Yet private equity funds raised more than $1tn last year, up a record 20 per cent, according to the most recent data. Investor Cliff Asness wrote recently of the “mind blowing” possibility that investors now knowingly accept lower returns “for the privilege of not being told the prices”.

Hiding from reality creates an illusion that private investments are less risky than their debts clearly demonstrate, which draws in more money, raising risk further. The moment of reckoning likely comes when and if the downturn drags on, and private markets have to finally reveal losses in a down market. The shock could trigger a stampede toward the exits. While some private managers will continue to provide long-term capital to help build companies, many others will be exposed as financial engineers who built careers on a thin foundation of easy money.

In the end, there will be nowhere to hide in a tight money era. And private markets, which largely built returns on heavy and loose borrowing, are more vulnerable than public markets in this new age.

Eoin Treacy's view

The credit crisis in 2007/08 was exacerbated by forced mark-to-market rules which automatically repriced assets based on a single trade at a lower level. Some of the reforms in place since then have curtailed that risk but do not protect values from a broad-side as commercial properties are handed back and business profits ebb in a recession.


The continued underperformance of major private equity houses like Blackstone and Brookfield suggest this risk is weighing on investor appetite for their portfolios. Corporate profits have not yet rolled over but that seems to be inevitable as liquidity tightens. That’s particularly troubling for the institutional investors who parked money in illiquid long-term structures. It is increasingly likely that pension funds will be some of the biggest victims of this repricing.