“Nothing is easier than self-deceit. For what every man wishes — that he also believes to be true.”
—DEMOSTHENES (349 BCE)
As we begin 2026, the belief that private markets represent the next durable opportunity is deeply entrenched. This post argues that such confidence is misplaced. Private markets are not only exhibiting clear signs of late-cycle behavior; they now display the same structural conditions that have preceded past financial crises. Three defining attributes stand out: segmented risk creation, near-perfect incentive alignment across an expansive supply chain, and a deeply rooted but flawed assumption about the nature of private markets themselves.
Drawing on more than 200 years of financial history, with the 2008–2009 global financial crisis (GFC) as a reference point, I examine the private markets supply chain end to end to show how institutional allocators, consultants, fund managers, wealth advisors, trade associations, trade media, and academics can each act rationally in isolation while collectively amplifying systemic risk.
Tracing these dynamics upstream reveals that the rapid growth of evergreen and semi-liquid private-market vehicles reflects not financial innovation, but a late-cycle mechanism for warehousing illiquid assets, delaying price discovery, and sustaining the appearance of stability. The warning is not about bad actors, but about a system whose incentives have become so tightly aligned that even modest stress could produce severe damage. Retail investors, positioned at the end of this speculative supply chain, must be especially vigilant.
The Speculative Supply Chain
After studying multiple financial crises over the past 235 years, I developed a deep respect for an unsettling reality: the most damaging crises are rarely caused by a small group of bad actors. This insight exposes a common but flawed instinct to seek simple explanations after the fact, often by assigning blame to a handful of villains. While emotionally satisfying, such narratives are usually incomplete.
Far more often, crises emerge from millions of actors taking billions of small, incentive-driven actions across an expansive and siloed system. Each participant responds rationally to local incentives that feel defensible within their immediate role, yet few can see how those actions compound when undertaken simultaneously and without meaningful accountability.
The tragic irony is that this pattern of rational behavior has historically proven more dangerous than the actions of a small group of bad actors. It preceded the panics of the 1810s, the 1830s, 1907, 1929, 1999, and 2008–2009. Those same conditions are now visible in private markets.
3 Key Attributes of Speculative Supply Chains
One way to understand speculative episodes is to view them as manufacturing supply chains. Across past financial crises, three core attributes consistently emerge. These are outlined below using the GFC as a reference point.
1. Risk Segmentation
Segmentation of risk across an assembly line-like system is a defining feature of systemic financial crises. Each segment adds risk to the process, yet no single participant has sufficient visibility to understand how that risk compounds as it moves through the system.
During the GFC, independent mortgage originators relaxed underwriting standards to increase loan volume. Those loans were sold to investment banks, repackaged into mortgage-backed securities, distributed to institutional investors, pooled into funds, and ultimately sold to both institutional and retail investors. At each station, participants may have recognized incremental risk locally, but few could see how those risks were being amplified elsewhere in the chain or how they compounded collectively.
Figure 1: The GFC Speculative Supply Chain[i].
Source: Investing in U.S. Financial History (2024).
The relative isolation of each segment is what makes systemic crises so difficult to identify in real time. Almost no participant has sufficient visibility. In The Big Short, what distinguishes figures like Michael Burry and Steve Eisman is not intelligence alone, but vantage point. Many equally capable participants failed to recognize the danger simply because they lacked the same line of sight.
2. Incentive Alignment
The second attribute required for a systemic financial crisis is the near-perfect alignment of incentives among all participants. In many cases, alignment extends well beyond direct participants.
During the GFC, mortgage originators, investment banks, and fund managers all shared a common incentive to increase the volume of mortgage production and the issuance of mortgage-backed securities. But the alignment did not stop there. Additional risk amplifiers included ratings agencies, specialized insurers, and prominent voices in the financial media. Each benefited directly or indirectly from higher origination volumes, greater securitization activity, and expanding asset pools.
