2026Year in private markets: investors are paying the cost of illiquidity
One analysis raises the possibility that investors in private markets are paying for returns that appear smoother, rather than receiving the traditional liquidity premium. The key point is that private asset valuations rely on periodic appraisals, which lowers their apparent volatility.
The traditional assumption in private markets was that investors received a liquidity premium in exchange for the difficulty of trading. A recent analysis questions this assumption. It explains that private asset valuations rely on appraisals or inputs rather than continuous market prices. Valuations based on appraisals tend to smooth price movements. As a result, returns reported for private portfolios appear less volatile than those in public markets. The analysis notes that this “smoother” reporting may influence investor behavior. The underlying economic risks may not change. But because of appraisal adjustments, those risks are less visible. The article states that this difference may affect investors’ perceptions of risk and their allocation of capital. The article explains that valuation methods draw on comparable transactions, model estimates, and managers’ judgments. These inputs are not updated frequently. As a result, actual changes in value may be reflected with a lag. The analysis suggests that the apparent stability of private investment returns may not be the same as actual stability. It says that reduced reported volatility may change the compensation structure for investors. As a result, some investors may receive lower compensation relative to the actual risk. The article mentions that changes in regulations or accounting standards could affect this discussion. Valuations vary depending on the methodology and frequency used. It concludes that investors need to distinguish reported returns from actual cash flows.
Sources: Investing.com
Bullstory synthesized this report from the linked sources. AI may have assisted the writing process. Check the original reports for factual confirmation.