Private markets have become an increasingly important part of the investment landscape. Companies are remaining unlisted for longer, private capital is financing businesses across more stages of their growth, and sophisticated investors are seeking opportunities beyond listed shares and traditional fixed-income products. Yet one characteristic continues to distinguish private investments from public securities: liquidity.
Liquidity is often described simply as the ability to buy or sell an asset. In practice, however, liquidity in private markets is more complex. It depends not only on whether a transaction is legally possible, but also on whether there are willing buyers, reliable information, a credible pricing process, appropriate approvals and an efficient mechanism for completing the transfer.
For investors, understanding these factors is essential before acquiring unlisted shares. For companies, liquidity is no longer merely an issue to address at the time of an initial public offering, trade sale or other exit. It is becoming a strategic consideration that can influence capital formation, shareholder relations, employee incentives and long-term corporate planning.
What Does Liquidity Mean in Private Markets?
An asset is liquid when it can be converted into cash relatively quickly, at a price that reasonably reflects its value and without the transaction itself causing a substantial change in price. Shares in large ASX-listed companies are generally considered liquid because investors can place orders through an established exchange, view current bids and offers, and usually complete transactions within a standard settlement framework.
Unlisted shares do not ordinarily have the same continuous trading environment. There may be no visible order book, no daily quoted price and no assurance that a buyer will be available when a shareholder wants to sell. Transfers may also be subject to a company’s constitution, shareholders’ agreement, board approval, pre-emptive rights or other restrictions.
Liquidity in private markets therefore exists on a spectrum. At one end are tightly held companies in which transactions are rare and potential purchasers are difficult to identify. At the other are larger private companies with broad shareholder bases, regular reporting and an organised facility through which eligible buyers and sellers can express interest and complete approved transactions.
The relevant question is not merely, “Can these shares be sold?” It is, “Under what conditions, within what timeframe and through what process could a sale realistically occur?”
Why Are Private-Market Investments Less Liquid?
The lower liquidity of unlisted investments is not necessarily a flaw. It is partly a consequence of how private companies are owned, governed and financed.
Unlike listed entities, private companies are not generally required to maintain a continuous public market for their securities. Their shares may be held by founders, employees, venture investors, family offices, private equity funds and strategic partners, each with different objectives and investment horizons. The company may also wish to control who joins its register, protect commercially sensitive information or avoid excessive disruption to its capital structure.
Information is another important factor. Public companies operate within extensive continuous disclosure and financial reporting frameworks. Information about private companies is usually distributed to a narrower audience and may require confidentiality arrangements. When potential buyers cannot obtain sufficient current information, they may be unable to form a confident view of value or may demand a greater discount to compensate for uncertainty.
Private-company valuations are also less frequently tested through transactions. A capital raising may establish the price of newly issued shares, but that price does not automatically mean existing shares can be sold on the same terms. The rights attached to different share classes, the size of the parcel, the company’s recent performance and the circumstances of the seller can all affect the price a buyer is prepared to pay.
Finally, the transaction process itself can add friction. Identity and eligibility checks, transfer documentation, company approvals, payment and register updates all need to be managed. Without established procedures, even a transaction acceptable to both parties can become slow or uncertain.
Liquidity Is More Than Finding a Buyer
A credible liquidity framework has several interconnected elements. There must be access to a relevant pool of eligible investors, enough information to support informed decision-making, a method for buyers and sellers to communicate their price expectations, clear rules governing participation and an orderly process for execution and settlement.
Price discovery is especially important. In a public market, frequent trading produces observable prices. In a private setting, the last capital raise, an independent valuation or a recent transaction may provide a reference point, but each can become dated. A structured process that allows genuine buying and selling interest to be expressed can produce more useful evidence of the price at which participants are prepared to transact.
That does not mean every private company will develop high-frequency trading or public-market-style liquidity. Nor should it. The more realistic objective is often periodic, controlled liquidity: giving approved shareholders and eligible investors a defined way to seek transactions while allowing the company to retain appropriate oversight.
Primary and Secondary Transactions Serve Different Purposes
It is important to distinguish a primary capital raising from a secondary share transaction.
In a primary raising, the company issues new securities and receives the proceeds. The purpose may be to fund expansion, product development, acquisitions, working capital or another corporate objective. Existing shareholders may experience dilution unless they participate or have relevant protections.
In a secondary transaction, an existing shareholder sells securities to another investor. The sale proceeds usually go to the selling shareholder rather than the company, and the number of securities on issue does not ordinarily change. Secondary transactions can provide liquidity without requiring the company to undertake a new capital raise or pursue a full corporate exit.
The distinction matters because raising capital does not automatically solve shareholder liquidity. A company may successfully attract new funding while longstanding investors, founders or employees still have no practical mechanism to sell any of their holdings. Conversely, a secondary transaction may change the composition of the share register without providing fresh working capital to the business.
Some transactions combine primary and secondary components. Used carefully, this can allow a company to fund growth while also meeting a measured level of shareholder demand for liquidity.
Why Liquidity Matters to Investors
Private-market investing often requires a longer time horizon. Investors may need to hold an asset until a future funding round, company-supported secondary transaction, trade sale, buyback, public listing or other liquidity event. The timing of any of these outcomes is uncertain, and some may never occur.
