The writer is a former banker and author of A Banquet of Consequences — Reloaded and Fortune’s Fool
Just as US subprime mortgages were at the heart of the 2008 financial turmoil, a future crisis may centre around booming private markets.
Believing they had found the latest formula for success, investors have ploughed about $9.8tn into unlisted equity, private credit and early stage or new venture funding. Alongside well-known problems — overvaluation, optimistic assumptions, aggressive accounting and high debt levels, there are additional concerns.
First, as private investments are inherently illiquid, investors cannot cauterise losses easily. Monetisation, largely reliant on initial public offerings and trade sales, is now difficult, especially at previously anticipated prices.
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