Critically, no major participant had a strong economic incentive to slow the assembly line. Fee structures, compensation models, market share dynamics, and political pressures all leaned heavily against restraint. Had even one systemically important segment been incentivized to reduce production volume or tighten underwriting standards, the crisis may have been averted, or at least rendered less catastrophic.
3. Deeply Rooted But Flawed Assumption
“There is no national price bubble [in real estate]. Never has been; never will be.”[ii]
—DAVID LEREAH, chief economist, National Association of Realtors (2004)
At the core of every speculative episode lies a nearly universal assumption that later proves to be fundamentally incorrect.
In the 1810s, Americans purchased farmland aggressively thinking that wheat prices would remain elevated indefinitely. In the late 1920s, Americans believed it was safe to purchase stocks on margin because they assumed equity prices would never suffer sustained declines. During the GFC, people assumed that residential real estate prices would never decline on a national level.
The presence of a widely held but fundamentally flawed assumption allows participants in a speculative supply chain to systematically underestimate the incremental risks that they add to the system. Because the flawed assumption is rarely questioned and instead reinforced by recent experience, it provides the psychological comfort necessary to allow risks to remain unchecked.
The Private Markets Supply Chain
Historically, these three attributes have been identifiable ahead of major financial crises. It is therefore concerning that all three are now present in private markets. Across the supply chain, participants operate under incentives that are closely aligned to expand production while overlooking the erosion of underwriting discipline. Indirect participants, including trade media, trade associations, and academia, further amplify these dynamics by reinforcing prevailing narratives and granting unearned legitimacy to the final product.
The sections that follow examine the roles played by the major participants in the private markets supply chain.
Core Participants in the Private Markets Supply Chain
Institutional Allocators
Over the past 25 years, staff at institutional investment plans have dramatically increased allocations to alternative asset classes (Figure 2). A large portion of these inflows has gone to private equity and, more recently, to private credit funds.
This shift began in earnest after allocators observed the exceptional returns produced by the Yale University Endowment between 1985 and 2000. Many assumed that allocations to alternative asset classes were the key ingredient of Yale’s success. Moreover, they assumed that the Yale model was broadly replicable and scalable across institutions with vastly different governance practices, scale advantages, and access to professional talent.
As allocations expanded, however, the underlying incentives subtly shifted from exploiting a perceived opportunity to preserving the professional roles that the opportunity created.
Over time, compensation, career progression, and job security became increasingly linked to the complexity of portfolio allocations rather than to objective analyses of the results they produced. Deviating from that framework by streamlining portfolios and reducing costs presented substantial career risk. Once these incentives were firmly entrenched, allocations to private markets became self-reinforcing, while moderation became increasingly risky to allocators. These incentives remain extremely powerful today.
Figure 2: Growth of Alternative Asset Class Allocations in US Public Pensions, 2001-2024.
Source: Public Plans Database (PPD). Asset allocation data from “National Data — Asset Allocation for State and Local Pensions, 2001–2024.” Author’s calculations. Note: “Alternative assets” defined as private equity, real estate, hedge funds, commodities, and miscellaneous alternatives as reported in the Public Plans Database. Categories combined by author.
Investment Consultants
“U.S. plan sponsors managing over $13 trillion rely on investment consultants for advice about which funds to invest in…We find that consultants’ recommendations of funds are driven largely by soft factors, rather than the funds’ past performance, and that their recommendations have a very significant effect on fund flows, but we find no evidence that these recommendations add value to plan sponsors.”[iii]
—TIM JENKINSON, et. al. (September 2013)
Investment consultants first emerged in the late 1960s to perform independent performance reporting for institutional investment plans. In this role, they measured and compared the performance of portfolios that were typically managed by bank asset management departments.
Over the past five decades, consultants steadily expanded their remit. Performance reporting was supplemented with asset allocation advice, portfolio construction, manager selection in public markets, and eventually facilitation of access to private markets. What began as an independent oversight function gradually evolved into a portfolio design role.