This illiquidity should be considered as part of the investment risk, not treated as an administrative detail. An investor may hold an interest in a growing business and still be unable to realise that value when cash is needed. A sale may take time, require approval or occur at a discount to the price suggested by the company’s last funding round.
Before investing, sophisticated investors should examine the company’s constitution and relevant agreements, the rights attached to the securities, transfer restrictions, historical transaction activity, reporting practices and any stated liquidity strategy. They should also consider whether the investment remains suitable if it must be held for substantially longer than anticipated.
Portfolio construction is relevant as well. Private assets can offer exposure to companies, strategies and return drivers that may be difficult to access through listed markets. However, investors should balance those potential advantages against their foreseeable cash requirements and the concentration risk that can arise when several long-duration investments cannot be readily sold.
Why Liquidity Matters to Private Companies
Companies sometimes view shareholder liquidity as being in tension with growth capital. In reality, a well-governed liquidity strategy can support the company as well as its investors.
Early investors may have supported the business for many years and have legitimate reasons to realise part of their holdings. Founders may wish to diversify a portion of their personal wealth without relinquishing control. Employees may value equity incentives more highly if there is a credible pathway to eventual realisation. New investors may also be more comfortable committing capital when they can understand the potential avenues for a future exit.
An organised liquidity process can help a company manage these needs without forcing a premature IPO or company sale. It can also reduce the risk of informal, fragmented transactions occurring without consistent information or oversight.
However, liquidity must be designed in a way that supports the company’s broader objectives. Uncontrolled or poorly communicated trading can create unrealistic price expectations, complicate the share register or expose investors to inconsistent information. The appropriate model may involve defined trading periods, investor eligibility requirements, company consent processes and clear disclosure of the limitations of the facility.
The Australian Private-Market Context
Australia’s private capital ecosystem includes venture-backed technology companies, established family businesses, private equity investments, private credit, infrastructure and other unlisted assets. The Reserve Bank of Australia has recognised the important role private equity plays in directing capital to smaller and higher-risk businesses that may find public-market funding difficult to access. ASIC has also increased its focus on the growth and operation of private markets, including transparency, valuation, conflicts and the way opportunities are presented to investors.
For participants, this reinforces the importance of disciplined processes. Wholesale or sophisticated investor status should not be confused with an absence of risk. Private-market investors may receive different regulatory protections and disclosures from retail investors, making independent assessment and professional advice particularly important.
Eligibility also needs to be established correctly for each opportunity. Depending on the investment and transaction structure, this may involve an accountant’s certificate or another applicable test under Australian law. Eligibility does not guarantee that an investment is suitable, liquid or likely to produce a return.
How Structured Trading Facilities Can Support Liquidity
Technology and specialised private-market infrastructure are making it possible to manage secondary transactions more efficiently. A structured facility can bring together approved sellers and eligible buyers, provide a controlled environment for distributing company information, capture expressions of interest and support the administrative process required to complete transfers.
This does not turn an unlisted security into a listed share, create continuous liquidity or guarantee that a transaction will occur. What it can do is replace an ad hoc search for counterparties with a more organised and transparent process.
For companies, a controlled trading facility can be tailored to governance requirements and shareholder objectives. For investors, it can provide greater visibility of opportunities and a clearer pathway for submitting buy or sell interest. The value lies in process, access and coordination rather than any promise of immediate liquidity.
PrimaryMarkets facilitates capital raising and secondary transactions in unlisted securities for eligible wholesale and sophisticated investors. Through company-specific Trading Hubs and controlled transaction processes, companies can establish an organised facility designed to connect eligible buyers and sellers while retaining appropriate oversight of participation and transfers.
Questions Investors Should Ask About Liquidity
Liquidity analysis should form part of due diligence before an investment is made. Investors should understand whether transfers are permitted, who must approve them and whether other shareholders have first rights to acquire the securities. They should examine how the company communicates financial and operational information, how recently its valuation has been tested and whether previous secondary transactions provide any meaningful reference point.
They should also ask what potential liquidity events the company anticipates, while recognising that forecasts and intentions can change. A statement that an IPO or trade sale may occur in the future is not the same as a committed or guaranteed exit.
Most importantly, investors should consider their own position. How long can the capital remain invested? Would a delayed exit create financial pressure? Is the likely parcel size attractive to future buyers? Could a discount be required to complete a sale? These questions can be more useful than focusing solely on the company’s headline valuation.
Liquidity by Design, Not by Assumption
Liquidity in private markets should never be assumed. It needs to be understood, planned and supported by an appropriate transaction framework.
For investors, that means approaching unlisted investments with a realistic time horizon and examining the practical conditions under which an exit might occur. For companies, it means considering shareholder liquidity as part of capital strategy and governance rather than waiting until pressure builds around a traditional exit.
Private investments will generally remain less liquid than listed securities, and no facility can guarantee a buyer, a timeframe or a price. Nevertheless, structured secondary processes can improve access, price discovery and transaction efficiency. As private markets continue to develop, the ability to create controlled and credible pathways for liquidity may become an increasingly important point of difference for both companies and investment platforms.