What caught my eye this week.
Blogger 3652 Days has a great post up about why they’re shifting more of their money into private market investments, writing:
As a passive investor, I’m supposed to do nothing. Ideally forever. Also: I dislike thinking too much.
But public markets keep shrinking – fewer IPOs, more delistings, and an ever-increasing proportion of capitalism conducted behind NDAs and closed doors.
So, in a lapse of principle, I’ve been buying shares in listed private equity vehicles and management outfits – Oakley Capital Investments (OCI), Brookfield Corp (BN), and Blackstone (BX), to name a few.
This is the private equity exposure accessible without the $5 million minimum investment, a Cayman lawyer, and a relationship manager who calls you by first name and means it.
It is, admittedly, a semi-active decision. But then, so is breathing.
I’ve long identified the same trends in markets. For good or ill, as an active investor it’s a lot easier for me to shuffle some money into different pockets of the private space, whether it be through crowdfunded investments, or via some of the vehicles that 3652 Days discusses in their article.
But purely passive investors face a quandary with private markets. Investing widely in private companies is a very different proposition to buying into a basket of public companies via an index tracker.
Not only in the many technical ways that 3652 Days outlines. But also because by definition when you buy a private asset you cannot lean so much on the wisdom of the crowd (the public market) to assume you’re (usually) paying something like the appropriate price.
It’s a big existential divergence. It also potentially brings company analysis and fund manager skill back into the picture, which inevitably means higher fees.
No wonder the financial services industry likes private and alternative assets…
Fee-ver pitch
As I wrote recently for Moguls:
The fees on private funds are much higher than for cheap index funds. And as I explained above, private assets are always more opaque and illiquid.
Yet if we run the trend to stay/go private to its logical conclusion – and public markets continue to shrink – then we could all end up paying more in annual fees to hold much the same equity mix we once got cheaply via a tracker. And we’ll have far less idea about what we own and what it’s worth for the privilege.
Maybe this is what ultimately defeats the rise of indexing and passive investing?
The zero-sum maths of active investing in public stocks is irrefutable. So perhaps financial services simply changes the game instead.
A world where a huge proportion of our money goes into private market investments – and into the pockets of private managers – would be a step backwards for everyday investors.
Run to the logical conclusion, it’d mean we’d pay more for less transparent and likely less comprehensive diversification than we already get today from trackers. And yet with all that private money pooled into big pots, you’d not even have the fun of pursuing a 100-bagger.
We’re not there yet. We can still diversify widely via index funds. And it’s too soon to be sure that listed small caps are underperforming simply because the best start-ups are remaining private.
However the push to private (both in equity and debt) is for now the clear direction of travel. So take some time to read the roadmap at 3652 Days.
Have a great weekend!
From Monevator
Asset allocation rules of thumb – Monevator
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Reeves plans Budget council tax raid on expensive homes… [Paywall] – FT
…and is urged to cut pension tax-free lump sums to £100K – Telegraph via MSN
Nationwide: UK house prices ‘resilient’ – This Is Money
Santander boss urges intervention on car finance compensation – Guardian
Sky claims to have obtained Treasury’s definition of ‘working people’ – Sky
How deprived is your area? [Interactive tool] – Guardian
Amazon laying off 14,000 corporate workers as it invests in AI… – CNBC
…but is that what is really driving the job cuts? – BBC
Olive oil: not so much – This Is Money
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Supermarket Christmas savings schemes – Be Clever With Your Cash
Does your motor and home insurance cover rodent damage? – Which
Stylish bungalows for sale, in pictures – Guardian
Comment and opinion
Beating the market is harder than you think – My Money Blog
The case for a good enough portfolio – Morningstar
Maybe it’s not a bubble… – FT
…but if it is a bubble, so what? – Brooklyn Investor
Trying to time the market is like playing The Traitors – Behavioural Investment
Jesse Livermore and the magnet of dancing stock prices – A.W.O.C.S.
