Chief Investment Officer Geeta Kapadia told CNBC that mass retail flows could upend how private markets function.
“Part of the selling point of investing as an institution is that you are able to take the illiquidity risk, the time risk, and you’ll be rewarded for that. And I worry that the flow of retail investors … could have an impact going forward,” she said at a separate Milken panel.
Traditionally, PE funds have been designed for decades-long commitments and infrequent cash flows, while individuals generally want quicker returns and higher liquidity. “Sometimes they just don’t connect,” Kapadia said.
If institutional and retail investors’ goals diverge, private markets could lose their long-term focus. Managers may hold more cash or shorten deal horizons to meet retail liquidity demands, the speakers concurred.
During times of stress, sudden retail redemptions could force asset sales at discounts, triggering liquidity crunches and pricing shocks in what have generally been stable markets.
Kapadia acknowledged that semi-liquid funds try to bridge the liquidity gap, but cautioned that investors might not be able to get all their money should they want to cash out. “It may not be as liquid as you think if there’s a stress event.” she said.