A central problem is that, while consultants are now the architects of institutional portfolios, they never relinquished their role as independent performance reporters. In effect, consultants now evaluate outcomes generated by portfolio architectures that they themselves design, reintroducing the same conflict of interest they originally sought to eliminate.
More importantly, investment consulting firms are now structurally dependent on portfolio complexity. Introducing new asset classes, making nuanced adjustments to existing strategies, and replacing fund managers sustains perceived relevance and justifies fees. This dynamic was evident during a panel discussion on private credit at the May 2025 CFA Live Conference (see minutes 10:45–14:30).
Surveys of long-term investment consultants’ capital markets assumptions show that expected 20-year returns rose by 50 basis points between 2019 and 2024, even as private credit assets under management more than doubled over the same period. Because these assumptions directly influence asset allocation policy and required contribution rates, even modest upward revisions carry material downstream consequences.
Despite the impact of these assumptions, consultants bear little accountability for long-term outcomes. When outcomes disappoint, attribution often shifts toward market conditions, manager dispersion, or asset-class cycles, while the quality of the underlying advisory architecture remains largely unexamined.
The result is a powerful incentive to increase complexity without commensurate accountability for the results.
Private Equity Fund Managers
“Investment discipline is the phrase that’s got to come back and be talked about. In the beginning, the innovators of this idea, of whom I was one, had a great deal of discipline . . . What has happened is imitators by the hundreds have gotten into this business and as imitators flocked in, discipline has eroded.”[iv]
—TED FORSTMANN, founder of Forstmann Little
Modern private equity funds trace their origins to the late 1970s and early 1980s, as the United States emerged from the Great Inflation. Powerful tailwinds converged during this period. U.S. corporations had diversified excessively, interest rates were falling, and equity valuations were rising. These conditions created fertile ground for leveraged buyouts and enabled private equity to generate extraordinary returns.
By the 1990s, those tailwinds had faded. Corporate structures were leaner, interest rates stabilized, new fund managers proliferated, and returns moderated. By the turn of the twentieth century, private equity returns had compressed closer to public-market equivalents, particularly after accounting for fees and the administrative costs of maintaining exposure. The industry remained influential, but its earlier record of generating excess returns proved difficult to sustain at scale.
Following the GFC, a related opportunity emerged. As banks tightened lending practices while rebuilding balance sheets and adapting to stricter regulation, a void opened in credit markets. Many otherwise strong companies struggled to obtain financing, and private credit fund managers moved quickly to fill the gap. Early entrants generated exceptional returns, which attracted followers. From 2009 to 2024, private credit assets under management grew from less than $300 billion to $1.7 trillion in the United States alone (Figure 3).
Figure 3: Total U.S. Private Debt Assets Under Management ($ billions), 2000-2024.
Sources: The Wall Street Journal, CION Investments, Prequin, KKR.
Today, private equity faces a fundamental challenge. Portfolio companies are increasingly difficult to sell at the values carried in fund portfolios. Public markets and strategic buyers are uninterested in supporting exits at current valuations. This has created a backlog of roughly 30,000 companies that remain stuck in aged portfolios.
The private equity model depends on realizations, as capital must be returned to investors to maintain revenue and make room for new fund launches. In response, continuation vehicles, interval funds, and evergreen structures have emerged as a solution to the backlog, providing liquidity without reliance on traditional exits. Many also incorporate private credit exposure, further accelerating the growth of the newest and fastest-expanding segment of private markets.
More importantly, these structures weakened a critical constraint that once governed the industry. Historically, private equity fundraising was restricted by the ability to generate exits.
By recycling assets within a closed system and substituting liquidity mechanisms for true exits, that governor was weakened. Fundraising is no longer tightly tied to realizations, allowing capital accumulation to continue even as exit conditions deteriorate.
