risk directly is incomplete. According to the SEC's own investor education materials, private market investments carry a distinct set of risks that differ meaningfully from publicly traded securities. Investors should understand all of the following before committing any capital.
Illiquidity Risk
Private investments cannot be sold on an exchange. If personal circumstances change, such as a health event, a business need, or a tax obligation, an investor may have no meaningful way to exit a private market position. Secondary sales are possible in some cases but often require accepting a substantial discount to stated value. Investors should treat private market capital as genuinely unavailable for the duration of the fund's life.
Manager Risk
Unlike passive index funds, private investments are entirely dependent on the judgment, integrity, and execution of the fund manager or management team. Poor investment decisions, key-person departures, or outright fraud can result in material or total loss. There is no index to fall back on and no automatic diversification across the broad market.
Valuation Opacity
Private fund valuations are reported quarterly and are based on internal estimates rather than market transactions. This means reported values may not reflect the actual liquidation value of the portfolio at any given moment. Investors can experience the appearance of stability in reported values while underlying portfolio companies face meaningful deterioration.
Leverage Risk
Many private equity funds use debt at the portfolio company level to amplify potential returns, a practice known as leveraged buyouts. While leverage can enhance upside in favorable conditions, it amplifies losses in downturns and can result in portfolio company insolvency and total loss of the equity investment when underlying businesses face stress.
J-Curve and Cash Flow Timing
Private equity and venture funds typically draw capital over several years through capital calls before generating distributions. During the early years, the portfolio may show negative returns as fees accumulate before exits are realized, a pattern known as the J-curve. Investors must be prepared for this dynamic and should not commit capital expecting near-term distributions.
Concentration and Total Loss Risk
Venture capital investments and direct company investments carry the risk of complete loss. Most early-stage companies fail. Even in diversified venture funds, a meaningful portion of portfolio companies may return zero. Private credit investments carry credit and default risk; if the borrowing company fails to repay, investors may recover substantially less than their initial capital.