If your job didn’t exist, would anybody miss it? – Klement on Investing
What true wealth looks like – The Atlantic
Regrets in ‘unretirement’ – Next Avenue
How to benefit from good advice – Contessa Capital
What’s going on with gold? – Of Dollars and Data
Art Laffer on UK’s economic woes [Podcast] – Merryn Talks Money via Spotify
The impacts of romantic relationships with the boss [Research] – via SSRN
Naughty corner: Active antics
Will attending an investment conference make you sad? – The Falling Knife
Size matters in factor investing – Alpha Architect
How consultants drove an asset allocation shift at pension funds – Verdad
Cryptocurrency as an asset class – Quantpedia
How does inflation impact trading? – Alpha Architect
A reading list for would-be traders (as opposed to investors) – Moontower
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Poor Charlie’s Almanack by Charlie Munger – £0.99 on Kindle
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Coffee-driven deforestation is making it harder to grow coffee – NPR
Two crucial coral species left ‘functionally extinct’ by latest heatwave – Guardian
In memory of the Christmas Island shrew – Mongabay
Robot overlord roundup
Surviving the AI capex boom – Sparkline Capital
When your favourite bands new song is an AI fake – NPR
How Hudson River Trading actually uses AI [Podcast] – OddLots via Spotify
AI models may be developing a survival drive, researchers say – Guardian
When AI breaks bad [Paywall] – Wired
Current AI has no intelligence – The Register
Not at the dinner table
The cosmopolitan conservative [Paywall] – FT
Our hypocrisy blind spot – Behavioural Scientist [h/t Abnormal Returns]
Dating across the political divide in America – Cosmopolitan
After Trump, the deluge – Noahpinion
The US is a casino economy now. You’ll probably lose – New York Times
How Trump’s ballroom will dominate the White House – W.P. via MSN
Off our beat
Why we doubt ourselves – More To That
“I dressed up as a superhero for Halloween, then saved a life” – Guardian
Grokipedia is racist, transphobic, and loves Elon Musk – The Verge
Why you feel the cold more as you age – Independent
The decline of deviance – Experimental History
Could the Internet ever go offline? – Guardian
The country making orphanages obsolete – Reasons to be Cheerful
900,000 vs 9 – Seth Godin
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Rather a sobering post on Humble Dollar today from Adam Grossman on the “perils” of private -in this case private equity investing with a concrete example
Maybe someone could provide a link?
xxd09
@xxdo9 – here you go
https://humbledollar.com/2025/11/lessons-from-first-brands/
This bit from the FT article on Reeves Budget plans was unexpected (band G here):
“A more targeted approach appears more likely. Among the simplest would be to simply double council tax rates on properties in the highest two existing bands, which could raise £4.2bn, according to the IFS.”
Went to have a look at the bands for all the properties in my postcode and spotted one of my neighbours shows as band F, everyone else is band G.
The calculators that estimate 1991 value from previous sold prices suggest the band F property is worth slightly more than ours, but both are closer to band H than band F, absolutely miles over the upper threshold for band F so I’ve no idea how they have managed that, property has not been extended/converted and is 100+ years old. Will keep that quiet for their sake!
For sure private market investments are the next in line for a giant financial scandal and/or crisis. It’s just a matter of when.
“A word on private”. Do VCTs have any bearing here or are they a completely different world?
Thanks for the mention, @TI — I won’t deny I’m flattered.
@some other commenters — For what it’s worth, I don’t think Jamie had private equity in mind in his cockroach speech. Both the First Brands and Tricolor episodes were more private credit than equity: factoring in the first case, asset-backed financing (with questionable collateral) in the second.
Neither structure is remotely new — factoring predates most spreadsheets, and as for the ABS angle… well, we’ve all seen that film before (2008, if memory serves).
That said, private equity does lean heavily on private credit, so if stress keeps building there, it can easily spill over — first into PE, then into public markets. The technical term is ‘systemic risk’. The colloquial one is ‘more cockroaches’.
The Swedroe article says you need to “Screen for quality when investing in small caps to avoid the junk that has historically dragged down performance.”
Are there any global small cap ETFs or funds that do that and are available to UK investors?
Otherwise, is he saying a world small cap ETF (eg WLDS) or world small cap value ETF (eg AVSG) is not suitable?
What an absolutely fabulous blog you’ve got @hosimpson. Love it. Don’t know how I’d missed it up to now, but I’ve really enjoyed reading through your posts there today.
Like others here, I’m a bit in the dark whether VCT / EIS / SEIS count properly (or at all) as “Private Markets”. Eye of the beholder perhaps?
Unless one has the risk appetite of a bungee jumper leaping off the Burj Khalifa; the tax breaks of those three venture capital relief schemes (the ‘VCS’) provide a much needed sedative to the inevitable anxiety of investing into such early stage businesses – many of which will return a big fat donut in returns.
I’ve got some minimal HVPE IT (and truly de minimis other listed PE ITs exposure) (along with doing a minimum SEIS investment two tax years now), but, as with the VCS, is PE really ‘full fat’ “Private Markets”? And is that term a label, a sign post or a definition?
How does one get the exposure if they are interested? There was a point where I had 10% PE in my SIPP, which was made up of HVPE, ICGT, HGT, and III and it was a faff. Are there any simple, one stop shops? Is something like IPRV actually the same as these various investment trusts?
@cm258 #9: IPRV ETF: AFAIK, there are no LSE listed UCITS £GBP denominated ETFs that give you *direct* exposure into PE investments, and this is actually an ETF of PE managers (e.g. Apollo and Brookfield etc), with a 0.75% OCF.
Another question which I have re: Private Markets, is what do they offer (in terms of empirically verifiable long term return history) over and above of investment into low liquidity listed micro caps (especially applying value and quality filters first); see this one for example:
https://open.substack.com/pub/dirtcheapstocks/p/case-study-debt-free-real-estate
@Index #7: I don’t think there are any.