And like Hokusai's famous woodblock, once you see the boats underneath, your mind can't help but wonder whether they are built to handle what's about to hit them.

A lot of brain cells were wasted on the debate around whether individual investors should have access. That boat has sailed (I’m full of terrible puns): access is rapidly “democratizing”. The better question is whether the vehicles being built for said retail investors still behave like private equity at all.

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I’ve been writing about the structural downsides of evergreen vehicles for a while (the liquidity mismatches, the inflated IRRs, the layered fees, the fund-level opacity that leaves investors guessing at what they actually own).

Today's guest post pulls those threads together from a different angle. The authors, Benjamin Forestier, Affiliate Professor in Investment Banking and Private Equity at École Polytechnique, who trains professionals across PE funds, M&A, and leveraged finance teams in France and abroad, and Claudia Zeisberger, Professor at INSEAD, former KKR advisory committee member, and author of Mastering Private Equity, make this case: retail investors aren't being given private equity. They're being given something that looks like it.

The argument is for getting the design right, so that the product retail investors are buying still reflects the mechanics that make this asset class worth owning in the first place.

-Leyla

Before we get into it, a special thank you to the academics and students in the audience!

30% off for .edu emails

Private equity has been one of the most reliable wealth-creation engines of the last three decades. Now it is being opened to retail investors. The ambition is right. The structures, in many cases, are not and need work.

What is being sold as democratization is often something different: private equity redesigned for distribution, with illiquidity, patient capital, and aligned incentives gradually engineered out of the model. Private equity closed end funds work because of those constraints; they fit the underlying assets which are illiquid by design.

Why offer Retail investors a simplified version, rather than the real thing?

Illiquidity, misunderstood

Illiquidity is often framed as the main barrier to retail access. In practice, it is one of the reasons private equity works as an asset class in the first place. It allows investors to stay invested through cycles, gives companies time to execute, and removes the constant pressure of mark- to-market decisions. Institutional investors do not try to eliminate this constraint but build portfolios around it.

Retail structures have taken a different approach. Evergreen vehicles —which are open-ended structures that promise periodic redemptions while remaining invested in illiquid assets — are the most common form. At first glance the logic seems sound. In practice, it depends on market conditions holding. Liquidity in these structures is not absolute/ guaranteed ,it is managed and highly contingent on market conditions. This becomes visible when the cycle turns: If and when inflows slow and financing tightens, redemption requests increase at the same time as exit opportunities decline.

Primer on evergreens:

At that point, the structure is forced to choose: sell assets at a discount in a hurry or restrict liquidity. In most cases, gates typically follow to avoid forced sales at significant discounts.

What initially looked like flexibility starts to resemble a clear duration mismatch between assets (illiquid by nature) and liabilities (short-term redemption requests). Investors are holding long-duration assets while expecting short-term optionality, something that is difficult to manage in practice without gating mechanisms or holding cash buffers that dilute returns.

The irony is that many retail structures are attempting to manufacture liquidity from fundamentally illiquid assets. They are not eliminating the problem, they are simply relocating it into the fund structure itself. In benign markets this remains largely invisible. When markets become stressed, it reappears through gates, delayed withdrawals or forced asset sales.

The closed-end structure has endured for decades, and for good reason. Capital is committed, deployed over time, and returned when assets are realized. There is no promise of interim liquidity—and therefore no need to withdraw it later. For retail investors, this is less a constraint than a form of clarity. Illiquidity is easier to accept when it is clearly stated than when it is only visible in stressed conditions.

Here’s why you want to watch liquidity, and how to do it:

IRR is a number, not the full picture

IRR is usually the first number investors see, and the one most emphasized during fundraising. The difficulty is that it is highly sensitive to timing, which makes it relatively easy to influence without changing underlying performance.

Two tools are commonly used in fund financial engineering:

1. Subscription lines delay capital calls, effectively shortening the measured investment period.

2. NAV-based financing can generate early distributions without requiring exits.

In both cases, the result is a higher IRR. From an economic standpoint, however, very little has changed. The same assets are held, over the same horizon, with the same operational outcomes. What shifts is the timing of cash flows. Institutional investors adjust for this automatically. The advisors and private banks that direct retail and high- net-worth capital into these funds typically cannot — the data required to make that adjustment is rarely disclosed. The effect is economically modest but psychologically powerful. Investors can be shown stronger-looking performance numbers without any corresponding improvement in the underlying investments.

A more grounded approach is to look beyond IRR. Metrics like DPI and MOIC, particularly on a deal-by-deal basis, bring the focus back to realized outcomes and capital efficiency. Calling capital when investments are made and distributing cash when operational value creation is genuinely realized does not optimize presentation. It makes the numbers easier to interpret and easier to trust for non-qualified investors. Private equity should create value through better companies, not through better cash-flow choreography.

Same assets, same table

Access is often discussed as though exposure alone were enough. In private equity, however, the economics of the structure matter just as much as the assets themselves. Retail investors are frequently invested through feeder funds, funds of funds or parallel vehicles. These provide access to similar underlying assets, but not always under the same conditions. Differences can emerge in fees, governance, and visibility. They are not always obvious at the outset. Over time, however, they tend to accumulate.

Institutional investors, by contrast, typically sit directly in the main fund. They share the same entry price, the same reporting framework, and the same governance environment. Retail investors should not simply gain access to the same assets. They should gain access to the same economics. Whenever possible, capital should sit alongside the investors for whom private equity was originally designed: pension funds, endowments and family offices. Shared economics naturally create shared discipline. Pricing becomes easier to justify, reporting more consistent and incentives more transparent. When they do not, differences emerge gradually, but they do emerge. In private equity, alignment is less about intention than about structure.

And here’s how to do due diligence on GPs:

Seeing what you own

Private equity investors are owners of companies. Yet for many retail investors, that ownership can feel abstract. Reporting is often concentrated at the fund level, with limited detail on individual portfolio companies.

As a result, performance is understood in aggregate, rather than through the underlying drivers. Institutional investors approach this differently. They receive regular company-level information,not to manage operations, but to understand how value is being created. Retail investors do not need full operational visibility. But they do benefit from access to core information: revenue evolution, profitability, cash generation, and basic financials.

This information is already produced. The challenge is not availability, but how it is shared. Without it, performance tends to be interpreted through high-level narratives. With it, investors can follow progress more directly.

Opacity is often defended as an unavoidable feature of private markets. In reality, sophisticated institutional investors already receive much of this information. The question is not whether the information exists, but why it should stop at the retail gate. Transparency does not remove complexity. It makes it more tangible.

Ownership becomes easier to understand when it is visible.

Your best bet at gaining more visibility is reading the footnotes to financial statements. I know, for all some of us it’s a pain. Please do it anyway:

Fees in a lower return world

Fees have long been treated as a given in private equity. But they were designed in a different context when funds were smaller, competition was lighter, and return dispersion was wider. That environment has evolved. Funds are larger, capital is more abundant, and entry valuations are higher.

As a result, expected returns, particularly in certain segments, are under more pressure. In that context, fees take on greater importance. What used to be a secondary consideration becomes a meaningful driver of net outcomes.

For retail investors, the picture is often more complex. Access frequently comes through additional layers, each with its own cost. The combined effect is not always immediately visible.

Institutional investors, meanwhile, tend to negotiate. They benefit from fee adjustments through side letters, co-investments, and governance rights that improve overall economics. The result is a difference in net returns, even when underlying assets are similar.

Democratization should not mean creating additional layers of fees between investors and the underlying assets. If retail investors systematically pay more for essentially the same exposure, broader access risks becoming a transfer of value rather than a creation of value.

Much of the gap traces back to how products reach investors in the first place. In most markets, private banks act as distributors — compensated by the funds they sell, not by their clients. That is a conflict of interest. An advisor paid by the product is not advising the client. For the economics of retail access to improve, that incentive structure has to change.

A more balanced approach would reflect the current market environment. Management fees can scale with fund size. Carried interest can be more clearly linked to outperformance, with lower participation around the hurdle and stronger incentives for genuine excess returns.

Equally important, unnecessary layers could be reduced if regulatory thresholds for direct investing were revisited (reducing reliance on feeder and fund-of-funds structures). Fees rarely dominate the conversation in strong markets, but they compound over time. And in private equity, alignment is ultimately reflected in how value is shared between the GPs and the LPs.

Fund-of-funds warrant a special mention where fees are concerned:

Designing access without changing the assets

Private equity does not outperform simply because it invests in private companies. It has historically outperformed because its structure forces patience, alignment and long-term ownership.

Many of today’s retail products attempt to preserve the appearance of private equity while softening these constraints. Yet these constraints are not flaws in the model. They are the model.

Opening the asset class to a broader investor base is a worthwhile objective. But democratization should not come at the cost of redesigning private equity into something fundamentally different. Retail investors do not need a simplified version of private equity.

They deserve the real thing.

👉 New here? Check out some of our popular topics to get started:

• private credit

• private equity

• commercial real estate

And here’s the full table of contents:

Before I launch into my thoughts, the usual reminder: my mission is to make you a better investor by telling you how the sausage is made (teach the man how to fish, and all that). It’s not to tell you which funds to put your money into (you have an adviser for that, share this article with them).

What follows is emphatically NOT investment advice, and like Vincent Vega in Pulp Fiction, I won’t show you exactly what’s in the suitcase. But I hope you are happy (you can make me happy by subscribing below).

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Personally, I don't see many obvious bargains today. The opportunities I do see generally fall into two buckets: assets that have already repriced and managers deploying fresh capital into today's market rather than managing yesterday's mistakes.

I'll show you what that looks like across private equity, private credit, and real estate.

If you want some case studies on actual funds, here are a couple to get you started (one private credit, one private equity):

Nothing contained in this newsletter constitutes investment advice, a solicitation, or an offer to buy or sell any security or investment product. The views expressed are those of the author alone and are for informational and educational purposes only. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Please consult a qualified financial adviser before making any investment decisions.

Private Equity

Quick recap of our prior episodes:

• Over the past decade PE funds raised enormous amounts of capital and rapidly deployed it. A lot of that capital went into software, healthcare, and fintech at double-digit EBITDA multiples.

• The problem is that those multiples haven’t come down much (while rates increased). Across most industries, things are still expensive and marks on existing investments have barely moved. PE in general is not cheap.

👉 A hill I will die on: basis is the best predictor of future outcomes. Buy something cheap, and you have more upside. Buy something expensive, and you’re depending on multiple expansion or operational miracles to bail you out.

So where does that leave you?

Primary funds

If you're allocating to a new primary fund, you want a specialist GP: someone who knows one industry deeply and buys deals only in that industry.

And here’s why: generalist GPs are competing with everyone else for the same assets, and they're still paying peak multiples to win. Specialist GPs in less-trafficked sectors are likely seeing less competition and possibly buying at meaningfully lower entry points (goes without saying, do your DD).

📌 You want fresh deployment, and a GP with extensive experience in one sector. These managers exist, but they're harder to find than the marketing decks suggest.

