Private markets has opened its doors to retail investors. But hasn’t worked out what to say to them once they’re inside.
In an attempt to crack the wealth channel, private markets GPs and regulators developed new structures that were seen as better suited to individual investors. A big part of this was moving away from 10-year closed-end cycles to so-called ‘evergreens’ that could provide at least some degree of liquidity. But in doing so, they didn’t solve for how those structures would be sold – ultimately, by people who at best didn’t understand them and at worst had an incentive to overstate the liquidity on offer.
At this year’s Fund Forum, that concern was palpable. In a closed-door LP panel, a representative from the wealth management arm of a global bank stated that mis-selling remained the top concern of senior management. In another session, Conor Smyth of TritonLake shared that the real worry is what financial advisors are actually telling clients: they shouldn’t be describing these vehicles as offering quarterly-style liquidity when they don’t.
Even the naming of these products speaks to an industry that is paranoid about perception. In the last 12 months alone, “semi-liquid” has quietly retreated, replaced by “hybrids,” “evergreens,” “ELTIFS” and “LTAFs”. “Pseudo-liquid” – an emerging term – feels perhaps the most intellectually honest way of describing the mismatch between the structure and the underlying assets that leads to synthetic liquidity.
The stakes of that vocabulary choice are higher than they appear. The original thesis behind private markets for retail investors was to provide access to something that institutions had long understood and upweighted in their portfolios: that private markets can deliver outsized returns. Those returns are in part a liquidity premium – the benefit of patient capital, of locking up your money for a decade at a time. For the purists, the goal was always to institutionalise retail portfolios, not to offer access that was liquid at the expense of its very benefit. As Markus Egloff of KKR put it at FundForum: “we’re not trying to retailise private markets. We’re trying to institutionalise portfolios.”
The solution that many in the industry point to is education – if only advisors would sit down with end investors to explain to them the differences between publics and privates and the role they play in a balanced portfolio. It’s an attractive answer, but fails for two reasons.
Education takes time when even senior finance professionals are engaging with private markets for the first time in their careers. In one panel, a representative from the wealth management arm of a leading global bank suggested that his own senior management were about as uneducated on these products as their clients.
The deeper problem is structural. Those managers with the best products – institutional-quality deal flow, the same substance as their institutional vehicles – are incentivised to proceed with caution and not overstate liquidity claims. Meanwhile, less scrupulous managers are tempted to land-grab the market, overstating liquidity and suitability and ultimately deploying substandard deal flow to an audience that doesn’t know any better. As Declan Tiernan of Oak Hill put it: “a hot market invites tourists.”
Fabio Osta of BlackRock was direct: some firms that have launched evergreen products are now quietly filling them with sub-standard deals while not being fully transparent with investors about the illiquidity they’re taking on.
FundForum felt united that private markets will play an increasingly important role in investor portfolios. Preqin data predicts that total private markets AUM is forecast to grow from roughly $17tn today to $32tn by 2030. Where the room divided was on whether these products will ever be properly understood by non-institutional audiences – and whether mis-selling risk can realistically be avoided.
Communications and marketing professionals are necessary but not sufficient. Adviser materials, content marketing and media engagement can help ensure these vehicles are described for what they actually are. But that only works if every link in the distribution chain acts responsibly – and in a market where the incentives point the other way, that is not a safe assumption.
Nick Corrin is director and head of asset management in London office
