Private market exposures ask an investor to give up something specific and valuable: the ability to change their mind. That constraint is only worth accepting where the underlying opportunity genuinely requires a long holding period, and where the terms of access do not consume the advantage.
Looking at the structure, not only the strategy
A strong underlying strategy can be delivered through a structure that transfers most of its benefit elsewhere. Fee layers, carry arrangements, hurdle definitions, recycling provisions, governance rights and reporting standards all determine what an investor ultimately receives.
- How fees are charged, on what basis, and over what period.
- Alignment: what the manager has committed, and on what terms.
- Governance: what rights investors hold, and what happens if circumstances change.
- Valuation policy: who values unlisted holdings, how often, and by what method.
- Reporting: what is disclosed, at what frequency, and in what detail.
Pacing and the whole-portfolio view
Commitments are drawn over time and returned over a longer period still. A commitment schedule that looks reasonable in isolation can create a liquidity problem when several vintages overlap with a period of market stress. Pacing has to be modelled against the entire portfolio, including the spending it supports.
Where that modelling has not been done, an allocation to private markets is a decision about liquidity that nobody has consciously made.
This note is general information about investment process. It is not investment, legal or tax advice, not a recommendation, and not an assessment of suitability for any particular investor. Investment involves risk, including the possible loss of capital.