Secondaries (drawdown funds):

Well-capitalized secondaries buyers are going to have real opportunities to acquire good assets at a discount. The supply of motivated sellers is growing: LPs who over-allocated in 2021-2022 need liquidity, distributions are near historic lows, and the exit environment has been slow. Find the GPs with capital ready to deploy into that dislocation.

⭐️ Secondaries (evergreens):

I’ve written extensively about how evergreen secondaries funds work, so I’ll be brief. The game here is simple once you see it: you want to be the first dollar in, ideally in a fund that will deploy a significant portion of its NAV in the period immediately following your investment.

Here’s how the mechanics work:

A simple example: say a fund has deployed $3B between 2021 and 2023. The underlying assets haven’t been marked down much (private valuations are a work of art). You invest today at stated NAV. But stated NAV reflects assets that were acquired at peak multiples, and the discount on acquisition is already reflected in the NAV you paid.

And guess what? If there is a markdown, you’ll ride it down despite not being there to bask in the glory of unrealized gains.

More on the topic here:

By contrast, if you’re among the early investors in a newer vehicle that’s actively deploying fresh capital into today’s deals, you get to participate in what’s affectionately known as “NAV-squeezing”. The math is straightforward. Be dollar number 1. Don’t be dollar number $2,389,098,357.

Here’s a case study on a mature PE fund (according to FT, redemptions are likely to be capped):

‼️ Again, not investment advice, but "In-N-Out" appears to be quite a strategy with new evergreen secondaries: be the first dollar in, and among the first dollars out, while the fund is rapidly deploying fresh capital and marking positions up. The window between early deployment and portfolio maturity is where outsized returns are.

Private Credit

The golden child of alts has handed the baton to infrastructure, but it is throwing a fit on the way out (like a toddler).

A quick note: “private credit” is a broad term. It means loans originated outside the banking and public markets ecosystem. This is anything from commercial mortgages to BNPL burrito loans. The vast majority of what’s available to individual investors is middle-market direct lending: loans to privately held companies, typically originated by PE sponsors to finance acquisitions. That’s our focus (if you ask nicely, I’ll write a primer on all the different flavors of private credit).

On prior episodes:

• Boatloads of capital were raised between 2020 and 2025 and got deployed.

• The borrowers look a lot like the PE darlings above (software, healthcare, fintech). That’s because PE bought those companies and saddled their balance sheets with acquisition debt.

• The official default numbers are still low, and loan valuations are holding. But the cracks are showing: PIK income is up as a percentage of total income, some funds are quietly taking markdowns, and several interval funds have hit their redemption caps.

It’s still TBD whether the losses ultimately materialize. Public investors, however, are clearly demanding compensation for the possibility:

Here’s a case study on how markdowns work in financial statements:

👉 Which brings us to the trade. Most public BDCs now trade at a meaningful discount to NAV (the sector average is around 0.78x, meaning you’re buying a dollar of private loans for roughly 78 cents). Non-traded private credit vehicles are still redeeming at NAV. Well, the ones that are still redeeming, that is...

So the trade is: redeem at NAV from the non-traded vehicle, and buy the same underlying exposure in the public market at a discount.

⚠️ BUT (you knew it was coming, didn’t you?) you want to make sure the discount is sufficient for the 2021-2023 vintage exposure. Those portfolios were underwritten at peak, to borrowers carrying heavy leverage, in sectors that are now under pressure. The discount might look attractive, but you could be buying into a NAV that hasn’t finished correcting.

What you want instead is a public BDC with: post-2023 vintage originations, a first-lien heavy portfolio, low non-accruals, and ideally an internally managed structure (which better aligns manager incentives than the externally managed alternative). Think of the discount as your margin of safety, not necessarily upside.

A second option worth watching: drawdown distressed debt funds. Several are actively raising right now, and they’re positioned to buy portfolios of good-quality loans at a discount (potentially from the same evergreen vehicles that are currently working through redemption caps).

Real Estate

Look at the chart below and focus on the two ends: Q4 2021 and Q1 2026.

Q4 2021: peak FOMO (=fear of missing out). Multifamily deals traded at 4% cap rates, deals attracted 45 bids, and long-term financing rates were low enough that the math still penciled (for those who elected long-term financing). Many of those deals were financed with floating-rate bridge debt, which at the time seemed fine.

Between then and Q1 2026, the 10-year Treasury yield rose by nearly 3%, but core private real estate cap rates, as tracked by NCREIF’s ODCE index, rose by less than 1%.

Put differently: the cost of financing real estate went up sharply, but the price of real estate barely moved.

Public REITs, by contrast, repriced in real time. Implied cap rates on listed REITs rose from around 4.45% to nearly 6% over the same period (blue line in the same chart). And public REITs, importantly, carry lower leverage and lower cost of capital than most private deals.

Don’t know what a cap rate is? Read this:

What to avoid: existing private real estate fund portfolios, particularly non-traded REITs with large legacy 2021-era acquisitions on the books. Those assets are still marked near peak. Did you see my point above about the cost basis? With redemption queues, some of those vehicles don’t have the luxury of deploying new capital.

What’s more interesting:

• Listed REITs: you can enter at meaningfully higher implied cap rates than the private market is offering for comparable assets. Yes, there is little love for listed REITs; there should be even less for their non-traded counterparts.

What else is interesting:

• Private value-add deals: good value-add opportunities are few and far between, but they exist. There will be some forced sellers: for example, some over-levered 2022 deal with the lender finally throwing in the towel. (The ones we’ve seen so far were not screaming bargains). Either way, don’t expect high current cash flow. You’re buying for basis and exit multiple, not yield.

• Off-the-beaten-path locations and asset classes: higher on the risk spectrum, but should offer higher expected returns. Again, experienced specialist GPs will likely outdo generalist GPs.

• If you are dead-set on allocating to core CRE, new drawdown funds is where I’d focus.

Here’s a case study on a newer secondaries fund:

TL;DR

The common thread is the vintage.

Today, I think vintage selection matters almost as much as manager selection (this, obviously, only applies to evergreen vehicles). In many corners of private markets, the question isn’t whether an asset is good or bad. It’s whether it was acquired in 2022 or 2026.

That’s an oversimplification, of course. But if I had to summarize what I’m paying attention to today, that’s probably the closest thing to a north star.

Thank you for reading!

As always, feel free to share your ideas in comments (feel free to argue, too! I like a lively discussion)

— Leyla

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🩺 The early symptoms are easy to miss. A redemption rate that doubles. A credit facility that goes from zero to $711 million in six months. A net cash inflow that quietly reverses into the negative zone for the first time in nine years.

Partners Group Private Equity (Master Fund), one of the oldest and largest evergreen PE vehicles in the wealth channel, is having that kind of moment.

Here’s a fund from the same asset manager that’s youthful and energetic:

Today we’ll take a look at:

• The usual: how it works, what’s in it, and what it costs

• The less usual: where returns come from (and how that’s changed)

• And finally: whether a $16 billion mature evergreen fund still makes sense when you have alternatives

💡 If you missed the UNREAL Gains Part 1 and Part 2 discussion, you’ll find it enlightening.

Disclosure: This case study is provided for educational and informational purposes only and should not be construed as investment, legal, tax, or financial advice. The views expressed are solely those of the author. All examples are illustrative in nature and not guarantees of future outcomes. Readers should conduct their own independent research and consult with qualified professionals before making any investment or financial decisions.

The Pitch

Partners Group Private Equity (Master Fund) is one of the largest evergreen private equity funds available to wealth-channel investors, with ~$16 billion in net assets as of September 2025.

The value proposition is straightforward: access to institutional private equity through a semi-liquid structure. Investors gain exposure to a globally diversified portfolio of direct investments, secondary acquisitions, and primary fund commitments that would typically be difficult to access individually.

Liquidity is offered through periodic tender offers, subject to Board approval and available fund liquidity.

Here’s how tender offer funds differ from interval funds:

What’s in the Fund

The portfolio is broadly diversified across investment types, with exposure to:

• 417 direct investments

• 223 primary fund commitments

• 81 secondary investments

• 110 listed investments

As of September 30, 2025, the portfolio looked like this:

The fund does not provide a detailed industry breakdown. Based on management commentary and the schedule of indirect investments, technology and healthcare appear to be among the larger sector exposures, though precise allocations are difficult to determine.

One disclosure worth noting is that approximately 30% of the portfolio consists of primary and secondary fund investments valued using the NAV practical expedient. In other words, Partners Group is largely relying on valuations reported by underlying fund managers, with adjustments made when deemed appropriate.

Visibility into the underlying holdings for that portion of the portfolio is limited.

Here’s how that works:

Roughly 90% of the portfolio is classified as Level 3 assets. That’s not unusual for private equity: most portfolio companies do not trade on public exchanges, so observable market prices generally don’t exist. It does mean, however, that reported values are heavily dependent on valuation models and assumptions.

Which brings us to the most transparent part of any evergreen fund: the fee structure.

Fees

Like most evergreen private equity vehicles, the Master Fund has multiple layers of fees. Some are visible in the financial statements. Others are embedded within underlying funds and never appear in the reported expense ratios.

Here’s what investors can see:

1️⃣ Management Fee

The management fee is 1.50% annually, calculated monthly on the greater of:

• NAV, or

• NAV less cash, plus unfunded commitments

Because unfunded commitments are included in the calculation, the fee base can exceed NAV. The effective management fee is capped at 1.75%.

2️⃣ Incentive Fee

The incentive fee is 10% of net profits, calculated and paid quarterly.

• Importantly, net profits include both realized and unrealized gains.

• There is no hurdle rate.

Instead, the fund uses a “New Loss Recovery Account”. After periods of negative performance, incentive fees are paused until prior losses are recovered.

❗️In practice, this is not a hurdle rate. It does not require investors to achieve any minimum return before the manager can participate in gains. It simply delays fee collection after drawdowns, and then resets once performance turns positive again.

Class A investors pay an additional 0.70% annual distribution fee on top of the above, plus a potential one-time placement fee of up to 3.50%. Class I is not subject to either.

In dollar terms, here’s what the fee structure has generated over time:

And there’s something else worth holding in mind before we move on.

Since FY2019, the fund has generated negative net investment income every single year.

Read more

Every other week, we send a quick digest on what’s catching our eye across private markets.

Before we get into it, a quick shameless plug. I recently joined Morningstar’s Investors First podcast with CEO Kunal Kapoor to talk about the convergence of public and private markets. You can watch it here:

Watch Morningstar Interview

Today’s lineup:

1️⃣ Private equity: 20-year fund, anyone? - As long as you pick the right manager. And what 401(k)s will do to fees.
2️⃣ Private credit: rising competition, loosening structures, and the growing role of retail capital
3️⃣ Commercial real estate: multifamily supply slows and demand holds up, while industrial deliveries are still coming

Before we dive in:

Accredited Insight delivers the LP’s perspective on private credit, private equity, and CRE, drawing on hundreds of deals, and thousands of conversations. Paid subscribers gain access to our database of over 40 case studies and articles on everything from evergreen funds to due diligence (the kind of analysis that tells you what the GP pitch deck left out).