Evergreen Fund Managers
“I strongly believe that unless we avoid these and other errors and false principles we shall inevitably go through a similar period of disaster and disgrace [as Barings Bank in 1890]. If such a period should come, the well-run trusts will suffer with the bad as they did in England forty years ago.”[v]
—PAUL C. CABOT, founder of the first U.S. Mutual Fund (March 1929)
The most dangerous investment vehicle in the private markets supply chain is the evergreen fund. These vehicles serve as a destination for aged private equity positions and for direct or secondary purchases of private credit positions. Evergreen funds provide investors with exposure to illiquid assets through structures that promise periodic liquidity. Given their placement at the end of the supply chain, they are densely packed with risk, yet they continue to accumulate assets at a rapid pace (Figure 4).
Figure 4: Growth of Evergreen Funds ($ Billions) (2015-2025E).
Sources: Pitchbook, CapGemini World Report Series 2024 (January 2025), Hamilton Lane.
In many respects, evergreen funds perform the function of a bad bank. In past financial crises, impaired or difficult-to-exit assets were transferred into separate vehicles so they could be worked out over time without forcing immediate loss recognition across the system. That is effectively what evergreen private market funds have become. They function as a mechanism for warehousing unresolved losses, delaying price discovery, and sustaining the appearance of attractive performance in a late-cycle environment.
Unlike traditional banks, however, evergreen funds perform these functions without being subject to bank-level transparency, capital requirements, or liquidity regulation. Investors are often led to believe they are gaining diversified exposure to private equity and private credit positions, while few recognize that they may instead be providing long-duration funding to absorb liquidity shortfalls generated elsewhere in the system. This reality is obscured by marketing language, structural complexity, and selective comparisons to traditional investment funds.
Few investors realize that reported returns are often inflated by the recognition of large, one-day gains allowed under an obscure practical expedient embedded in the Financial Accounting Standards Board’s (FASB’s) ASC 820 guidelines. Moreover, while liquidity is prominently advertised, it is highly conditional, typically limited to a small percentage of net asset value per quarter and subject to gates or suspension under even modest stress. At the same time, investors bear a heavy fee burden. Management fees at the fund level, incentive fees frequently assessed on unrealized gains, and layered fees from underlying managers can together exceed 500 basis points per year.
Investors who dismiss the possibility that reported net asset values may diverge from realizable values may find little comfort in recent developments in public markets reported by Leyla Kunimoto and Jason Zweig. Faced with liquidity demands, a small number of funds have permitted investor exits through public offerings. In each case, public markets were unwilling to provide liquidity at valuations close to reported net asset values, revealing a meaningful gap between stated values and clearing prices.
Wealth Advisors
“These markets are the next frontier, full of boundless opportunities for Americans who want to save for a home, their children’s education, and their retirement. Our goal is to help them seize those opportunities, so they can achieve their American Dream.”[vi]
—ERIC J. PAN, President and CEO, Investment Company Institute (2025).
The final station in the private markets supply chain is occupied by wealth advisors. This is also where the most aggressive sales activity tends to occur.
Wealth advisors do not create private market products, but they play a central role in distributing them to retail investors. They convey the message that lack of scale or access is no longer a barrier to participation in private markets. In this capacity, advisors serve as the final point before private market products exit the assembly line.
The incentives are straightforward. Private market products appear to offer higher expected returns, a differentiated narrative relative to competitors, and fee structures that can materially increase advisor revenue compared with traditional public market portfolios. Illiquidity can be reframed as protection against panicked selling, valuation opacity as reduced volatility, and complexity as a mark of sophistication. These features make private markets especially attractive from a business-development perspective, particularly as fee pressure on traditional advisory services intensifies.
Unlike their clients, however, advisors are insulated from many of the associated risks. Performance is evaluated over long horizons, liquidity constraints can be attributed to product design rather than advice quality, and unfavorable outcomes can be dismissed as market features rather than lapses in judgment. By contrast, asset growth rewards advisors immediately. Together, these dynamics create a powerful incentive to allocate client capital to private market vehicles, often through evergreen funds.
