Money Stuff: People Are Worried About Private Market Liquidity

This is a newsletter about funding models now. We talked yesterday about banks, and how their funding model — raising money from depositors who might want their money back at any time — influences what sorts of assets they should buy. But the same questions — how should I fund the assets I own, and what assets should I own given my funding model? — arise everywhere. Here is a simple story of private markets:

1. There are public markets where anyone can buy stocks and bonds, and where the stocks and bonds trade freely.
2. Therefore, people can and do buy stocks and bonds with a fairly short investing time horizon. Individuals day-trade stocks; investment banks and proprietary trading firms make short-term bond trades.
3. If you have some money that you might need back in a week or a month or a year, you can park it in stocks or bonds. When you need the money, you’ll be able to sell your stocks or bonds pretty easily.
4. If you run an investing business, and you invest in stocks or bonds, you can raise money from clients and promise to give it back to them on short notice. “Give me your money and I will use it to buy stocks and bonds,” you can say, “and if you need it back just call me and I’ll cash you out.” And then if the clients ask for their money back, you just sell some stocks and bonds and give them their money. They have market risk — if the stocks and bonds go down then you will give them back less money than they started with — but that’s fine. They can easily check what the stocks and bonds are worth — the prices are public — so they won’t be surprised to get less money back when the market crashes. The point is that they don’t have much liquidity risk: If they ask for their money back, you will cash them out for whatever their investment is worth.
5. These features are nice, for investors and investment managers; it is nice to be able to get your money back when you want it. People will pay for this niceness: Stocks and bonds are worth more than they would be if you couldn’t sell them. You might happily buy a bond that pays 8% interest because you know you can sell it at any time, but you might demand 10% interest if you couldn’t.
6. Some companies can’t, or don’t want to, issue public stocks and bonds, for various reasons. Perhaps they are too small and speculative to go public, or they do not want to deal with the compliance costs and headaches of being public. Perhaps they want some sort of bespoke debt financing that the standardized public markets are not good at. [1]  So they issue private stocks or bonds, ones that don’t trade on the public markets.
7. People will buy private stocks or bonds. But they buy them knowing that they can’t necessarily get their money back in a week or a month or a year; if you buy private stocks or bonds you are making a long-term decision and you could be stuck for a while.
8. So if you will need money to pay for camp this summer, you will not park it in private assets.
9. And if you run an investing business that invests in private assets, you will not want to raise money from clients and promise to give it back to them on short notice. “Give me your money and I will use it to buy private assets,” you will tell them, “and you will get your money back in 7 to 12 years unless I need to extend the time for reasons beyond my control.” 
10. This is less nice, for the investors: They can’t get their money back when they want it.
11. On the other hand, the investors get paid for this not-niceness: You might happily buy a bond that you can’t sell if it pays 10% interest, because your alternative is buying a public bond that pays 8% interest.
12. And there are huge investors who control huge pools of money that they won’t need for a long time. If you run a life insurance company, you have some liabilities that won’t pay out for 30 years, so feel free to buy some assets that won’t pay out for 30 years, especially if they pay more. If you run a college endowment, uh, at least until recently you thought you wouldn’t need most of the money for a long time. Lots of big institutional investors have no need for liquidity, so they are happy to get paid more to take illiquidity. [2]

So that’s the basic idea. Ordinary retail investors, and products that cater to them — like mutual funds — care about liquidity, so they invest in public stuff. Endowments and insurers and pension funds and other institutions with long time horizons don’t care about liquidity, so they can get higher returns by investing in private stuff.

But: Do retail investors care about liquidity? Do retail investors mostly buy stocks with money that they will need in a week or a month or a year? Obviously some of them do, some of the time. But two very important investing cases for retail investors are (1) saving for retirement and (2) saving for college, and you can start those early. If you are 25 and saving for retirement, or if you are starting a college fund for your newborn baby, you have some time.

And so you might think: “What if we put private assets in people’s retirement accounts, so they could earn higher returns by giving up liquidity?”

