Buyer beware: 7 red flags signal a reckoning in private markets

PRIVATE markets have entered what may be the most precarious phase of a decades-long speculative cycle – defined by questionable valuations, governance concerns and aggressive marketing to retail investors. While institutions have already committed trillions of dollars to these opaque vehicles, many are now quietly heading for the exits – just as individual investors are being drawn in by the promise of stable returns and enhanced diversification.

The warning signs are piling up. Consider, for example Wall Street Journal columnist Jason Zweig’s June article, which raised serious questions about valuation practices at Hamilton Lane Private Assets Fund. Zweig revealed Hamilton Lane’s use of a valuation methodology that enabled the fund to record generous mark-ups on secondary investments – often within days of purchasing them.

According to the article, the fund recorded significant markups shortly after acquiring positions. Such a move, while not unheard of in private markets, may result in perceptions of artificially boosted returns.