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📊 Chart of the Day

I know, this one’s a bit in the weeds, so let me translate.

Before we had “private credit,” we had junk bonds (bonds rated below investment grade, or BBB-). They’ve since rebranded to high yield (sounds more appealing, no?)

The chart above compares the credit quality of borrowers across different parts of the leveraged finance universe, from public high-yield bonds to middle-market private credit. You’ll notice that private credit borrowers tend to cluster around the single-B rating bucket (the lower end of the junk bond universe).

Unlike public high-yield issuers, most private credit borrowers aren’t rated, are smaller, and operate with far less disclosure. At its core, middle-market lending is simply lending to highly leveraged, below-investment-grade companies.

Or, drumroll please...

Subprime business loans (how’s that for a name?)

1️⃣ Private Equity

1. 20-year Funds

Blackstone is preparing to launch fundraising for the next iteration of its flagship core PE buyout fund later this year. Bloomberg reports that the strategy is expected to be highly concentrated (8–10 investments, $800M- $1B per deal).

The more interesting part is the expected holding period. This will be a traditional drawdown fund with a 20-year life. Blackstone’s Core PE I and II funds are still active today, with reported net IRRs of 15% and 16%, respectively, despite having exited relatively few investments (you’ll find the full track record here)

👉 Here are deep dives on two of the funds:

2. Pick the Right Manager (and Don’t Commit Chart Crimes)

This chart is starting to make the rounds, and I really — really — need to draw your attention to two things.

First, the obvious: you want to pick the right manager. If you can’t pick the right manger, is there a point in allocating to private markets? (rhetorical question. We are all above average at picking, right?)

Second, look at the footnotes. Private equity, private credit, non-core RE and VC returns are reported as IRR. Large cap equities and bonds are time-weighted returns. These are not the same metric, and they don't behave the same way. (Read this and this for more on the topic).

3. Private Equity in your 401(k)

The process of bringing alternative assets to your 401(k) is moving along.

The Department of Labor has proposed a new ERISA safe harbor that could make it easier for 401(k) plans to offer alternative investments. If adopted, fiduciaries who follow a “prudent due diligence process” would receive greater protection from litigation, potentially opening the door to broader private market exposure inside retirement accounts.

🚊 Personally, I don’t think there’s much stopping this train. My base case is that private assets find their way into target-date funds within the next few years.

What I do expect, however, is fee compression. Fees are one of the few things in private markets that are truly transparent. Once people start paying attention, the pressure to lower the fees asset managers charge will increase.

Speaking of fees, Morningstar recently published its annual U.S. Fund Fee Study. For perspective, you’d need to roughly triple the scale on this chart to capture the fees charged by many evergreen private market funds.

2️⃣ Private Credit

The two charts below tell you the whole dang story of private credit in general, and direct lending in particular (a roughly $1.2 trillion subset of the broader private credit market).

As fund managers raised enormous amounts of capital, loan spreads compressed (chart on the left, chart in the middle). More competition generally means lower pricing, just like we all learned in Econ 101.

What’s harder to capture in a chart is the other consequence of competition: underwriting standards tend to loosen. One example is the continued rise of covenant-lite loans, which give lenders fewer protections if a borrower starts running into trouble. Another example is rise of PIK (or payment-in-kind).

BIS also notes: “Historically, private credit funds were the remit of institutional investors, but the share of assets under management (AUM) accounted for by retail investors climbed from virtually zero to 13%, or $280 billion, in the past decade.”

And virtually all of that retail capital sits inside BDCs and evergreen vehicles.

Why does that matter? Because we’ve introduced predictable human behavior into an inherently illiquid asset class. When returns are strong, money flows in. When returns slow or headlines turn negative, investors tend to head for the exits.

How does it all play out? I don’t know. But if I owned an evergreen private credit fund, I'd be paying very close attention to liquidity.

👉 I contributed to a TSCS piece on private credit marks and sealed jars of olive oil, and what it looks like when prices don’t have to clear. It opens in ancient Piraeus and lands in today’s BDCs.

Read Marked to Faith

Borrowers

A quick note on the borrowers themselves.

If you’ve been reading this newsletter for a while, you know my biggest criticism of private markets is opacity. Outside investors have very limited visibility into borrower fundamentals, including earnings quality and repayment capacity (do they make enough money to pay back the loan?) Much of this information simply isn’t disclosed.

The first chart shows debt-to-EBITDA multiples. The solid lines include manager adjustments and add-backs; the dashed lines exclude them.

For reference, 7x leverage means a company has debt equal to seven years of EBITDA. That’s earning before interest expense, taxes, capital expenditures, and other very real cash demands.
(Adjusted EBITDA is a fudged EBITDA)

The second chart should be included in every middle market direct lending pitch deck. More than 40% of borrowers are generating negative cash earnings after interest, tax, working capital and capex. Many borrowers are “asset-light” SaaS companies.

These are the modern day NINJA loans (remember those? No income, no job, no assets)

How do companies with negative cash earnings repay loans? Often, they don’t.

They refinance them. Which, of course, depends on private credit fund managers continuing to raise fresh capital. As long as new money keeps flowing into the asset class, borrowers can often extend maturities and kick the can down the road. The real question is what happens if fundraising slows..

📍 Which brings us to the main point: it helps to understand where these borrowers sit on the risk spectrum (and what you’re being paid for it..)

3️⃣ Commercial Real Estate

Good News for Multifamily (on two fronts)

The chart on the left shows rent growth (it’s still positive!) vs occupancy (it’s moving up!) The chart on the right shows multifamily construction starts (down, which will bring supply down) and deliveries (also down, which will put upward pressure on rents going forward).

From the NAR Insights: U.S. multifamily demand remains above historical norms but continues to lag supply.

👉 Here’s why you should care about demand/supply and a plethora of other things if you invest in real estate:

Industrial is still normalizing, with absorption up 30% YoY to 122.7M SF but supply still outpacing demand, pushing vacancy to 7.6% and slowing rent growth to 1.3% despite strong logistics-driven leasing and outsized activity in Dallas-Fort Worth.

And finally, here is the absorption leaderboard for both asset classes:

Thanks for reading! As always, if you have any suggestions, reply to this email, leave a comment, or hit me up on socials (unhinged me on X, slightly more filtered me on LinkedIn)

-Leyla

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P.S. New here?

Here’s where you’ll find the full archive (somewhat organized):

• Buy secondary interests at a discount

• Mark them immediately to sponsor-reported NAV under ASC 820’s practical expedient (Day One mark-ups)

• Report the unrealized gain before a single company exits

• (Collect fees on it too, in some cases).

Here’s Part 1, ICYMI:

The economics in the early years can be extraordinary. When a fund has only a few hundred million in assets, every new secondary purchase meaningfully moves the NAV.

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But there is a problem embedded in the structure itself: eventually, the denominator gets too large.

The same $7.5 million instant mark-up that once generated a multi-percentage-point return barely moves the needle once the fund grows past a billion dollars in assets.

So what happens then?

Well, the logical place to look is mature evergreen secondaries funds. The trouble is, our pickings are slim (which made my job easy: there are only a handful of such funds older than 6 years). I picked one early vintage secondary fund with over $1B in assets:

Pomona Investment Fund, launched May 2015, and now ~$1.9B in assets (88% allocation to secondaries as of December 2025).

“Leyla, what in the world are you talking about?” Here’s your primer on evergreen secondaries:

👉 Want some case studies on secondaries evergreens? Here’s Coller Private Credit Secondaries (LINK), Carlyle AlpInvest (LINK) and Partners Group Next Generation Infrastructure (LINK).

The machine still runs

To isolate the effect, I separated all new acquisitions in each reporting period from the performance of the existing portfolio and calculated Day One mark-ups on entry (and by “on entry” I mean in the same reporting period).

Average same-period mark-up on all new secondaries purchased during 2024–2025: ~28%.

Yes, this is an unnecessarily tedious exercise, even if you outsource the tedium to an LLM. And yes, the estimate is derived by comparing initial cost basis to reported fair value in the first filing period for each position, and I ignore some nuances. It is imperfect, but gets us in the ballpark. (If you object, I’ll beat you over the head with a Warren Buffett quote about decimal points).

No, Pomona didn’t make it easier by reporting cost basis neatly. I had to reconcile it from footnotes. This is how it’s reported (I’m going to call out every fund that does it like this. There is no excuse):

Pomona itself reports an average purchase discount of ~21% since inception. If anything, there is an argument for wider discounts in recent periods (rates are higher, more sellers seeking liquidity, etc).

Nothing surprising here, of course: a decade into the life of the fund, newly acquired secondary interests are still being marked up meaningfully and almost immediately after acquisition. And ASC 820 continues to allow that mark-up to flow directly into reported performance.

Here’s a case study on a newer secondaries fund:

But there is a structural difference between a $300M evergreen fund and a $1.9B evergreen fund:

the mark-up may be the same. The denominator is not.

When the fund was small, a single discounted secondary purchase could meaningfully move reported returns. At scale, the exact same economics become diluted across a much larger asset base.

And meanwhile, the existing portfolio keeps aging.

Those older positions are no longer generating fresh Day One mark-ups. They are gradually transitioning into harvest mode: underlying PE funds sell companies, distribute cash, and convert prior unrealized appreciation into realized returns.

Before we get too far in the weeds, I need to remind you that assets in these funds are very illiquid, but the structure allows for periodic redemptions. Read this:

The denominator problem

Let me first illustrate the denominator effect broadly.

Take a $50M secondary purchase at 15% discount (it’ll generate $7.5M in Day One unrealized gains). Here is what that same transaction contributes to Pomona's reported return at different fund sizes:

This is the denominator problem in its simplest form: as fund assets grow, each new mark-up contributes a smaller percentage of total NAV.

The rational response?

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On paper, the idea sounds compelling. Belpointe is structured as a partnership for U.S. federal income tax purposes, meaning income passes through to investors (avoiding corporate-level taxation) while still qualifying for Opportunity Zone benefits. Investors get K-1s like any private OZ fund, but with the added advantage of NYSE liquidity. Put it all together, and you have what was marketed as a powerful tax-advantaged vehicle with unprecedented flexibility.

The reality has looked very different. Since going public, OZ shares have declined 51.8%.

In today’s guest post, takes a closer look at Belpointe OZ and walks through several structural red flags that investors may want to understand before chasing the tax narrative.

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👉 If you're unfamiliar with Opportunity Zones or wondering about the December 31, 2026 tax cliff, we recently published primer:

Speaking of real estate, here’s a post on tax efficiencies in private placement real estate, and another one on phantom income.

-Leyla

About the author:

is a former award-winning physicist and professor who now writes about value investing at Focused Investing, specializing in REITs and energy markets. Since taking control of his portfolio in 2020, he's outperformed the S&P 500 through focused research and disciplined strategy across market cycles.