This is a popular and reasonable line of thinking these days, though there are a couple of problems with it:

• I am ignoring fees, but you shouldn’t. Generally speaking, investment managers and brokers and other intermediaries get paid much more for doing private-markets stuff than they do for doing public-markets stuff. When a financial intermediary says “everyone should own more private assets,” one thing she is saying is “everyone should pay me more,” so you are entitled to be skeptical. 
• It is plausibly true that private assets have higher expected returns than public ones, but it is not certainly true. If everyone is piling into private assets now — if there’s huge demand for them now — then that implies that future returns will be lower. And if everyone is selling retail investors on private assets now, it is not crazy to think that we might be near the peak. [3]
• Public markets have other nice features besides liquidity. They have good disclosure: If you buy a public stock, you can go read the company’s financial statements online; if you invest in a fund that buys private stocks, you might have less information. Public markets are also open in a way that private markets aren’t: You can buy all the same public stocks that Warren Buffett can buy, but different people will be offered different private investment opportunities, and ordinary retail investors might be offered the worst ones.

There is one more problem with this line of thinking, though. It is easy for me to sit here and type “actually retail investors have 30-year time horizons because they are saving for retirement, so they don’t need liquidity, so go ahead and sell them funds that lock up their money for 30 years and use the money to buy private assets.” In reality, though, it is not always easy for retail investors to know what their time horizon is: You might be saving for retirement in 30 years, but then need the money next month because you lost your job or had unexpected medical expenses. “Give me your money for 30 years” has some theoretical appeal, but it’s a hard sell in practice.

And so the reality of “give retail investors access to private markets” is something like “give retail investors access to private markets with liquidity.” It is something like “give retail investors investment vehicles that buy private assets but let them get their money back when they want it, more or less.” You can do that! It is just tricky. It is not the right funding model for private assets; it is not the funding model that private assets want. “We will take your money and buy illiquid stuff and if you want your money back we’ll find a way to give it to you” is the sort of thing that the financial industry can manage, most of the time, but it makes people nervous.

And so:

Wall Street’s push to sell private-equity and private-debt funds to individual investors risks overheating financial markets and backfiring on firms launching the funds, according to Moody’s Ratings.

Private-fund managers have turned to individual, or retail, investors to offset a decline in money raised from traditional clients such as pensions and endowments. But in a report viewed by The Wall Street Journal, Moody’s warned that selling funds to retail clients will introduce new risks to private-asset managers, including “reputation loss, heightened regulatory scrutiny and higher costs.”

From the report:

Private markets are becoming increasingly important to the expansion of global capital markets, in particular, as public listings fall and more companies opt to delist or remain private. To facilitate growth, asset managers and their partners are innovating new structures to provide points of access for private wealth. “Main Street” investors are becoming more important as institutional investors bump against capacity constraints in their alternative investment allocations.

As retail money flows to private markets, liquidity risks will grow. Unlike institutional investors, retail investors expect ready access to their cash. To help, managers are launching products with periodic windows of liquidity. But in volatile markets, retail investors may run for the exits, which would exacerbate liquidity needs and the risk of potential mismatches between a product's available liquidity and what investors are expecting.

And:

While private markets have thrived on the traditional model of long-term, locked-up capital and limited disclosure, that model is clearly shifting as retail investors emerge with very different needs. Accessibility, affordability and some degree of liquidity are key to accommodate the needs of “Main Street” investors. That means fund managers will have to adapt strategies and oversight capabilities to address this. As that happens, we expect private markets will increasingly start assuming more public market characteristics. In a May 2025 report, we addressed the emergence of evergreen funds, semiliquid fund structures that appeal to a broader set of investors, with given periodic liquidity access. We are observing a growing trend of managers launching blended public-private investment fund offerings, highlighting how the lines between public and private market investing are increasingly blurring. We expect this convergence to accelerate as more firms compete for access to retail capital. …

Sourcing quality assets and adequate liquidity will become increasingly important as this market grows – one of the reasons big industry players such as Apollo Global Management, Inc. (A2 stable) have been eyeing another classic public markets playbook – secondary trading. Although there is some secondary trading activity in private credit, it is very limited compared to public credit markets in the US and elsewhere in the world, where trading in public bond and loan markets has been around for decades. … But what has helped public markets has traditionally been frowned upon by private markets, which favor illiquidity premiums, price stability, small lending groups and discretion. Apollo's efforts to initiate some version of a trading platform, along with select others, is yet another example of how rapidly private markets are evolving. Ultimately, whether it is through trading or some other means, private lenders will need to access adequate liquidity and quality assets as they roll out new ETFs and other funds focused on retail.

