Episode 402: The Problem with Private Markets

25 snips

Mar 26, 2026

A skeptical look at private equity, credit, and real estate and why their smooth returns may be misleading. They unpack illiquidity, valuation opacity, gated funds, and fee complexity. Discussion covers retail distribution risks, manager selection challenges, secondary-market discounts, and how private-market structures can hide real volatility.

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INSIGHT

Private Assets Mask True Volatility

Private assets look less volatile because they're not market-priced daily, but their economic risk is comparable to public assets.
Benjamin Felix calls this "volatility laundering" or "smoothing as a service," which masks true risk from investors.

INSIGHT

Retail Is Being Sold Illiquid Private Assets

Retail investors are being targeted with private assets despite illiquidity, complex fees, and weaker disclosure.
Benjamin Felix warns this is profitable for firms (higher margins) and risks adverse selection where retail ends up with unwanted assets.

ADVICE

Prefer Transparent Illiquidity Over Opaque Lockups

Avoid allocating meaningful retail savings to illiquid private funds unless you can tolerate long, uncertain lockups.
Dan Bortolotti emphasizes GICs are acceptable illiquidity because terms and returns are known, unlike opaque private funds.

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In this episode, we unpack the growing tension in private markets—private equity, private credit, and private real estate—and examine whether their long-standing appeal holds up under scrutiny. With increasing pressure to bring these investments to retail investors, the discussion explores how illiquidity, valuation opacity, and complex fee structures may be masking risks rather than reducing them. We break down how private assets are marketed, why their "smooth" returns may be misleading, and what recent events—like gated funds and forced asset sales—reveal about their true risk profile.

Key Points From This Episode:

(0:00:00) Introduction to the episode and overview of private markets as the main topic.

(0:00:39) Clarifying PWL Capital's full-service wealth management approach beyond asset management.

(0:03:24) Why private markets are under scrutiny and recent negative developments across asset classes.

(0:06:36) The seductive sales pitch: higher returns, lower risk, and low correlation to public markets.

(0:08:32) Private assets explained: what they are and why they appear less volatile.

(0:10:06) "Volatility laundering" and the illusion of stability in private market valuations.

(0:13:51) Retail investors entering private markets and the risk of adverse selection.

(0:15:09) Liquidity challenges and the growing issue of gated funds.

(0:18:33) Why illiquidity is especially problematic for retail investors with uncertain cash needs.

(0:20:41) The debate over whether an illiquidity premium actually exists.

(0:23:56) Trade-offs between liquidity and volatility in portfolio construction.

(0:30:41) Evidence on private equity performance vs. public markets and the role of fees.

(0:31:39) High dispersion in private equity returns and challenges of manager selection.

(0:33:00) Continuation funds and evergreen structures raising valuation concerns.

(0:36:00) Secondary market sales, NAV manipulation concerns, and "NAV squeezing."

(0:40:00) Private credit risks, gating, and comparisons to publicly traded BDCs.

(0:44:00) Insurance companies allocating to private credit and potential systemic risks.

(0:45:02) Private real estate funds, liquidity issues, and IPO valuation shocks.

(0:47:43) Public listings revealing large gaps between NAV and market prices.

(0:49:34) Summary: private markets may be as risky as public ones, with added complexity.

(0:49:44) Larry Swedroe's critique and the debate over private market outperformance.

(0:52:00) Illiquidity premium vs. "smoothing as a service" debate.

(0:54:00) Manager skill, persistence, and the challenge of accessing top-tier funds.

(0:56:50) Final reflections on ongoing research and the importance of informed debate.

Links: Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on YouTube — https://www.youtube.com/channel/ Benjamin Felix — https://pwlcapital.com/our-team/

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://pwlcapital.com/our-team/

Cameron on X — https://x.com/CameronPassmore

Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com)