The purpose of Opportunity Zones, in their present incarnation since 2017, is to incentivize investment in undercapitalized communities. They do this primarily by enabling temporary deferral or permanent exclusion of capital gains produced by investments in those zones. There are details, but they need not distract us today.

So one can invest in property in such a zone, with the hope that enhanced investment throughout the zone will produce a significant increase in value that one can eventually harvest. But one will still owe taxes on current income throughout.

To get around that, why not put the properties in a REIT, so that no taxes are owed at the corporate level? That is what Belpointe OZ (OZ) is doing.

Belpointe present themselves as a real-estate development company with a focus on mixed-use and multifamily properties. They have two properties in lease-up and four in pre-development, at a total cost of $1B.

They also describe themselves as a “public Qualified Opportunity Fund,” enabling easier exits for investors. They expect to designate new OZs every 10 years, and are about to transition from OZ 1.0 to OZ 2.0.

But we don’t need to explore the details here, for reasons discussed next.

🚩🚩🚩🚩🚩

There are a bunch of red or orange flags about OZ.

🚩 Red Flag #1. They are externally managed with, as usual, misaligned incentives detailed in their 10-K. The manager gets paid more for increasing NAV, even if this is done by diluting shareholders. NO publicly listed REIT with this structure has performed well for shareholders (to my knowledge, and I’ve seen a lot of them). For me this is a terminal red flag.

🚩 Red Flag #2. They are also what NAREIT labels a “Diversified REIT.” In their 10-K, they describe their investments as

located in qualified opportunity zones for the development or redevelopment of multifamily, student housing, senior living, healthcare, industrial, self-storage, hospitality, office, mixed-use, data centers and solar projects located throughout the United States and its territories.

By far the poorest historical gains among classes of listed REITs have come from the Diversified REITs. There are real benefits to being focused and today the markets respond to that. To be fair, the current investments by OZ are more concentrated.

🚩 Red Flag #3. Their Debt Ratio is 48%, which is too high to support a secure dividend. No quality listed REIT is that high these days. The office REITs tend to run near 50%, and we’ve seen lots of dividend cuts in recent years even among those doing relatively well, as one could have predicted. I recently discussed Why Leverage Often Does No Good.

🚩 Red Flag #4. They are operating at a substantial loss even after adding back in depreciation. They claim that their initial developments are ongoing, that they will refinance at stabilization, and then start paying dividends. They say nothing I could find about what their capital allocation policy will be.

This REIT seems a bit reminiscent of Clipper Realty (CLPR), whose business model has long involved leveraging gains in property value to support further new development. Clipper’s dividend never has had much relation to their underlying economics.

In my opinion, the tax benefits from opportunity zones do not come remotely close to making up for these flaws.

This call is easy. Beware the seductive siren of OZ.

P.W. If you are new here, check out our other articles on:

• Real Estate

• Case Studies (with many on real estate deals and funds)

• One of my favorite articles: capital stacks

That’s when your deferred tax bill comes due (you’ll have until April 15th, 2027 to pay it), regardless of whether your fund has made distributions, whether you’ve held for five years or five months, or whether your investment is up or down. If your fund is illiquid (and most are), you’ll need to find that cash elsewhere.

With over $100 billion invested in OZ funds, the collective tax bill coming due December 31, 2026 could be in the $15-20 billion range, a massive liquidity event for what are mostly illiquid real estate vehicles.

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Today, we’ll break down:

• what Opportunity Zones are,

• how Qualified Opportunity Funds work (and the tax benefits),

• and what just changed with OZ 2.0

📚 Sources and further reading are included at the end of the post.

Disclaimer: This article is for educational purposes only and does not constitute investment advice, tax advice, or a recommendation to invest in Opportunity Zones. Consult with qualified tax and financial professionals before making any investment decisions.

How It Stared

Opportunity Zones were created under the 2017 Tax Cuts and Jobs Act as a way to push private capital into economically distressed areas. Governors nominated eligible census tracts using 2010 census data, and Treasury ultimately certified 8,764 zones across the U.S.

To qualify originally, a tract generally needed either:

• A poverty rate above 20%, or

• Median family income below 80% of the surrounding area average.

In theory, this was about revitalizing struggling communities. In practice, a lot of capital discovered that some “distressed” neighborhoods were better situated than others (more on that below).

How the Tax Benefits Worked

The original OZ structure offered three incentives:

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• Buy private equity stakes below reported NAV

• Mark them back to NAV

• Book the spread as unrealized appreciation.

📣 Before you gallop off to read the riveting details of today’s case study, quick announcement: I’m doing a live webinar with Kunal Kapoor, the CEO of Morningstar at 9:30 am PT/12:30 ET today. Register below if you’d like to join us.

Webinar Registration

👉 You can see the mechanics here:

As long as sellers need liquidity and buyers can acquire interests below reported NAV, the model can produce very attractive early-stage returns.

And historically, it has.

None of this is investment advice, obviously. But every once in a while, private market fund structures, incentives, and accounting mechanics come together in a holy union. Early-stage evergreen secondaries funds are one example.

Notice the early-stage part.

Like any union, as these funds scale, problems eventually emerge (in our case, it’s due to the denominator effect, stay tuned for Part 2 of UNREAL gains).

Anywho. I wanted to do a case study on an early-stage secondaries vehicle while the machine is still operating at full speed. Which brings us to Coller Secondaries Private Equity Opportunities Fund (“C-SPEF”).

Here’s another fund that operates at full speed:

The fund has grown from roughly $323 million at launch in April 2024 to ~$1.44 billion by March 2026 while reporting annualized returns approaching 17%.

More interestingly, management essentially explained the entire strategy themselves in one sentence, right in the SEC filings:

Today we’ll take a look at:

• The usual: how it works, where returns come from

• The less usual: the investor-friendly fee structure

• And finally: two very different ways this story could end

Disclosure: This case study is provided for educational and informational purposes only and should not be construed as investment, legal, tax, or financial advice. The views expressed are solely those of the author. All examples are illustrative in nature and not guarantees of future outcomes. Readers should conduct their own independent research and consult with qualified professionals before making any investment or financial decisions.

The Pitch

This evergreen tender-offer fund launched in April 2024 and scaled to roughly $1.44 billion in NAV within two years.

Coller Capital, of course, is one of the OGs in the asset class. Founded in 1990, the firm manages approximately $54 billion across secondaries and other private market strategies (it was acquired by EQT earlier this year).

Here’s a deep dive on their private credit secondaries vehicle:

Under the hood, C-SPEF is a fairly diversified secondaries vehicle:

• 171 underlying fund positions

• 82 distinct GPs

• nearly 1,500 underlying portfolio companies

At launch, the portfolio was overwhelmingly traditional LP-led secondaries exposure. That changed quickly.

Read more

Every other week, we send a quick digest on what’s catching our eye across private markets.

Today’s lineup:

1️⃣ Private equity: PE firms are now buying the firms that sell you PE; meanwhile, retail appetite for their evergreen vehicles is quietly cratering
2️⃣ Private credit: valuations being investigated by regulators; BDC redemptions exceed new capital raised for the first time in history
3️⃣ Commercial real estate: fundraising returned (just not to the funds that need it most); and the era of "extend and pretend" is officially over, with lenders finally eating the loss.

Before we dive in:

Accredited Insight delivers the LP’s perspective on private credit, private equity, and CRE, drawing on hundreds of deals, and thousands of conversations. Paid subscribers gain access to our database of over 40 case studies and articles on everything from evergreen funds to due diligence (the kind of analysis that tells you what the GP pitch deck left out).

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1️⃣ Private Equity

1. PE Eats Wealth Management Firms

The natural progression of “democratization of alts”: wealth management firms are being acquired at breakneck pace by (you guessed it) private equity firms. The people selling you access to private equity now belong to private equity. Fees all the way down.

Carlyle’s deal to take majority control of MAI Capital at a $2.8 billion valuation is the latest example of private equity moving deeper into the RIA channel. The trend is driven by:

• a massive wealth transfer,

• institutional fundraising fatigue (side note: if institutions are fatigued, how good is it for retail, but I digress),

• soaring demand for alts from high-net-worth investors.

According to Pitchbook, deal activity hit record levels in 2025, with RIAs, private equity firms, and sovereign wealth funds all competing to build scaled wealth platforms tied to private market distribution.

And what exactly are these retail investors being sold? Evergreen funds.

2. Evergreen Fundraising is Slowing Down

And speaking of evergreens, retail appetite for private equity evergreen vehicles is rapidly cooling (FT). The headlines have focused on private credit (more on that below, at length), but private equity has not been spared.

Quarterly inflows into U.S. PE evergreen funds have stalled after a sharp run-up through mid-2025.

👉 If retail sentiment on PE evergreens continues to sour, the liquidity mismatch in PE vehicles could make the BDC drama look like a Sunday picnic. Here’s why:

📌 Leyla’s notes:

1. Personally, I’d want my advisor’s ownership structure to be clearly disclosed. PE ownership is not a red flag in and of itself, but there are unquestionable conflicts of interest.

2. Watch liquidity in evergreen vehicles, especially when the underlying assets don’t generate enough cash flow to meet redemptions. You want to be early in the queue, if liquidity is of concern (and if it’s not, you might be better off in a traditional drawdown vehicle).
   

2️⃣ Private Credit

1. Valuations Under Fire

Federal prosecutors are reportedly investigating valuation practices at BlackRock’s TCPC private credit BDC, according to Bloomberg. This follows a disclosure earlier this year where the fund warned it would mark down its net asset value by roughly 19% (this sent shares down 13% in a day and triggered investor lawsuits over alleged misstatements around loan valuations).

👉 We covered TCPC's deteriorating fundamentals back in April (before the DOJ news broke). Here’s the non-accrual story:

Let me get back on my soapbox about valuations in private credit: when 100% of your portfolio is Level 3 (meaning zero observable market prices), an "independent valuation" simply means independent people making educated guesses based on assumptions you gave them.

Here’s a great WSJ article on the subject, with some examples from OBDC’s schedule of investments.

The Financial Stability Board published a report on private credit vulnerabilities. Their key concerns include:

• Deepening bank-to-non-bank connections (estimated exposure: $220B – $500B).

• Deteriorating borrower credit quality.

• Heavy sector concentration (especially in tech and healthcare).

• Severe structural liquidity mismatches.

Look at this beautiful, interconnected ecosystem:

Outflows

Non-traded BDCs handed back more capital than they raised in Q1 2026, the first time in recorded history outflows exceeded inflows in the structure (Bloomberg).

Non-listed BDCs fulfilled ~$7B in redemption requests while raising only ~$5B in new capital, a $2B net outflow. But the $7B number is only part of the story: total Q1 redemption requests across U.S. private credit semi-liquid vehicles reached ~$15B, with several flagship platforms capping redemptions.

