# The Problem with Private Markets

Source: https://www.youtube.com/watch?v=9TAGlknXYW8
Recap page: https://rapidrecap.app/video/9TAGlknXYW8
Generated: 2026-03-08T10:03:31.991+00:00

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## Quick Overview

Private market fund managers are increasingly selling their illiquid assets to other private funds at a discount to net asset value (NAV) through secondary transactions, a practice that risks harming retail investors who lack liquidity and may be unknowingly buying overvalued assets, as evidenced by recent struggles in private equity, private credit, and private real estate markets.

**Key Points:**
- Private equity funds have produced returns roughly equivalent to public equity indexes since 2006, but fees collected by private equity funds are estimated at $230 billion, benefiting a small number of individuals.
- The promise of liquidity in private credit funds is often false; when public markets become volatile, investors can be locked out of accessing their money, as seen with Canadian real estate funds.
- Secondary market transactions are increasingly common, with buyers like universities purchasing stakes in private funds at an average discount of 11% compared to NAV, suggesting that the NAV may be inflated.
- Private credit funds, like those focused on private loans, are often structured with long-term, illiquid loans, leading to issues when investors demand redemptions.
- Private equity firms are reportedly using continuation funds to sell assets to other private funds managed by the same firm, sometimes at a discount to NAV, to return cash to early investors.
- Research indicates that public REIT returns are largely explained by public market factors (60% small value stocks, 40% high-yield bonds), suggesting private real estate returns are not as unique as claimed.
- The aggressive promotion of private market exposure to retail investors, coupled with high fees and lack of transparent pricing, creates a risk of adverse selection where retail investors end up buying undesirable assets.

![Screenshot at 00:34: The title slide appears, summarizing the video's focus: "THE PROBLEM\(S\) WITH PRIVATE MARKETS," setting the stage for a critical analysis of the asset class's current challenges.](https://ss.rapidrecap.app/screens/9TAGlknXYW8/00-00-34.jpg)

**Context:** The video discusses the growing trend of private markets—including private equity, private credit, and private real estate—being aggressively marketed to retail investors, often promising higher returns with lower risk than public markets. The speaker argues that this narrative is being challenged by recent market difficulties, such as illiquidity events, declining valuations for public private asset managers, and academic research suggesting that the outperformance claims are often overstated, largely due to high fees and lack of transparent, daily pricing mechanisms.

## Detailed Analysis

The speaker asserts that the marketing pitch for private markets—promising higher returns with lower risk than public markets—is increasingly suspect, supported by recent negative news and academic evidence. Private equity returns, after accounting for fees, often match public equity indexes; however, private fund managers have collected an estimated $230 billion in performance fees. Private credit funds, which offer illiquidity premiums, are now seeing significant strain, exemplified by Canadian real estate funds halting redemptions and private credit stocks tumbling after Blue Owl halted redemptions. Furthermore, secondary market buyers are purchasing stakes in private funds at discounts of around 11% to NAV, suggesting inflated valuations. The speaker highlights continuation funds as a mechanism where private equity managers sell assets to new funds they also manage, potentially allowing them to extract fees while delaying liquidity for original investors. Academic research suggests that returns in private real estate are fully explained by public factor exposures (small value stocks and long-term high-yield bonds), dismantling claims of unique alpha. Finally, the lack of daily public market pricing for private assets means that when liquidity is needed, investors may be forced to sell at deep discounts, as seen with FS KKR Capital Corp. stock dropping nearly 45% and MidCap Financial Investment Corp. dropping 28.31%. The overall conclusion is that the benefits advertised for private assets are often illusory, especially for retail investors who face high fees, illiquidity, and adverse selection.

### Introduction to Private Market Risks

- Private equity, private credit, infrastructure, and real estate are pitched to investors; skepticism is warranted due to recent struggles and misleading claims.

### Private Equity Issues

- PE returns often match public indexes after fees; managers collect massive fees ($230 billion estimate); firms use continuation funds to sell assets internally, potentially masking poor performance.

### Private Credit Issues

- Private credit funds promise liquidity but often restrict redemptions during market stress (e.g., Blue Owl, Canadian real estate funds); secondary market buyers are getting stakes at discounts (11% discount to NAV for some), signaling potential NAV overstatement.

### Private Real Estate Performance

- Research suggests public REIT returns are largely explained by public factors (60% small value stocks, 40% long-term high-yield bonds), implying private real estate returns lack unique alpha and are subject to similar market swings.

### Market Consequences

- Publicly traded private asset managers (like KKR, Apollo) are showing significant stock declines; private credit funds are struggling to sell assets, leading to potential negative price discovery for their illiquid holdings.

![Screenshot at 00:00: The speaker, Ben Felix, introduces the topic of private markets while standing in front of a microphone.](https://ss.rapidrecap.app/screens/9TAGlknXYW8/00-00-00.jpg)
![Screenshot at 01:15: A chart titled "Public vs. Private Risk and Return" illustrates the claimed risk-adjusted return advantages of private equity \(buyout\) over public assets, which the speaker questions.](https://ss.rapidrecap.app/screens/9TAGlknXYW8/00-01-15.jpg)
![Screenshot at 02:26: Multiple news headlines are displayed showing recent struggles in private markets, including freezes on redemptions and asset value write-downs.](https://ss.rapidrecap.app/screens/9TAGlknXYW8/00-02-26.jpg)
![Screenshot at 08:38: A paper titled "An Inconvenient Fact: Private Equity Returns and the Billionaire Factory" is shown, highlighting key findings that PE returns match public equity indexes after fees.](https://ss.rapidrecap.app/screens/9TAGlknXYW8/00-08-38.jpg)