You could have two worries here. One is the liquidity mismatch worry. If you put retail investors in private credit, you will have to offer them “some degree of liquidity,” but that creates “the risk of potential mismatches between a product's available liquidity and what investors are expecting”: The investors can ask for their money back, but the investment funds can’t sell their private assets quickly enough to give it to them; there are fire sales and sympathetic retail clients who need their money but can’t get it.

The other worry, though, is that “what has helped public markets has traditionally been frowned upon by private markets, which favor illiquidity premiums, price stability, small lending groups and discretion.” If you put retail investors in private assets, you will have to offer them “some degree of liquidity,” and since you don’t want the risk of potential mismatches, you will have to make private assets more liquid. You will need trading desks and secondary markets. Prices will be less “stable,” as trading creates mark-to-market prices, and it will be harder for issuers to count on “small lending groups and discretion.” And instead of getting paid a premium for taking illiquidity risk, private investors won’t take that risk and won’t get paid a premium. The private markets will become more like the public markets, in good and bad ways.

If you bought a large downtown office building, and then you needed some cash, you might sell the office building to get cash. [4] You would expect this to take some time. More than an hour, certainly; more than a week. More than a month? I don’t know, I have never bought an office building, but that seems reasonable.

If you bought dozens of office buildings, and then you needed some cash, you might want to sell one of the buildings, but you would expect that to take roughly the same amount of time. Buying dozens of buildings gives you some diversification and might reduce your market risk, but it doesn’t really do much for your liquidity risk. Still gotta sell a building.

If you bought 1/10,000th of a pool of dozens of office buildings, the same analysis more or less applies, though perhaps it is less obvious. And if you buy dozens of office buildings and fund yourself by selling equity to retail investors, they might want their cash back on a timeline that doesn’t suit you. The Wall Street Journal has an update on SREIT:

One of Starwood Capital Group’s largest real-estate funds was overwhelmed with redemption requests last spring when a long line of investors tried to exit at the same time. 

Rather than sell some of the fund’s commercial property into a poor market to meet those requests, Starwood Chief Executive Barry Sternlicht decided to impose strict limits on the amount of money investors could withdraw.

Now, a little more than a year later, investors are still queuing up to yank about $850 million from the fund, according to Robert A. Stanger & Co., an investment banking firm that tracks the business. ...

The alternative would likely have been to sell properties at discount prices. Such a move would have hurt all fund investors, not just the ones trying to redeem shares, Sternlicht said. 

“We’re not going to have fire sales,” he said.

And:

Sreit is one of the largest of the so-called nontraded REITs. Such funds are geared toward smaller investors, rather than the large pension funds, endowments and other institutions that typically invest in commercial real estate. 

With a minimum investment starting around $2,500, nontraded REITs are open to anyone who has that minimum. They invest in commercial property similarly to publicly traded real-estate investment trusts, but they aren’t traded on stock exchanges. 

See the previous section. In theory, “give us your money and we’ll buy commercial real estate but it might take years and years for you to get your money back” is a good pitch to retail investors: If you’re saving for retirement, waiting years and years to get your money back is fine. In practice people seem unhappy about it.

What is a good funding model for cryptocurrencies? Cryptocurrencies have a reputation for being pretty volatile, and, uh, let’s say that it is not always clear how you might calculate the fundamental value of Solana or Dogecoin or Trumpcoin. If you bought $1 million worth of Trumpcoin, there’s some possibility that you might wake up the next day and find that you owned $100,000 of Trumpcoin. If you bought $1 million worth of Trumpcoin using money that you borrowed and have to pay back next week, that’s awkward. Probably don’t do that. But how should you get that $1 million to buy Trumpcoin?