Here’s a look at one of the largest funds, with 14% of fund’s shares requesting redemptions:

BofA thinks the worst of the redemption wave may have hit in Q1, but Q2 could still be rough for several non-traded private credit vehicles (Pitchbook):

• Apollo Debt Solutions is projected to see redemption requests climb to 15% of shares outstanding in Q2 (vs. 11.2% in Q1),

• while Ares Strategic Income Fund could rise to 14% (vs. 11.6%).

• BCRED continues to look relatively stronger than peers: it had the lowest Q1 redemption requests among the major private BDCs tracked by the bank at 7.9%, and was the only large vehicle that did not gate withdrawals in Q1. Even so, BofA expects BCRED redemption requests to rise to 12% in Q2 and believes withdrawal limits may follow.
  👉 And here’s the most recent post on BCRED:

• Meanwhile, Blue Owl is firmly in the hot seat. BofA forecasts Q2 redemption requests of 28.5% for OCIC and 52.9% for OTIC 😱, both sharply above already-elevated Q1 levels.

• HPS’ HLEND is also expected to see an increase, with projected Q2 redemption requests of 13% versus 9.3% in Q1.

👉 If you are new here, here’s a primer on how liquidity in semi-liquid funds works:

📌 Leyla’s notes:

• Non-accrual rates trending up, and dividend coverage below 1.0x are flashing red. If your BDC can’t cover its distribution from actual income, it’s returning your own capital.

• Valuations are a big story: if we start seeing write-downs across the board, redemptions from non-traded semi-liquid vehicles will accelerate.

Finally, FSK reported a brutal Q1 2026:

• NAV down 9.9% to $18.83

• non-accruals jumping to 8.1% at cost

• dividend coverage slipping to 0.6x).

A KKR affiliate came in with a $300M strategic backstop (a $150M convertible preferred piece plus a $150M tender at $11/share), in addition to an incentive fee waiver and a hard pivot to deleveraging. Octus published a great breakdown.

3️⃣ Commercial Real Estate

On Fundraising

Private real estate fundraising rose 13% to $172 billion in 2025, the first year-over-year increase since 2021, driven primarily by opportunistic, value-add, and debt strategies capitalizing on falling asset prices and available debt:

But take a closer look at the right Y-axis. Total capital raised is recovering, but the number of funds doing the raising has collapsed. Capital is concentrating with larger fund managers. According to S&P’s With Intelligence, fundraising is unlikely to return to 2021-22 highs.

Speaking of mega-funds, BREIT raised $1.2B in Q1 (its highest quarterly raise in three years) and posted net inflows of roughly $1B. Sector-wide backlog of redemption requests has dropped to ~$1B (under 2% of total requests), but SREIT now accounts for nearly all of it.

We covered SREIT's situation in detail last week. Here’s what happens when you buy at the top of the market:

“Extend and Pretend” is Coming to an End

The "extend and pretend" era is officially over: Goldman, Deutsche Bank, and smaller lenders like Ready Capital are now selling distressed CRE loans at discounts as steep as 85% or foreclosing outright, with CMBS loans in foreclosure hitting $17B in March (up from $7B in 2024).

MSCI clocked $132B in total CRE distress, and Q1 marked the first quarter since 2022 where workouts exceeded new additions to the distressed pile. This means the backlog is finally getting worked through, mostly by lenders eating the loss rather than rolling the loan. We have reached the end of the road.

📌 Leyla’s notes:

1. The end of “extend and pretend” means we’re finally getting real price discovery. There will be some attractive buying opportunities for well-capitalized operators.

2. We are already seeing flight to quality: size and track record will matter. I've spoken with multiple GPs who were sitting on the sidelines in the first half of the decade. We might see them deploy meaningfully in the second half.

3. Question for the readers: are mortgage REITs already played out? Not something I’ve been watching closely of late, wondering if it’s worth taking another look?

Thanks for reading! As always, if you have any suggestions, reply to this email, leave a comment, or hit me up on socials (unhinged me on X, slightly more filtered me on LinkedIn)
-Leyla

P.S. New here?

Here’s where you’ll find the full archive (somewhat organized):

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By December 31, 2024 (just eleven days after inception), those positions were reported at approximately $377 million in fair value, generating ~$52 million in unrealized gains before the fund had completed its first two weeks of existence.

By March 31, 2025 (just over three months from inception), the fund’s assets had grown to approximately $1.3 billion, and the manager had earned roughly $11 million in incentive fees.

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Franklin isn't alone. I analyzed five major evergreen private equity funds launched between 2022 and 2024 with 50-98% of assets allocated to secondaries: Franklin Lexington, Coller Secondaries, Carlyle AlpInvest (deep dive here), Ares Private Markets (read more here), and FS MVP Private Markets Fund1. In total, these funds represent a combined $11.6 billion in assets.

The pattern was nearly identical across all five: early returns overwhelmingly driven by unrealized gains from marking discounted secondary purchases to sponsor-reported NAV.

Welcome to the strange intersection of ASC 820, private equity secondaries, and evergreen fund structures. Oh, and UNREAL gains (a term I stole from , whose newsletter you should subscribe to).

“Leyla, what in the world are you talking about?” Here’s your primer on evergreen secondaries:

👉 Want some case studies on secondaries evergreens? Here’s Coller Private Credit Secondaries (LINK), Carlyle AlpInvest (LINK) and Partners Group Next Generation Infrastructure (LINK).

The Nuts and Bolts of ASC 820

Under ASC 820, investment funds are permitted to use underlying managers’ reported NAV as a “practical expedient” for fair value. This means a fund can purchase a secondary stake at a discount, then immediately mark the investment to the sponsor’s reported NAV (even when that NAV is materially higher than the transaction price).

No independent appraisal required.

❗️More importantly, the transaction price itself does not determine the carrying value❗️

The practical expedient exists for a reason. When the guidance was introduced, secondary markets for private fund interests were relatively small, illiquid, and opaque. Investors often had little observable pricing data beyond the underlying manager’s reported NAV.

The issue isn’t that secondary purchases should never appreciate toward NAV (discount capture is a legitimate investment strategy). The questions are:

1. Whether it still makes sense to mark up assets immediately when we now have observable secondary market pricing, and

2. whether managers should get paid quarterly on paper gains that haven't been tested by an actual exit.

Today, that market looks very different.

Secondary transaction volume in private equity has grown dramatically over the past decade, and evergreen private market vehicles have grown like mushrooms2 🍄 after rain as sponsors seek to bring private markets to a broader investor base (“democratization of alternatives”, and all).

For secondaries-focused evergreen funds, the playbook is brilliantly simple:

1. Buy discounted secondary interests

2. Mark them to sponsor-reported NAV

3. Record immediate UNREALized gains

4. Show great total returns (and in some instances, get paid real dollars in performance fees)

5. Raise additional capital at the higher NAV

6. Repeat

As long as the accounting treatment remains unchanged, the early-stage economics can be extremely attractive (I’ll show you just how attractive in a minute).

This fund is an excellent case study on the topic (guest post by , whose newsletter you should also subscribe to)

The mechanism can also work in reverse: if updated NAV information implies lower values than transaction cost, the practical expedient can produce immediate markdowns as well. We saw that with Bluerock:

‼️ Importantly, this is a non-issue in a traditional drawdown fund structure, where investors commit capital upfront and unrealized marks are eventually tested through realizations over the life of the vehicle.

Evergreen funds operate differently. New investors continuously subscribe at current NAV. If that NAV already incorporates immediate mark-ups from discounted secondary purchases, future investors may effectively buy into unrealized accounting gains before those gains are ever validated through exits.

Last month, Mark Higgins, Tim McGlinn and I submitted a formal agenda request to the Financial Accounting Standards Board (FASB), asking the Board to reevaluate the continued appropriateness of ASC 820’s NAV practical expedient when observable secondary transaction data exists (Institutional Investor).

Side Note on Reporting

Franklin’s disclosures were also notable in how they presented acquisition cost. Funds are required to disclose cost information, but there is no standardized reporting format for how these figures must appear.

This fund did the same, btw:

In Franklin Lexington’s case, the cost basis shows up in supplemental footnotes rather than directly alongside fair value within the Schedule of Investments. Like this:

That one fund, with the cost of $3.9M? That’s Resolute Fund V, L.P. Form N-PORT reported its fair value at $60,104,327 (a 1400% gain) as of the same day, 12/31/24.

Granted, reconstructing every single position is reserved for those who enjoy inflicting accounting pain upon themselves (I do it for you, dear reader), and doesn’t really matter in the grand scheme of things.

The aggregate economics are already visible in the filings themselves: ~$326M of investments reported at ~$377M in fair value after the fund’s first eleven days of operation, generating approximately $52 million in net unrealized gains.

The Pattern

By now you should realize where I’m going with this: Franklin Lexington isn’t an outlier.

Read more

“What happens to funds that raised billions in the Sunbelt at the market peak?”

It so happens that we have the perfect case study: Starwood Real Estate Income Trust. The fund raised $11.2 billion in 2021–2022, right as multifamily real estate peaked. Just a little over three years later, NAV is down 29%, redemptions are frozen, and investors who invested at the peak can currently access exactly $0.

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“How do non-traded REITs come up with asset valuations?” Here you go:

👉 And here’s a recent case study on the subject:

In today’s post, we’ll look at what happened with SREIT: the fundraising surge, the redemption spiral, the leverage dynamics, and what can happen when fundamentally illiquid assets are placed inside a liquid wrapper (also, I have homework for you)

And here’s a fun case study on a single multifamily deal in Houston (acquired in 2022):

Disclosure: This case study is provided for educational and informational purposes only and should not be construed as investment, legal, tax, or financial advice. The views expressed are solely those of the author. All examples are illustrative in nature and not guarantees of future outcomes. Readers should conduct their own independent research and consult with qualified professionals before making any investment or financial decisions.

Raising Billions at the Peak

Starwood REIT’s fundraising tells the story of the euphoric years in commercial real estate. After modest growth from 2019–2020, subscriptions exploded: $5.8 billion in 2021, followed by another $5.4 billion in 2022.

That $11.2 billion was raised at the absolute peak.

What were they buying? As of December 2022, 65% of assets were multifamily apartments, and 58% of the portfolio was concentrated in the South (primarily Texas, Florida, Georgia, and Arizona).

In other words, this was a leveraged bet on Sunbelt multifamily at the exact moment valuations were peaking (and roughly a year before supply went parabolic).

The pitch was compelling: stable income from essential real estate, tax-efficient distributions, and professional management.

The reality: they were buying apartments at the top of the cycle, just as supply surged and interest rates were about to spike.

Liquidity Meets Leverage

Evergreen real estate funds face an age-old problem: they promise monthly liquidity while owning illiquid assets.

That works beautifully until it doesn’t.

When real estate values decline, redemption requests accelerate. One option is to shrink a fund into oblivion gracefully: sell assets, cut distributions, de-lever, and slowly return capital.

Starwood chose a different path.

As redemption requests accelerated through 2023–2025, the fund sold assets ($1.2 billion in 2025 alone), but did not materially reduce leverage.

