INVESTORS must always be alert to change. That’s never been more crucial than today. Technology is transforming our lives, our population is growing, ageing and urbanising, and we are drastically altering our planet.

Faced with these changes and their attendant uncertainties, many investors are turning to private markets. These offer genuine diversification, a means of harnessing the forces reshaping our world, and the potential for positive impact investing.

Investing in just one asset class entails obvious risks. The traditional response has been a balanced portfolio of equities and bonds, in the hope that these assets won’t decline together. More recently, alternative assets such as commodities and property funds have been used to broaden portfolios further.

But this approach to diversification is flawed. Publicly traded assets are liquid, meaning they can be readily converted to cash. This means, however, that their prices often move in the same direction. That’s especially true when they’re widely owned by mutual funds, which may sell down their holdings to meet redemptions when markets are stressed.

Private markets are different. Precisely because investments in private companies or projects can’t be easily sold, they aren’t vulnerable to panic selling. That means their returns tend to be uncorrelated with those from public markets, making them a real source of diversification.

Then there’s the illiquidity premium. To invest in unlisted companies, you must accept that your cash will be locked up for some time. But long-term investors can afford to be patient – so long as they are adequately compensated. Accordingly, private markets typically offer returns significantly higher than those from their public counterparts.

Beyond the favourable comparison with public markets, private markets offer their own intrinsic attractions, not least of which is their sheer size. The US has around six million companies, of which fewer than 5,000 are listed on stock exchanges. That means 99 per cent of US companies are private.

Private companies are also pioneering the technologies transforming our lives. An example is Uber, which, after a decade as a private company, went public only this year. Another is Airbnb, which remains private. By supporting similar innovators, investors can back disruptive technologies that may prove transformative - and lucrative - in the decades ahead.

Private markets also offer investors the opportunity to harness demographic shifts, such as increasing urbanisation. As cities expand, demand for real estate is growing, offering considerable opportunities for private investment.

Infrastructure projects are one example. Besides roads, bridges and railways, these include social infrastructure, such as hospitals and schools, and renewable infrastructure, like wind farms and solar parks.

Infrastructure’s reliable income streams compare favourably with those from public fixed-income markets – especially now that negative bond yields are more widespread. Infrastructure yields are often inflation-linked, and many projects have government support.

Another key aspect of private markets is the opportunity for impact investing. Investors can fund innovative enterprises engaged in energy storage, efficient energy transportation or renewable-energy technology, such as hydroelectric and solar power. Private-market investors are also well positioned to demand good governance and engagement with environmental and societal concerns. Here, attractive returns and positive outcomes go hand in hand.

None of this is to downplay the risks. Private markets are complex. Negotiating them requires experience, discernment and skill. But for investors with the appropriate expertise, they can be illiquid gold.

Nalaka De Silva is head of private market solutions at Aberdeen Standard Investments.