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Jacob Miller and Matt Rubin discuss how investors can navigate illiquidity in private markets
Key Takeaways
- Private markets investments are inherently illiquid and should be approached with a long-term time horizon—typically five to ten years—to account for business maturation and the J curve.
- Illiquidity should be viewed not as a heightened risk but as a planning constraint; investors should allocate based on what portion of capital can be committed over longer durations.
- A growing range of private markets structures—from semi-liquid to fully illiquid—offers investors more tailored entry points based on their wealth stage and liquidity needs.
Jacob Miller: Hi, I'm Jacob Miller, co-founder of Opto Investments.
Matthew Rubin: Hi, I'm Matthew Rubin, chief investment officer of Cary Street Partners.
Jacob Miller: Private markets are—they’re fundamentally illiquid. There are more and more products that bring some liquidity, but investors really should think about this as a long-term investment. That, you know, helps with deciding who is as appropriate for—
We’re talking about illiquidity as a risk that, if you have that horizon—how long does it take for a business to, you know, prove itself out and break even? If you're going to go build something, start selling it, come to market—there’s a J curve. It takes five to seven years.
And in my mind, there might actually be less risk if you're willing to wait that whole period to see if it works, versus having the market dictate every day whether or not it's more or less likely. And so the way we think about it is: what is my illiquidity budget? What do I not need to touch to pay in the asset class—five or seven or ten years? And then how do I get the most out of that?
For some folks at the lower end, that might be a semi-liquid option. For some folks at the higher end, if you have an illiquidity budget, that might be truly illiquid. And luckily, the markets are growing and evolving with different structures and access points that could meet people at different points in their wealth journey.
Matthew Rubin: Because something is labeled private or public today does not increase the risk in our view—it does increase the illiquidity. But to your point, Jake, if you're investing and thinking about any investment over the time horizon of five or seven years, it’s not an unreasonable time horizon.
As an investor, it's different than as a trader—but as an investor, it certainly makes sense. And when you invest capital on behalf of a family or individual or institution, there are longer duration portions of that capital that make complete sense in a client’s portfolio. It doesn't make sense to have to be daily liquid. You're not going to use that money on a daily basis.
And that's the way we think about allocating to private investments. It should be a portion of the portfolio not based on the risk inherent in that particular investment, but looking at the illiquidity in that particular investment. And today, with all the options available, there are things in the private markets that are more liquid. We still believe they should be treated somewhat as illiquid, but there are many more options today than what was traditionally available in just pure drawdown vehicles, where you had to really think about it as a ten-year investment period.
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