Total debt stayed roughly flat at around $14 billion, while equity collapsed from $10.1 billion in 2022 to $4.0 billion in 2025. The debt-to-equity ratio exploded from 1.5x to 3.5x, while NAV per share fell from $26.34 to $19.65.

The fund’s stated leverage policy targets 50–65% (debt net of cash divided by gross real estate assets). By late 2025, actual leverage had climbed to approximately 64–67%, effectively sitting at or above the high end of the stated range.

100% to 0% in 48 months

The redemption tsunami happened as they usually do:

slowly, then suddenly.

From January through September 2022, Starwood honored 100% of redemption requests.

In October 2022, requests hit 2.2% of NAV for the first time, exceeding the stated 2% monthly limit. The board made a fateful decision: waive the limit and pay 100% anyway.

Redemption requests jumped to 3.2% of fund’s total NAV in November, then 4.2% in December. Gates came down.

• November satisfaction rate: 63% (meaning investors received liquidity for only 63% of the shares they submitted for redemption).

• December satisfaction rate: 20%

The run had started.

Throughout 2023, satisfaction rates bounced between 30–55% as the fund tightened redemption limits. Then came May 2024: the monthly redemption cap was slashed from 2% to 0.33% (an 84% reduction).

Satisfaction rates collapsed to roughly 3–4% and stayed there.

By Q4 2025, the math had become impossible. The fund’s quarterly redemption limit was approximately $122 million. Meanwhile, investors were requesting roughly $1 billion per month, while only about $40 million was being honored monthly.

At that pace, it would take roughly 25 months to clear just one month’s redemption queue.

The fund suspended redemptions entirely.

Distributing What You Don’t Earn

Another problem was unfolding beneath the redemption panic: Starwood was paying out far more than it earned.

From 2023-2025, the fund distributed $1.461 billion to shareholders. But after paying property operating expenses and interest, distributable cash flow was only ~$894 million.

The ~$567 million shortfall was effectively funded through asset sales. In other words: part of the “yield” was simply investors getting their own capital back.

Every distribution check slowly eroded NAV per share, creating a vicious cycle:

• Falling NAV triggered more redemptions

• Redemptions forced asset sales

• Asset sales pressured NAV further

By the time distributions were reduced to 4.7% in April 2026, the damage had largely been done.

The Fee Story

A brief aside on fees: while investors watched their capital evaporate, management collected $346 million in fees from 2023-2025 ($153M, $105M, $88M in each year, respectively).

Performance fees ($204 million in 2021 and $102 million in 2022) rewarded the team for buying at the peak. And when management received fee payments in shares, they redeemed them outside the queue at 100% satisfaction while regular investors got 4%.

Maybe it’s just me, but the optics aren’t great.

Leyla’s Notes

Some closing thoughts. First, I don’t think investors will lose all their equity here. But I do think it’ll take a while before redemptions resume.. Importantly, there are some lessons from this fund that we can all learn from:

1. Peak fundraising is peak danger.

When a fund raises record amounts, it’s usually because everyone else thinks it’s a great idea too (which means you’re late. I’m learning this lesson myself, btw). Starwood’s $11.2 billion in 2021-2022 was the warning sign.

2. Liquidity promises on illiquid assets don’t survive downturns.

One has to give. If you're after liquidity, public markets offer a way to allocate to any given strategy with daily liquidity. Public REITs took a beating during the same period, but investors could exit them at any point. The illusion of liquidity in non-traded REITs evaporates precisely when you realize you need it. Want illiquid assets? Drawdown funds are a better vehicle.

3. If distributions consistently exceed earnings, pay attention.

A fund can distribute more than it earns for a surprisingly long time. I see this done across different asset classes, and different deal sizes:

👉 BCRED is currently distributing more than it earns in net investment income:

👉And here’s a one-off multifamily deal that does the same:

But consistently funding distributions through asset sales or return of capital is not accretive to NAV. Ever.

4. What Could Have Been Done Better (open for debate, comment section is yours)

Unfortunately, when a fund finds itself in this pickle, there are no good options. But arguably, the least bad path may have been:

• Limit redemptions aggressively and early (perhaps below 1% monthly)

• Cut distributions sooner

• Sell assets and de-lever, even if losses become realized

• Shrink the fund before leverage becomes unmanageable

Last resort: publicly list the vehicle and let the market clear the price.

None of these options are attractive. But delaying reality often compounds the eventual damage.

5. What’s a Better Opportunity?

The below should not be considered investment advice. Would I allocate to this fund at this moment in time? Absolutely not, and for a variety of reasons.

Publicly traded REITs offer a much more compelling opportunity at this moment, because many of them are trading at fairly high implied cap rates, and cover distributions from the actual cash flow. Of course, many do not, so do your homework. Public REITs may be down 20-30%, but at least the price is honest and the exit door is open.

The best opportunities will be in REITs (and new vintage Regulation D funds) that are well-capitalized to buy new assets, are not burdened with too much debt, and don't deal with redemption issues. In other words: the opposite of Starwood REIT's current position.

Thank you for reading!

-Leyla

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P.S. Letter to shareholders

If you made it this far, I have some homework for you. Go read this letter to shareholders, come back and tell me what you think.

What do I think? They’re hoping and praying the macro turns.

The letter is a masterclass in hope: waiting for interest rates to fall, for the Iran conflict to end, for Fed Chair Kevin Warsh to be seated, for multifamily supply to decline. The subtext: we need a miracle.

And yes, the 5% redemption caps in semi-liquid funds are in place to protect capital by avoiding fire sales. But we’ve already seen examples where the redemption queue does not clear after a few quarters, and forces the manager’s hand. Remember Bluerock?

Today, I’ll make the case for why private credit is not going to be the undoing of evergreen structures. And why private equity (where redemptions are currently running low) might be.

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The Big Picture

The redemption headlines center on evergreen private credit funds. Requests are up across the board, with many managers capping outflows per their prospectus provisions.

👉 Everything you wanted to know about gating provisions across different fund structures:

What's interesting: private credit funds are experiencing redemption pressure. Private equity funds? Not so much.

Side note: You access Sekond’s redemption tracker (LINK). It’s free with a Sekond account. And no, I’m not paid to promote it, I just really like data.

Why Private Credit Can Handle This

I recently attended an event where Mark Rowan of Apollo was presenting. His take on evergreen private credit funds was blunt: it would take a very incapable manager to fail to meet the 5% quarterly redemption cap.

I wholeheartedly agree. And the data proves it.

I pulled financial statements for four of the largest private credit evergreen funds: Blackstone Private Credit (BCRED), Cliffwater Corporate Lending, Blue Owl Credit Income, and HPS Corporate Lending.

I then compared them to four large evergreen PE funds: Partners Group PE, Blackstone Private Equity Strategies, KKR Private Equity Conglomerate, and AMG Pantheon.

Here’s what embedded liquidity actually looks like:

Read more

Every other week, we send a quick digest on what’s catching our eye across private markets (a pulse, if you will).

Today’s lineup:

1️⃣ Private equity: AI infrastructure is hot, software isn’t dead, and regulators are eyeing PE in law firms
2️⃣ Private credit: PIK is fine, banks are fine, probability of defaults is fine (I’d add the dog meme, but this email is too long as is)
3️⃣ Commercial real estate: did your market make it on the best cities list?

Before we dive in:

Accredited Insight delivers the LP’s perspective on private credit, private equity, and CRE, drawing on hundreds of deals, and thousands of conversations. Paid subscribers gain access to our database of over 40 case studies and articles on everything from evergreen funds to due diligence.

Subscribe now

1️⃣ Private Equity

1. From KPMG’s Q1 Pulse on Private Equity:

Infrastructure (particularly AI-adjacent/energy infrastructure) is the hottest theme in PE right now. The largest deal? The $41B take-private of AES, a clean energy company.

And yes, retail is getting access to infrastructure too. Here’s an evergreen infra fund deep dive:

That said, software isn’t dead. Despite all the AI disruption noise, TMT (tech/media/telecom) still led PE investment in Q1, with $62B deployed. This is the largest sector allocation in the U.S:

2. PE ate accounting firms

Since 2021, PE funds have taken ownership of ~24 of the top 100 US accounting firms. Now, those assets are starting to trade.

The first “flip” happened in January 2025 when Citrin Cooperman changed hands from New Mountain Capital to Blackstone (at 15x EBITDA, up from the 11x New Mountain paid). More are expected.

The second wave of buyers is running into a problem: the easy value creation is already gone (tech upgrades, roll-ups, margin expansion). What’s left is operational grind.

Every PE manager claims they add operational value. Here’s how to tell which ones actually do it:

3. PE wants to eat law firms, too

Several states are moving to block the workaround MSO (Management Services Organizations) structure that allows PE to invest in law firm economics without owning the practice (WSJ):

• California (AB 2917): bans non-attorney control

• Illinois (HB 5670): bans fee/profit-linked arrangements entirely

The opposition zeros in on professional ethics: conflicts of interest (where investors may prioritize profit over client outcomes), threats to lawyer independence, and risks to client confidentiality.

Net effect: early accounting firm acquisitions have been successful (for PE firms). But the universe of professional services industries to acquire might be shrinking.
That said, incentives are strong, minds are sharp and money is flowing in. I expect the industry to keep finding new loopholes angles.

2️⃣ Private Credit

Goldman Sachs’ latest view on private credit is essentially: relax, but don’t get comfortable.

On that note: here’s a comparison of Goldman Sachs’ non-traded and listed BDCs:

Yes, there has been recent volatility (especially in retail-focused BDCs), but GS frames it as noise at the margin of a much larger market. Institutional investors still hold the lion's share of private credit AUM, though retail and insurance capital drove most of the growth over the past three years:

Worth noting: most retail money sits in semi-liquid evergreen funds (with quarterly redemption windows), while institutional capital is locked up in traditional drawdown structures.

If the retail influx slows, it's unclear where the next leg of growth comes from.

👉 Here’s how liquidity in semi-liquid funds works:

So far, fundamentals are holding:

• Realized losses: 64bps (vs. ~100bps historical avg)

• PIK income: elevated, but not spiking

• Non-accruals: stable

Goldman's conclusion: no systemic risk, and experienced managers with dry powder are well-positioned if dislocations emerge in syndicated markets.

But the margin for error is thin.

Moody’s baseline forecast projects GDP growth of ~1.5% (right at the threshold where defaults typically accelerate).

The chart below shows the average probability of default (PD) for all U.S. listed companies at 7.9% as of March 2026, compared to 3.2% for high-yield companies:

Why the gap between all US and high-yield?

High-yield companies refinanced at low rates during 2020-21, and size helps: the median high-yield company is roughly 11x larger than the median firm in the all-US portfolio. These companies have better access to capital markets.

Smaller, non-rated borrowers (the bread and butter of private credit) don't have that cushion.

