Is there an illiquidity crunch in private markets?

sunlight from the rabbit hole

What is going on in private markets – is there an illiquidity crunch?


What is the true picture? It would be good to hear from Trustees of schemes where this is a problem – or from Insurers and Superfunds on the receiving end.

I doubt that any DC schemes have gating issues with private equity, but I know of plenty who have had members stuck in property funds which have been gated. Are you in an illiquid DC fund or do you offer one to members. Do you fear an illiquidity crunch?

And what of the issue raised by Mick Mcateer. If you are the sponsor or trustee of a pension scheme heading for buy-out and you’re having to mark-down the value of your private equity or debt or other “alternative” assets, do you wish you’d resisted the arguments for an “illiquidity premium” and stuck with the on-piste alternative?

Are there any consultants or private markets managers who feel they can inform on this obscure area of the market as I suspect that while the FT has enough for some tweets, they don’t have the specific instances.

Of course, this is part of the trouble. When you go down the rabbit-hole into private markets, you may find it hard to get back out. Shedding light on the practices of private markets risking losing any negotiating power you might have (who loves a snitch?).

But I have been told enough times by well-heeled private market executives that they are an open book, so – young and fresh-faced as I am – I will take you at your word. I know a few read this blog, be in touch – and if you don’t want to do so via comments, DM me or mail me on I don’t live down a rabbit hole.

Alternatively, have a word with Jo.

Why the haircut?

We know that valuations of all assets are down – whether fixed interest or equity, the market is down. But are the haircuts more savage in private markets?

Are there secret exit fees built into the product, worse still are there explicit exit fees that were never properly explained or asked about at the point of purchase?

Can the haircut be justified by comparison with the fall in the equivalent public market. Are these eggs comparable?

The conspiracy theorists, and Jo is a lot more sceptical than me, would see this kind of haircut as the inevitable consequence of the Faustian pact brokered by advisers. A pact between gullible trustees only too happy with the private market pitch and rapacious private marketeers , happy to pay in full in a rising market but nowhere to be seen when the proverbial hits the fan.

And where does this leave the DB member – more or less secure.

The equation looks like this

Inflation = notional fall in cost of funding liabilities = solvency of DB schemes = prepare for buy-out = asset sale where insurer can’t accept the assets = Haircut 100.

Members rescued from buy-out by poisoned pill investments


Members thrown back into clutches of PPF by mendacious Fund Managers and Consultants

Meanwhile scheme sponsors fume as they see risk reduction strategies crystallising big cash calls to make good the haircuts.

Blame Boris and Rishi at the last?

When in doubt, kick a former political leader. Who better than an old Etonian and a dodgy Wykehamist

Funding private market debt was their idea (sort of). Build back Britain, remember that clarion call from the halcyon days of pre-Ukraine., post Covid optimism?

Is there an illiquidity crunch?

My suspicion is that private market investments exist within Hotel California, you can check out any time you like – but you can never leave.

But like I said earlier – who am I to give answers? I can only just articulate the questions!

Contact for private market comment (strictly entre-nous) or put your comments on the blog.

Remember that sunlight is the best of disinfectants, especially if you live down a rabbit hole.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Is there an illiquidity crunch in private markets?

  1. Eugen N says:

    Henry, the increase in the discount rate works like gravity for all investments, listed and /or private equity.

    Private equity are harder hit because of leverage, and not only increases in discount rates. Generally private equity funds are highly leveraged, or the companies in which the fund invests are constructed with high leverage. Given this the interest cost in the P&L is increasing significantly as they are either on a floating rate, or when it comes to “replenish” those loans. As a result the free cashflow suffers, and given the higher discount rate its net present value is a lot lower. Expect drops as high as 50% from last year valuations.

  2. con keating says:

    We have simply seen the return of a price for liquidity – buying illiquids in the couple of years to last December was complete folly. Iain Clacher and I did warn against it. In addition, quite a lot of what I have seen has been complete dross that would not make the grade in public markets. To be taking a markdown of 30% is quite reasonable when the 2068 linker is down 68% and the 15 year gilt by 27%. The bigger problem is likely to be those ‘investments’ the insurers do not want at any price.

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