I will tell you that there is a correct answer to this question, a single best funding model to bear the risk of crypto investments, and it is “100% permanent equity funding from retail meme investors.” That is, if you are going to buy crypto, you should:

1. Raise money by selling stock, which you never need to repay; and 
2. Sell that stock to people who are up for a bit of fun and won’t be shocked if they lose money.

I do not personally understand why crypto treasury companies trade at huge premiums to the value of their underlying crypto, but I cannot deny that it’s nice work if you can get it. Sell stock, use the money to buy crypto, never pay it back, and if crypto prices plunge you just go to your shareholders and say “hey guys you really knew what you were getting into” and they’re like “lol yeah we did.” It’s fine! Absolutely perfect funding model.

To be fair, MicroStrategy Inc. (or just Strategy) also does a lot of borrowing to buy crypto, but even that is mostly in convertible bonds and perpetual preferred stock, which is pretty low-risk leverage for Strategy: It doesn’t have to be repaid for a long time, and the investors in those bonds and preferreds have pretty equity-like expectations. And then every other crypto treasury company also seems to talk a big game about being leveraged crypto plays, but if you are a micro-cap biotech company that pivoted to owning crypto last week, who is going to lend you money? Someone, probably, but truly that is their problem.

But here is a more pessimistic view:

Buying bitcoin is becoming a fad for a growing list of companies that have nothing to do with crypto but believe digital assets can boost their stocks. 

The problem, some industry insiders say: This could expose crypto to new risks, amplifying selloffs in moments of turbulence. ...

Some industry players argue these companies are courting disaster. For one, they say, digital assets have a history of volatility. If the price of bitcoin or another crypto token were to fall sharply, the selloff might also pull down the value of a company’s stock. More troubling, though, is that a steep decline might also compel companies to sell their tokens—accelerating the selloff—especially if they borrowed heavily to acquire their crypto in the first place. …

Companies adopting a crypto treasury strategy solely to boost share prices face even greater peril. Many stock investors are seeking quick gains and are likely to flee if prices plunge after a macroeconomic event, or if cybercriminals strike, said Architect Partners’ Chun.

“The moment things start getting ugly, they don’t have an incentive to stay,” he said. 

Yeah but they can’t get their money back! They just sell their stock! The companies don’t have to pay it back! They’re buying crypto treasury company stocks as proxies for crypto, and then if crypto goes down the stocks will go down! This is fine.

On April 2, President Donald Trump announced sweeping tariffs, and the US stock market tanked. A week later, he paused a lot of the tariffs, and the market went up. One conclusion that you could draw from these facts is that tariffs are bad for the long-term health of the US economy: The stock market is an indicator of expectations for long-term economic growth, and the fact that it went down on tariff news and went up on just-kidding news tells you what the market thinks of the effect of tariffs on the economy.

You don’t have to conclude that, though. You could conclude that the market is wrong and actually tariffs will be good for the economy. Presumably some people think that. (There were buyers for every seller when the market dropped.) In particular, you would hope that President Trump and his economic team and political allies think that. “We will impose tariffs, which will be good for economic growth, even though the stock market doesn’t appreciate it” is a reasonable policy position; “we will impose tariffs to crush economic growth, ha!” is not. As far as I can tell, even a few hours before he paused the tariffs, Trump still thought they were good and was trying to talk the stock market around to his way of thinking.

And so if you are in Congress and you bought stocks on, like, April 7, there are at least four possible reasons you might have been buying:

1. You think tariffs are good, you thought the sell-off was overdone, so you bought stocks to bet on the positive long-term effects of tariffs.
2. You think tariffs are bad, you had an inkling (or inside information) that Trump was going to pause them, so you bought stocks to bet on the short-term relief of the pause.
3. You had some reason to buy some particular stocks that was totally unrelated to tariffs.
4. You do not manage your own money, because that’s pretty fraught for a politician and anyway you’re busy, and your financial adviser bought the stocks for reasons you know nothing about.

