Private markets have surged in prominence, as traditional public market equity and bond portfolios grapple with geopolitical risk and macroeconomic volatility, and investors seek additional diversification and inflation protection. Once the domain of large institutions and ultra-high-net-worth investors, private equity, credit, real estate and infrastructure are now increasingly accessible to a broader Australian investor base.
A major shift has been the rise of open-ended ‘evergreen’ funds open to Australian investors (shown below), mirroring global trends. Once dismissed as niche, private markets are now seen by regulators as structurally significant and vital to the future of capital markets.
Source: Zenith Investment Partners. Data as at 31 October 2025
For investors seeking alternatives to volatile listed (public) markets, private markets can offer compelling attributes. Yet, as capital floods in, particularly into private credit, which posted double-digit growth in assets under management in 2023 and 2024, questions around liquidity should be front of mind.
Source: Adviser Ratings, 2025
As per the above table, organic growth rates to private credit were around 50% in 2024, dominating the growth rates of other investment sectors.
While much is being said around the quality of assets, strategies and managers, liquidity is less of a focus. We can’t forget that these assets are private, and housing them in an open-ended fund does not create additional liquidity in the assets themselves. Redemption risk from asset-liability mismatches are real!
How liquid are private assets?
Natural liquidity stems from the underlying assets, not the fund structure. Taking a broad view of private market assets, natural liquidity would generally exhibit the following broad timeframes depending on the strategy and jurisdiction. Sources of potential liquidity will also vary based on the manager and strategy, as will their level of effectiveness. Use of other tools such as investor lock ups, redemption gates, sell spreads and swing pricing can also aid in slowing the velocity of redemption pressure.
Source: Zenith Investment Partners
Growth of private market secondaries[1] adds flexibility, but pricing and market depth can suffer. For example, in 2022, research from Jefferies LLC showed that average pricing in Limited Partner secondaries for private real estate and credit traded at roughly 30% below NAV. While secondaries trading creates opportunities, it can present downside volatility similar to public securities under stress scenarios.
Will we see an illiquidity revival?
While private markets and liquidity frameworks are often significantly more sophisticated today, liquidity crunches are not new. Private credit and real estate vehicles, including mortgage funds, faced severe stress during the 1990s recession, the 2007 to 2009 GFC period and the post-COVID rate cycle. This sequence of product launches and subsequent failures as part of the market cycle is shown below. Often, managers moving from closed ended to evergreen structures played a part, as they lacked sufficient expertise in facilitated illiquid assets. While product failures often stemmed from poor assets and management, as well as over-leverage, illiquidity also played a key role in exacerbating the challenges. Winding up these vehicles and returning capital to investors typically required many years.
Source: Zenith Investment Partners. Data as at 31 October 2025
History shows systemic shocks are not always necessarily from asset failures, but can impact funds through shifting sentiment and decreased capital flows. These dynamics can trigger negative feedback loops, leading to a rush of redemption requests, amplified by what can be complex, opaque, interdependent structures.
We’ve previously examined issues around illiquidity in private real estate and infrastructure funds as part of the attributes of real assets. Illiquidity should be seen as a defining feature of private asset funds and a key driver of their characteristics. While giving up liquidity can be profitable (illiquidity premium), vehicles offering short-term redemptions on long-dated assets face inherent timing challenges. These should be considered as a necessary trade-off and must form part of a robust risk assessment when investing.
It should be acknowledged that managing liquidity is a major challenge for fund managers in this sector. Too little liquidity risks suspending redemptions in adverse markets; too much can dilute returns or add volatility. While open-ended funds require liquidity mechanisms, these typically only work efficiently in stable conditions. Past cycles show liquidity mechanisms often stall or fail during peak redemption periods. This has been a feature of this sector. There are simply some situations where liquidity will be unobtainable, and investors must be prepared for this fact.
Compensation for illiquidity also fluctuates. Investors tend to demand high compensation for illiquidity during a downturn while often ignoring it at the peak of the market.
Investors should also consider the impact of illiquidity on not just portfolio management, but asset management. This is particularly the case in real estate and infrastructure where operational assets require ongoing capital expenditure. Falling inflows and increasing outflows can starve the capital required to adequately cover maintenance and debt servicing, degrading equity values.
The importance of manager selection
Managing private assets is operationally intensive, requiring ‘hands-on’ management to optimise value. This means manager selection is critical. In liquid markets, any material negative changes to management quality can be easily addressed by redeeming. In private markets however, loss of faith in management can see a surge of redemptions, potentially trapping investors into a deteriorating situation.
Ultimately, management of private assets requires additional skills in navigating portfolio construction, the use of liquidity management tools and stress testing, and integrating valuation frameworks. All this needs to mesh with individual strategies and implementation structures.
Balancing opportunity and risk
We believe that private markets can offer a compelling proposition for those seeking to access assets which have many attractive characteristics in a portfolio context. However, the decision to add such assets must be highly sensitive to client illiquidity risk tolerances and structural constraints. Their full potential is often only realised within strategies designed for liquidity limits. Broader portfolio construction decisions are critical for optimal outcomes.
None of this diminishes the strategic value of private markets, as they can enhance diversification and deliver compelling investment outcomes when managed well. As these products proliferate, transparency, governance and investor education are critical to avoid history repeating itself.
[1] "secondaries" refer to the buying and selling of existing investor stakes in funds, or the sale of assets from a fund to a new vehicle, providing liquidity to investors who want to exit before the fund's natural end.