From Moody’s (emphasis mine): "Corporate lending AUM will exceed $2 trillion in 2026 and approach $4 trillion by 2030... Growth brings complexity: covenant erosion, the proliferation of PIK features, NAV lending, and back-leverage structures are introducing layers of structural opacity that can mask true leverage levels."

Also worth noting: 44% of 2025 non-accruals are coming from 2021–2022 vintages (the ultra-low rate era). Loans originated in the easy-money era are starting to show cracks.

One last data point: loans to non-depository financial institutions (NDFIs, which includes private credit funds) represent only 14% of total bank lending. So concerns around bank exposure to private credit, while worth monitoring, aren't yet at systemic levels.

3️⃣ Commercial Real Estate

1. Milken Institute’s Best Performing Cities report is excellent

Idaho Falls, Boise, and Punta Gorda led the nation in job growth from 2019–2024.

Here’s the list of top large cities across all metrics (the report goes into detail on each one - it’s free, you just need to create an account).

2. JLL published an interesting article on repositioning of obsolete assets and portfolios.

Most buildings standing today will still be around in 2050, so obsolescence is becoming a major risk.

Assets are falling behind across design, location, and regulation (especially energy standards).

Retrofitting can cut energy costs by up to 60% and boost rents, often at a discount to redevelopment.

Lastly, I presented at the Passive Pockets Summit on using AI for real estate due diligence. If you missed it, I’ve updated my original post (originally written in the dark ages of 2024) with best practices and five prompts for evaluating multifamily deals. You can find it here:

P.S. New here?

Here’s where you’ll find the full archive (somewhat organized):

As always, if you have any suggestions, reply to this email, leave a comment, or find me on socials (unhinged on X, and a slightly more filtered on LinkedIn)
-Leyla

Blackstone Private Credit Fund has been growing faster than a gym bro on steroids. But here’s something the marketing materials don’t put on the front page: DRIP (dividend reinvestment plan) is doing a lot of lifting in this fund.

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Nearly half of every dollar of distributions never leaves the building. Of the $4.5 billion in distributions declared in 2025, the fund only cut checks for $2.3 billion.

The other $2.2 billion? Automatically recycled back into new shares at a NAV that's down 6.7% from its peak (NAV is a sad chapter in this story, we’ll discuss in a minute).

Medallia has inflicted a lot of damage on BCRED's NAV. The good news? It's already reflected in NAV via unrealized depreciation. Here's how the restructuring will flow through BCRED's financial statements (and what it means for NAV):

Disclosure: This case study is provided for educational and informational purposes only and should not be construed as investment, legal, tax, or financial advice. The views expressed are solely those of the author. All examples are illustrative in nature and not guarantees of future outcomes. Readers should conduct their own independent research and consult with qualified professionals before making any investment or financial decisions.

The Pitch

BCRED is a non-traded BDC, structured as a tender offer fund, launched in January 2021. It lends to middle-market companies, primarily through first lien senior secured loans (89.7% of the portfolio), mostly floating rate (95%), across 700+ borrowers.

As of March 2026, the fund holds $80.5 billion in investments and pays a monthly distribution of $0.20 per share for Class I (about a 9.9% annualized yield at the April NAV of $24.38).

Liquidity is limited (yeah, you already know this). The fund offers quarterly repurchases capped at 5% of NAV.

Just in case you need to brush up on redemption limitations of various structures:

So let's start with the obvious question: how does a 9.9% yield actually get paid?

The Distribution Machine

BCRED declared $4.52 billion in distributions during 2025. But only $2.33 billion left the fund as cash. The other $2.13 billion (47.2%) was reinvested via the dividend reinvestment plan (DRIP).

Cash net investment income (after stripping out $481 million of PIK interest and dividend income) came in at $3.78 billion. That covered the cash distributions comfortably. But if you add back the DRIP —

Read more

But when the marks are set by the manager, that smoothness is a function of accounting timing (rather than economic reality).

If public markets are an open pot of boiling water, private credit funds are pressure cookers: quiet on the outside, harder to inspect inside.

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The unfolding restructuring of Medallia, a $1.1 billion position inside Blackstone Private Credit Fund (BCRED), offers a rare look inside the pot.

The mark has fallen from 98 cents to 78 cents to a reported 69 cents over three years. And yet the impact on BCRED’s $24.79 NAV per share will be almost imperceptible post-restructuring. That’s the good news.

That is not because the loss isn’t real. It’s because NAV already reflects the lower marks via unreali

zed losses. I'll walk through two hypothetical scenarios to show how that math works.

👉 This case study shows you how GAAP mechanics work when it comes to credit losses (pay attention to the side note about equity positions!):

The bigger question today’s case study raises: how many other Medallias are sitting in private credit portfolios right now? (that’s maybe the not-so-good news) - we’ll take a closer look at BCRED’s disclosures.

Disclosure: This case study is provided for educational and informational purposes only and should not be construed as investment, legal, tax, or financial advice. The views expressed are solely those of the author. All examples are illustrative in nature and not guarantees of future outcomes. Readers should conduct their own independent research and consult with qualified professionals before making any investment or financial decisions.

The Loan

In October 2021, at the peak of the pandemic-era software boom, Thoma Bravo acquired Medallia in a $6.4 billion leveraged buyout. Financing came from a who’s who of private credit lenders, including Blackstone, Apollo, KKR, and Antares.

Blackstone wrote the largest check, with BCRED holding more than $1.1 billion of par value exposure on its direct book.

It was a classic large-cap direct lending deal: sponsor-backed, scaled borrower, premium spread. But two features stood out:

1. The loan was underwritten based largely on Medallia’s annual recurring revenue (ARR), rather than traditional cash flow metrics. Public filings show that Medallia’s EBITDA was negative $109 million in 2021 (before the takeover). The lenders were betting on revenue growth converting to profitability.

2. The capital structure included payment-in-kind (PIK) interest. Rather than paying all interest in cash, Medallia could satisfy 5.6% of the rate by adding it back onto the loan principal (PIK is what you offer a company that can't generate cash).

A good read on the relationship between PIK and dividend yield:

When a borrower pays cash interest, lenders receive money. When a borrower pays PIK interest, lenders receive a larger loan balance. Reported income on lenders’ books climbs, and so does the borrower’s leverage.

And here’s how company leverage, interest coverage ratio, and enterprise value interact:

Between 2023 and 2024, BCRED’s direct par balance grew from roughly $1.0 billion to more than $1.1 billion, driven in part by capitalized interest. Across the lender group, total debt rose to approximately $2.8 billion, reflecting both PIK accrual and additional financing for add-on acquisitions.

The Warning Signs

The first sign of trouble was a 2024 amendment that widened the loan spread to SOFR + 6.5% and dropped the PIK component to 4.00%. That combination (a wider spread paired with reduced PIK) is what lender amendments look like.

Then the marks began to fall. Reported fair value went from the high 90s into the 80s, eventually reaching the high 70s by year-end 2025. Bloomberg subsequently reported that some lenders had marked the loan materially lower still: Blackstone and HPS Investment Partners (now part of BlackRock) wrote it down to 69 cents in February 2026, a nine-point drop in two months.

In late 2025, the lender group made a pivotal decision: they refused to extend the PIK arrangement, which expired at year-end. Medallia would now have to pay its full contractual interest in cash.

According to Bloomberg, the switch to all-cash interest will increase Medallia’s annual debt servicing costs by approximately $100 million to nearly $300 million, exceeding the company’s roughly $200 million in annual earnings.

The math does not math, even assuming the $200 million earnings figure is not inflated.

Before we get to the restructuring scenarios, let’s talk about PIK, LTV and scale.

The PIK Problem

Throughout this deterioration, BCRED never placed Medallia on non-accrual status. Under BDC accounting rules, a loan goes on non-accrual when collection of interest becomes doubtful.

Here’s more on PIK (plus another good story, Pluralsight):

Medallia was PIK-ing for over two years and the fair value had fallen 22 points, yet

Read more

The read is reassuring: sponsors are putting in more equity than ever. Lenders are protected. Private credit is disciplined.

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But take a look at the second chart. LBO purchase price multiples have risen to roughly 11x EBITDA, also near historic highs.

Today, I’ll make the case for why LTV is an incomplete (and often misleading) metric for evaluating private credit fund portfolios when used on its own.

More specifically: in middle market lending, where “collateral” is often enterprise value rather than hard assets, headline LTV ratios can look safer even as borrower fundamentals weaken.

❓“Leyla, where do I find all this?” - the first place to look is financial statements. Start here:

We’ll look at what the math actually tells us about lender risk, using filings from two funds: Cliffwater’s Corporate Lending Fund (CCLFX) and Goldman Sachs Private Credit Corp (GSCR).

👉 If you missed the deep dive on Cliffwater’s CCLFX, you can read it here:

And GSCR was discussed here (as a comparison to GSBD), and is probably worth a deep dive of its own (stay tuned):

The Anatomy of Risk: Leverage vs. LTV

A long time ago, I was taught the three C’s of lending: collateral, capacity, and character.

• Collateral refers to the value of the asset securing the loan

• Capacity refers to the borrower’s ability to repay

• Character is self-explanatory (the softest metric of the three, and the hardest to gauge).

When it comes to loans to middle market portfolio companies backed by PE firms, character can largely be set aside (since you can’t assess credit history in the way you would for a consumer or public corporate borrower).

🧮 But we can do the math behind the two remaining C’s: collateral and capacity.

To understand the risk, we must first separate two concepts that are often conflated. The terminology doesn’t help, because "leverage" and "LTV" intuitively suggest the same thing.

They are not the same thing. (I don’t make the rules).

We’ll start from the left of this graphic:

LTV (the collateral metric):

• This tells you what percentage of the company’s total worth is encumbered by debt. It tracks the equity cushion (what’s left for the lender if the business has to be sold).
  In theory, bigger cushion = more protection.

‼️VERY IMPORTANT CAVEAT (with 2!! exclamation points): the difference between middle market lending and, say, a real estate loan is that there is no hard asset backing the debt.

A mortgage lender can foreclose on a building. In middle market private credit, the “collateral” is the company’s earning power (EBITDA, its customer contracts, its management team, etc). If earnings fall, the collateral falls with them, simultaneously and in the same direction. There is no building to sell. There is only a multiple applied to a cash flow stream, and both the multiple and the cash flow can compress at once.

The “cushion”, folks, is not a hard asset. It is an assumption on top of another assumption: what the market is willing to pay for a stream of earnings.

Leverage (the capacity metric) - middle of the graphic above:

In simple terms, leverage tells you how many years of earnings it would take to repay the debt if all free cash flows were directed toward repayment.
The higher the number, the longer it would take to repay, and the riskier the loan.
Unlike LTV, leverage does not depend on what someone else is willing to pay for the business. The metric is rooted in operating performance (as EBITDA goes up, leverage ratio improves, and vice versa).

👉 Speaking of private equity returns, read this:

Interest Coverage (the cash flow metric):

This is the most immediate and, arguably, the most important metric:

Read more

Every other week, we send a quick digest on what’s catching our eye across private markets - a quick rundown of things you need to know.

