Michael Ewens' webpage

Liquid Claims on Illiquid Assets: The Economics of Retail Access to Private Markets  

Abstract:
Expanding retail access to alternative investments requires investment vehicles that can provide liquidity on top of illiquid assets. This transformation may strain what makes alternatives work: active ownership, where deal flow, value creation, and planned capital deployment matter. We study a growing segment of that access, using data on 160 registered closed-end funds with $188 billion in net assets. We ask whether and how these funds provide the promised exposure to private markets. While the funds hold more than 80% of capital in private assets, they underperform similar institutional drawdown fund strategies by 1.15 percentage points per quarter. Fees and static cash drag explain about two-thirds of the gap, while the remainder reflects imperfect exposure to private markets. We explore sources of this exposure gap. Measurement and return smoothing do not explain it. The funds' returns are less smooth than the benchmark's, and adjusting for stale prices leaves their beta on the institutional fund benchmark well below one. Instead, the shortfall reflects how the funds manage flows and liquidity. The private funds they hold perform no worse than comparable funds that do not hold them. Many funds take two to three quarters to deploy inflows into their private-market allocation, and their holdings tilt toward the more liquid private assets. Consistent with evidence from traditional alternative asset vehicles, funds run by managers with more private-market experience have a smaller gap and show greater private-market exposure.