The Amplifiers
It is difficult for a speculative supply chain to operate efficiently when skeptical voices challenge prevailing narratives. Skepticism has the power to extinguish exuberance and slow the speculative assembly line. Such voices function like rust on the gears of a conveyor belt.
For this reason, the most dangerous speculative supply chains are those in which potential sources of skepticism are not merely muted, but converted into vocal advocates. When messages framed around opportunity, inevitability, and safety are amplified simultaneously by multiple trusted intermediaries, the system acquires dangerous momentum. In the case of private markets, the key amplifiers are the trade media, trade associations, and academia.
Trade Media
The trade media is among the most misunderstood participants in the private markets ecosystem, largely because many readers fail to recognize that its role is structurally oriented toward advocacy. Many investors assume the trade media exists primarily to report trends rather than to amplify prevailing narratives. In practice, however, trade publications often echo the narratives embraced by the industries they cover.
Trade publications, podcasts, and conference organizers typically depend on revenue from sponsorships, advertising, event attendance, and access journalism. These business models create powerful incentives to reinforce prevailing narratives rather than challenge them. Amplifying the status quo is commercially rewarded, while questioning it is not.
Over the past year, private market growth stories have attracted online attention, have driven conference participation, and have increased sponsorship demand. In this environment, skeptical coverage risks alienating advertisers and sources without offering comparable upside. It is therefore unsurprising that coverage emphasizes access, innovation, and growth while downplaying structural risks, conflicts of interest, and historical precedent.
The irony is that if the trade media openly acknowledged this structural bias, the resulting damage would likely be less severe. It is the widespread misperception that no such bias exists that makes its influence more pernicious.
Trade Associations
Trade associations exist to advocate for the commercial success of their members, though they often portray their mission as something broader. As pressure from members to advance commercial interests intensifies, trade association messaging tends to become more assertive.
Growth in private markets has become a strategic priority for many firms across the supply chain, and relevant trade associations have responded accordingly. Policy statements, press releases, research reports, and public testimony increasingly frame expanded access as clearly beneficial to investors rather than to the firms selling the products.
One example that has gained prominence is the Defined Contribution Alternatives Association (DCALTA). Its stated mission is to “help bridge the information gap on how to effectively incorporate non-traditional investments into defined contribution plans.” While this may appear constructive, it warrants closer scrutiny. Figure 5 lists DCALTA’s members, alliances, and board representation.
According to a recent report by With Intelligence, six of the 10 firms listed (shaded in red) rank among the largest evergreen fund providers, and many more names are unranked evergreen fund managers.[vii] Understanding the incentives of supply-chain participants and amplifiers provides important context. The firms funding DCALTA hold meaningful influence over educational materials and events, shaping how private market access is framed for defined contribution plans.
Figure 5: DCALTA Members, Alliances, and Board Members.
Source: https://www.dcalta.org/membership (accessed December 19, 2025).
Academia
“Many an academic is like the truffle hound, an animal so trained and bred for one narrow purpose that it is no good at anything else…when something was obvious in life but not easily demonstrable in certain kinds of easy- to-do, repeatable academic experiments, the truffle hounds of psychology very often missed it.”[viii]
—CHARLIE MUNGER, former vice-chair of Berkshire Hathaway
Academia is often presumed to function as the ultimate skeptic, producing research that is methodical and independent of commercial influence. Taking this assumption at face value, however, would be a mistake. Human beings populate academic finance, and no human is fully insulated from incentives. Research agendas are shaped by funding sources, data availability, and institutional partnerships. Industry sponsors often support entire research centers. As Charlie Munger observed, academic research also exhibits a structural preference for identifying narrowly bounded nuance within existing frameworks rather than challenging the foundational assumptions on which those frameworks rest.
Over the past year, some research emerging from well-regarded universities has raised important questions. More broadly, however, many universities and business schools have built substantial portions of their curricula, research agendas, and career pipelines around private markets. These programs educate students, place graduates, attract donor funding, and reinforce institutional relevance in an area of growing demand. All else equal, this creates a structural bias toward viewing private markets as durable innovations rather than as late-cycle phenomena.
