Smooth reported returns can mask real-time drawdowns and liquidity risk.
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| | | | | Introduction | Private-market NAVs often move on quarterly appraisal cycles, so cross-asset dashboards can understate risk when public markets reprice fast. That matters because allocators rebalance off reported volatility, correlations, and drawdowns—inputs that can be stale precisely when they're most needed. The market reaction typically shows up first in secondary pricing and funding conditions, not in GP marks. |
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| | | | | Market Movers | NAV lag is a measurement problem that becomes a decision problem. When public comps like SPY and HYG sell off, private equity and private credit can still print "stable" marks, mechanically lowering observed correlation and keeping risk budgets looking healthy. | But the clearing price is the secondary market. In 2025, LP-led trades were increasingly used as a pressure valve, with single-digit discounts becoming a normalized feature of liquidity management—and volumes rising as sellers tried to create cash without waiting for exits. The portfolio hazard is timing: if you add private exposure because the NAV looks resilient while trimming liquid hedges because public vol is higher, you can end up more exposed to the same underlying equity beta. |
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| | | | | What's Next | Three tells that lag is about to matter for allocations—not just reporting optics: | Secondary discounts: widening gaps versus stated NAV, plus more "price discovery" trades (continuation vehicles, GP-led deals). Funding pressure: heavier use of fund-level leverage lines, tighter terms, and more refinancing risk in private credit. Redemption behavior: more gating, slower paydowns, and higher cash buffers inside semi-liquid vehicles.
| Regulators are watching the linkages. The Fed's latest stability work stresses that vulnerabilities can build when valuation assumptions, leverage, and funding risks interact—especially outside traditional banking—so a broader focus on nonbank funding channels is a signal that liquidity shocks can travel faster than quarterly marks. Global bodies are making a similar point: the IMF flags how maturity mismatch and liquidity management can amplify stress in private-credit wrappers, making redemption dynamics a key transmission mechanism. |
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| | | | | Closing Insight | If your portfolio's "diversification" improves only when marks are slow, assume the hedge is thin—then size liquidity and rebalancing rules for the drawdown you haven't been shown yet. |
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