Today’s lineup:

1️⃣ Private equity: strong deal activity, weak fundraising, and what managers are watching next.
2️⃣ Private credit: redemption wave builds, regulatory scrutiny, and more data on SaaSpocalypse
3️⃣ Commercial real estate: record leasing and record vacancy, all at once

Before we dive in:

Accredited Insight delivers the LP’s perspective on private credit, private equity, and CRE, drawing on hundreds of deals, and thousands of conversations. Paid subscribers gain access to our database of over 40 case studies and articles on everything from evergreen funds to due diligence.

Subscribe now

1️⃣ Private Equity

Two reports this week offer complementary views on where PE stands.

1. PitchBook’s Q1 2026 Global PE First Look

PE delivered a healthy first quarter despite resurfaced tariff uncertainty, the ongoing conflict in Iran, and compounded by growing concerns in private credit:

• Over 5,100 transactions totaling $481.6 billion closed in Q1, pacing ahead of Q2 2025 (remember Liberation Day?)

• On exits, Q1 logged 975 transactions worth $306.7 billion. With $2 trillion in dry powder and more attractive borrowing costs, sponsors are well-positioned to keep capital moving.

❗️The one clear weak spot is fundraising. Q1 funds raised just $86 billion (roughly in line with Q1 2025 and likely setting the industry up for another challenging year).

The issue on the LP side is structural: many are short on capital for new allocations, as exit activity has yet to fully offset the prolonged period of limited distributions.

2. S&P Global’s 2026 PE survey

• 71% of GPs now rank operational improvements as their top value creation lever, ahead of financial engineering.

👉 How do you pick a skilled PE manager when all of them claim outstanding operational capabilities? Read this:

• Nearly half (46%) anticipate a shake-out of mid-tier managers unable to generate distributions.

• 53% flag deteriorating credit quality as the greatest risk to private credit markets in 2026.

Check out the chart in this post, it goes with the above, I promise:

2️⃣ Private Credit

Last time we covered Apollo, Ares, and BlackRock gating in March, there is more:

1. The wave continues 🌊

Carlyle’s $7 billion Tactical Private Credit Fund capped redemptions after investors sought to pull 15.7% of shares in Q1 (Bloomberg), more than 3x its 5% quarterly limit.

In total, individual investors requested over $20 billion in redemptions from private credit firms in Q1 (FT)

Regulators are now paying close attention. The Federal Reserve is asking major U.S. banks to share details about their private credit exposure, to assess the level of stress in the sector and its potential to spill into the wider financial system (Fortune)

Meanwhile, the Treasury Department announced it will convene a series of meetings with domestic and international insurance regulators focused on recent developments in private credit markets. (U.S. Department of the Treasury)

‼️ Speaking of regulators: we’ve argued that using NAV as a practical expedient in semi-liquid secondary funds (while allowing managers to crystallize carry on unrealized gains) can create a major incentive misalignment. , and I asked FASB to review the issue as newer-vintage funds increasingly shift toward getting paid on paper gains earlier. Institutional Investor covered it here.

👉 This is an example of a fund that uses this practice to crystallize the incentive fee on unrealized gains:

And this one earns it on income only:

2. The AI/Software Problem

The question behind the redemption surge: what’s actually in these portfolios?

According to Bank for International Settlements, outstanding loans to SaaS firms grew from roughly $8 billion in 2015 to over $500 billion (about 19% of total direct loans) by 2025. A third of private credit funds now have exposure to the SaaS sector.

Here’s a fund with high software exposure:

The recent liquidity crunch appears tied to a mix of AI/software disruption fears, broader market unease, and the realization that inflows could no longer absorb outflows. Once headlines around withdrawal requests hit, additional redemption pressure likely followed.

👉 Wealth advisers face a classic prisoners’ dilemma when it comes to redemptions. And there is only one rational move:

The manager defense: PE owners, not lenders, are first in line to absorb losses if software buyouts deteriorate. True. But it also means the PE marks haven’t moved yet.

👉 Need to understand how gating actually works?

3️⃣ Commercial Real Estate

The office market managed to hit two records simultaneously in Q1 (a good one, and a not-so-good one).

On the leasing side, office tenants signed new leases for an estimated 120 million square feet in Q1 2026:

• the strongest quarterly total since mid-2018,

• a 25% increase year-over-year,

• and the first time this decade that quarterly volume exceeded its pre-2019 average.

  

The recovery isn’t being driven by a handful of mega-deals either: the number of individual lease transactions was the highest observed in a decade.

On the vacancy side, the picture is not so stellar:

• U.S. office vacancy hit 21% in Q1 (a new record, up 60 bps year-over-year and now 4 percentage points above where it stood at the start of the pandemic in 2020).

• Ten of the last 13 quarters have shown net contraction in occupied office stock, with Q1 seeing an overall decline of 5.2 million square feet. Oakland, Austin, Chicago, and San Jose led the losses. Moody’s expects vacancy to keep rising through 2026 as more legacy leases expire.

Tenants are signing more leases, but for smaller footprints in higher-quality space. The result is record leasing activity and record vacancy occurring simultaneously.

❗️For LPs, the implication is that top-line CRE metrics are increasingly unreliable; submarket, vintage, and asset quality are doing most of the work.

Side note: I’m seeing pitch decks with AAR 😱 Here’s why you need to pay attention:

Elsewhere across asset classes, Moody’s reports broadly stable but unspectacular performance:

• Multifamily rent growth came in under 1% with vacancy ticking up to 6.8%, with Sun Belt markets bearing the brunt of new supply.

• Retail held flat at 10.4% vacancy.

• Industrial vacancy edged up to 8.4% (its highest since 2021) as new inventory narrowly outpaced occupancy gains.

P.S. New here?

Here’s where you’ll find the full archive (somewhat organized):

Thanks for reading! As always, if you have any suggestions, reply to this email, leave a comment, or find me on socials (unhinged version on X, and a slightly proper version of me on LinkedIn)
-Leyla

The Variant Alternative Income Fund has posted positive fiscal year returns every single year since inception. FY2022: +11.79%. FY2023: +8.28%. FY2024: +9.62%. Even FY2025, which included a brutal write-down, still came in at +3.70%.

Now here's the other number: NAV per share has fallen from $28.93 in April 2023 to $26.68 by October 2025. That's a decline of ~7.8% over roughly two and a half years.

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Positive returns every year and a slowly declining NAV. How can this be?

Today, we’ll talk about how a fund can show positive returns every year while losing value underneath (and why looking at returns alone will mislead you).

If you invest in semi-liquid funds, start here:

And if you need a refresher on interval vs tender offer funds, read this:

Disclosure: This case study is provided for educational and informational purposes only and should not be construed as investment, legal, tax, or financial advice. The views expressed are solely those of the author. All examples are illustrative in nature and not guarantees of future outcomes. Readers should conduct their own independent research and consult with qualified professionals before making any investment or financial decisions.

The Distribution Mechanic

The answer starts with distributions (but doesn’t end there).

Let me show you the math from the fund's own per-share data. Note the fund reports annual performance on a calendar year basis, but the fund's fiscal year ends on April 30th. I did the math for you and converted everything to the same time period (so reported returns are on a fiscal year basis):

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Deal A looks like the obvious winner, until you realize Deal A is quoting AAR and Deal B is quoting IRR.

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If you’ve been reading this newsletter for a while, you already know IRR can be easily manipulated by timing cash flows. Today is Part 2 of that discussion: how ARR might look much better than IRR.

At the end, I’ll show you a better way to evaluate a deal (and a simple prompt that lets you calculate IRR yourself from any offering deck in about 30 seconds). Spoiler alert: there is no single perfect metric (but I’ll show you how they interact and what they mean).

👉 Read this first (on how to make IRR look pretty):

Invest in real estate deals? You’ll like our case studies:

What is AAR?

Average Annual Return is the simplest return calculation in real estate. You take your total profit (all distributions plus your proceeds at sale, minus your original investment), divide by the number of years, then divide by your initial investment.

Example:

• You invest $100,000 in a 5-year syndication.

• You receive $38,000 in cumulative cash flow over those five years and

• $173,000 back at sale (including return of capital).

Your total profit is $111,174 (cumulative cash received less $100K investment).

AAR says: $111,174 ÷ 5 years ÷ $100,000 = 22.2% per year.

Amazing, no? The trouble is, that number treats every dollar equally regardless of when you received it. The $5,000 you got in Year 1 counts the same as the $173,000 lump sum you didn’t see until Year 5.

“Leyla, just look at DPI, it’s airtight.” Oh, do I have news for you:

What IRR does differently

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And yet it’s up 73.5%.

Before you run off to invest: that’s the puzzle we’re going to solve today. The answer tells you something important about how returns get manufactured in the evergreen PE fund world.

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If you invest in private equity, you need to read this:

In today’s case study we will:

1️⃣ What the fund is (and what’s inside)
2️⃣ How a fund with negative investment income generates positive returns
3️⃣ What's actually been realized vs. what's still a mark

Disclosure: This case study is provided for educational and informational purposes only and should not be construed as investment, legal, tax, or financial advice. The views expressed are solely those of the author. All examples are illustrative in nature and not guarantees of future outcomes. Readers should conduct their own independent research and consult with qualified professionals before making any investment or financial decisions.

The Pitch

JPMorgan Private Markets Fund (JPMF) is a non-traded interval fund that invests in private equity through three strategies:

• co-investments alongside PE sponsors,

• secondary purchases of existing fund stakes,

• and primary commitments to newly formed funds.

“Leyla, what’s an interval fund?” — Here you go:

Structurally, this is a fund-of-funds (FoF).

I hope this doesn’t come as a shock, but I’m not a big fan of FoFs (and neither is Tim McGlinn, who wrote the guest post below):

As of September 30, 2025, the fund manages ~$1.39B in net assets across 94 PE positions in 70+ underlying vehicles. Class I shares have compounded from $10.00 to $17.35. That’s a 73.5% cumulative gain in just over two years (driven largely by a one-time markup surge in the fund's first weeks of operations), or roughly 12–13% annualized once you strip that out.

Let’s take a look at how it’s done. We’ll start from the top:

1️⃣ The Balance Sheet

As of September 30, 2025:

• PE Investments: $1.07B

• Liquidity sleeve: $404M (JPMorgan money market fund) + $2M cash

• Total assets: ~$1.48B

• Liabilities: ~$87M

• Net assets: ~$1.39B

Technically off balance sheet, but an obligation nonetheless: $187.4M in unfunded commitments (13.5% of NAV). The $404M liquidity buffer covers this comfortably for now.

Here’s another fun case study:

What are the assets?

As of September 30, 2025, the PE portfolio carries a fair value of $978.6M against a cost basis of $789.6M. A ~24% aggregate mark-up. On paper.

Here’s how that breaks down by strategy:

When we zoom in on the co-investment portfolio (the light blue 41% slice of the pie chart on the right), the sector exposure is more skewed toward software:

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