In such an environment, it becomes difficult for academic institutions to conclude that private markets may be at risk of forming a bubble, much less that one may already exist.
Conclusion
“We knew the long boom in general and mortgage credit in particular exhibited all the classic signs of a mania, including the widespread belief that housing prices would never fall to earth…But we didn’t appreciate the extent to which non-banks were funding themselves in runnable ways.”[ix]
—TIMOTHY GEITHNER, former Secretary of the Treasury (2014)
In the early 2000s, real estate speculators, loan originators, investment bankers, credit-default-swap issuers, and complacent members of the financial media erected a house of cards. The collective danger lay in the accumulation of small, incremental actions taken by millions of individuals acting in unison under the shared illusion that real estate prices could never decline on a national level. Not only was this assumption false — real estate prices had declined nationally in the 1810s, the 1830s, and the 1930s — but the belief that such a decline was impossible made it more likely to occur. And it did.
As we begin 2026, nearly everyone believes that private markets offer diversification benefits and return enhancement that will never disappear. The number of actors operating with nearly perfectly aligned incentives raises the question of whether the term “supply chain” is too innocuous. A more accurate analogy may be a rail gun, a weapon that uses perfectly aligned magnets to accelerate a projectile to extreme velocity. Anything in its path suffers devastating consequences.
The financial system has unwittingly assembled the equivalent of such a mechanism, and the projectile has already exited the barrel. It is uncertain when it will strike or how extensive the damage will be. But for retail investors, prudence argues for steering clear of its path. Relentless sales pitches promising privileged access to private markets may feel attractive. But make no mistake: You are not a magnet; you are the target.
Related Reading
Continuation Funds: Ethics in Private Markets, Part I (Stephen Deane, CFA, and Ken Robinson, CFA, CIPM, at CFA Institute Research and Policy Center)
The Unspoken Conflict of Interest at the Heart of Investment Consulting (Mark J. Higgins, CFA, CFP)
A 45-Year Flood: The History of Alternative Asset Classes (Mark J. Higgins, CFA, CFP)
The Gilded Age Circus is Back in Town (Mark J. Higgins, CFA, CFP)
[i] Higgins, Mark J. Investing in U.S. Financial History: Understanding the Past to Forecast the Future. Austin, TX: Greenleaf Book Group Press, 2024. ISBN 9798886451344.
[ii] Holden Lewis, “Experts: No Real-Estate Bubble Burst,” Chicago Sun-Times, September 10, 2004
[iii] Jenkinson, Tim, Howard Jones, and José Vicente Martinez. 2013. “Picking Winners? Investment Consultants’ Recommendations of Fund Managers.” Paper, September 2013, University of Massachusetts. https://www.umass.edu/preferen/You%20Must%20Read%20This/PickingWinners.pdf
[iv] Burrough, Bryan, and John Helyar. Barbarians at the Gate: The Fall of RJR Nabisco. New York: Harper & Row, 1990.
[v] Bullock, Hugh. The Story of Investment Companies. New York: Columbia University Press, 1959.
[vi] Pan, Eric J. 2025. “ICI CEO: Make Private Markets More Accessible to Retail Investors.” PR Newswire, January 14, 2025. https://www.prnewswire.com/news-releases/ici-ceo-make-private-markets-more-accessible-to-retail-investors-302444081.html.
[vii] https://www.withintelligence.com/insights/private-credit-funds-surpasses-500bn/?utm_source=chatgpt.com (accessed December 19, 2025).
[viii] Munger, Charlie. “The Psychology of Human Misjudgment.” Farnam Street (blog), accessed December 20, 2025. https://fs.blog/great-talks/psychology-human-misjudgment/.
[ix] Geithner, Timothy F. Stress Test: Reflections on Financial Crises. New York: Crown Publishing Group, 2015. ISBN 0804138613.