And then vice versa if you sold stocks. Anyway here’s a Wall Street Journal story about how, “from April 2, when Trump launched sweeping tariffs, to April 8, the day before he paused many of them, more than a dozen House lawmakers and their family members made more than 700 stock trades.” As far as I can tell there is no pattern to the trades at all and they strongly support Theories 3 and 4. But even if the story was entirely that Republican House members bought tariff-impacted stocks an hour before Trump announced the pause, that wouldn’t help you distinguish between Theories 1 and 2. 

There is a US law, the Foreign Corrupt Practices Act, that makes it illegal for companies to bribe foreign governments. The Trump administration has an awkward relationship with this law, for reasons that I am not going to say here but that should be obvious to you if you think about it for a second. Early in his term President Trump issued an executive order “pausing” enforcement of the FCPA. This was somewhat weird: It was still illegal to do bribes, but the Justice Department was not going to enforce the law. Did that mean you could do bribes? Probably not, no, but maybe if you really wanted to do a bribe you could? Not legal advice!

Anyway now it’s unpaused I guess:

The Justice Department will resume investigating foreign-bribery cases with a narrowed focus on matters that relate to U.S. strategic interests, including buttressing the ability of American firms to compete for business overseas.

Deputy Attorney General Todd Blanche announced the changes after a four-month review triggered by President Trump’s order earlier this year freezing corruption investigations. Trump said at the time that enforcement of a federal antibribery law, the Foreign Corrupt Practices Act, puts American firms at a disadvantage to foreign rivals that can engage in conduct forbidden in the U.S. ...

Enforcers should target schemes that hurt the ability of American companies to win business abroad, Blanche’s memo says. 

Here’s the memo. It says:

In addition to distorting markets and undermining the rule of law, companies that bribe foreign officials to obtain business can put their law-abiding competitors, including U.S. companies, at a serious economic disadvantage. By bribing foreign officials to obtain lucrative contracts and illicit profits — at times hundreds of millions of dollars — corrupt competitors skew markets and disadvantage law-abiding U.S. companies and others for many years.

The Department's FCPA enforcement will seek to vindicate these interests, not by focusing on particular individuals or companies on the basis of their nationality, but by identifying and prioritizing the investigation and prosecution of conduct that most undermines these principles. Therefore, another important factor prosecutors shall consider is whether the alleged misconduct deprived specific and identifiable U.S. entities of fair access to compete and/or resulted in economic injury to specific and identifiable American companies or individuals. 

Does that sort of sound like it says “prioritize prosecuting foreign companies that pay bribes to beat out American companies, but not vice versa”? It doesn’t say that — it says the opposite, it says “not by focusing on … companies on the basis of their nationality” — but maybe a little? 

Trevor Milton founded Nikola Corp., the electric truck company, whose “market value peaked at $29 billion” in 2020 but which went bankrupt in 2025. Milton was charged with fraud, tried, convicted, sentenced to four years in prison, and then pardoned by President Trump before he reported to prison. Now he has a 107-minute YouTube documentary out? I have not watched all of it, but I feel like some of my readers might like to. At minute 34, Milton makes the claim that Nikola couldn’t raise money from private investors, because private markets say “prove it to us first, then come to us,” while public markets will invest in unproven visionaries. I feel like some venture capitalists would disagree? Also at minute 40 they discuss the thing where Nikola filmed a video of its truck rolling downhill to make it look like it could drive.

The Spying Scandal Rocking the World of HR Software. Lawmakers Traded Stocks Heavily as Trump Rolled Out ‘Liberation Day’ Tariffs. BlackRock seeks dismissal of Texas antitrust case over coal production. Citi to Set Aside More Money for Losses on Loans, Credit Cards. Italy, Greece and Spain emerge as winners in bond market anxiety. CoreWeave and Palantir Get Meme Stock Comparisons as Shares Soar. Disney to Pay NBCUniversal Another $438.7 Million for Hulu Stake. US accuses Russian crypto entrepreneur of money laundering and sanctions evasion. Zuckerberg Is Personally Recruiting New ‘Superintelligence’ AI Team at Meta. Crypto Billionaire Hires Neuralink Employees for Brain Startup. Vaping growth falters as Big Tobacco hunts for lifeline. Taxicab Geometry.

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