To subscribe to our newsletter, visit us on LinkedIn:
I just posted about this earlier today, but wanted to make sure to cover it in our newsletter this month, too.
Everywhere I turn right now, there’s talk about how regulators are making it easier to funnel your clients’ retirement savings into Private Equity funds. The sales pitch is always the same: equity-like returns, bond-like risk.
It just doesn’t square with reality.
I decided to pull together what the academics actually say. These aren’t marketing decks. They’re replication indices, long-term studies, and independent research with no funds to sell you.
Academic & Independent Estimates of Private Equity Volatility
Laid out side by side, the picture is remarkably consistent. Whether it’s 27%, 29%, or 33%, the studies all land in the same neighborhood—about triple the glossy 10% figures private equity managers like to put in their marketing. It’s not a rounding error.
So ask yourself: who do you believe? And more importantly, how are you supposed to allocate to private equity responsibly if the performance metrics can’t be relied on?
I’m not arguing that private equity has no place in client portfolios. My view is simple: acknowledge the real volatility, size positions accordingly, and make sure the risks are transparent to clients. That’s how you include private equity responsibly—not by pretending it’s something it isn’t.
Best,
Dan
Alternative Talking Points
We review the latest monthly reports and industry analyses across the private markets, boiling them down into a few easily digestible points to share with your clients. Contact us if you’d like more depth.
Hedge Funds: Broad-based gains continue into 2H 2025
➕ Event-Driven strategies led performance in July. The HFRI Event-Driven (Total) Index rose +1.5%, with Activist strategies surging +4.0% and Multi-Strategy gaining +1.8%.
➕ Equity Hedge strategies gained +1.2%, led by Healthcare (+4.8%), Fundamental Growth (+1.3%), Market Neutral (+1.0%), and Technology (+0.5%). EH remains the YTD leader through July.
➕ Relative Value strategies advanced +0.8%, supported by Convertible Arbitrage (+1.85%) and Corporate (+1.2%).
➕ Macro strategies were flat to slightly negative, with the HFRI Macro (Total) Index slipping -0.1%. Systematic Diversified posted +0.3%, while Multi-Strategy Macro fell -1.2%.
➕ Dispersion narrowed but remains wide. Top-decile hedge funds gained +6.7% in July, while the bottom decile lost -4.6%, a spread of 11.3%.
➕ Cryptocurrency funds surged again, with the HFR Cryptocurrency Index jumping +14.5%.
Source: HFR – https://www.hfr.com
Private Equity: Still selling the story, still struggling in practice.
➕ Deal flow keeps sliding. Global PE/VC entries fell to $52.6B across 911 deals in July, down from June and down nearly 30% YoY. More dollars, fewer transactions. The “rebound” still hasn’t shown up (S&P Global).
➕ Mega-deals are the exception, not the rule. TPG’s planned $7.8B Techem acquisition with GIC and Mubadala proves big checks are possible—but only for safe, cash-flowing assets. That’s not a healthy pipeline; it’s consolidation at the top (S&P Global).
➕ Fundraising seems pretty broken. Some 18,000 funds are chasing $3.3T, but LPs only have ~$1T to give. The automatic “re-up” era is over. Many managers are pitching products the market simply doesn’t want (Institutional Investor).
➕ Exits remain clogged. H1 exit count collapsed to 637 from 997 a year ago, while trade sales to corporates are now the default path. GPs aren’t “choosing strategic partners”; they’re stuck with the only liquidity outlet still open (CohnReznick; S&P Global).
➕ Regulators helping to make your clients retirement funds the new target. The SEC scrapped the 15% cap on closed-end funds’ private exposure, and the DOL is opening 401(k)s to PE. Seems less about “democratization” than pushing high-fee, illiquid products onto savers least able to absorb them (Ropes & Gray; Kirkland & Ellis).
Private Credit: Growth continues, but stress signals build
➕ Fundraising is on track but uneven. H1 2025 private credit fundraising reached $124B, pacing ahead of 2024’s full-year total. But global credit fundraising actually fell to $74.1B, down 38% from late 2024—suggesting momentum is concentrated in a few large managers (With Intelligence; Paul Weiss).
➕ The resilience narrative may be overstated. Reported rates stood at 1.76% (Proskauer) and 5.2% (Fitch) in Q2, but debt service metrics are deteriorating and “shadow defaults” tied to maturity extensions and PIK loans are climbing toward 3.4%. (Proskauer; Fitch; Yahoo Finance).
➕ Spreads are compressing. First Lien and Unitranche loans are now pricing below S+525, even as credit quality weakens. Abundant capital is driving terms more than fundamentals (Houlihan Lokey).
➕ Private Wealth still piling in. New SEC and DOL guidance could funnel retirement savings into the sector—broadening access but also exposing less-sophisticated investors to illiquidity and fees (NatLawReview).
➕ Systemic risks flagged. Regulators are watching rapid growth. Senator Warren has raised concerns about bank lending to private debt funds, and JPMorgan notes capital has been committed “too much, too quickly”—warning losses could be larger when the cycle turns (CNN; Yahoo Finance).
➕ Maturity wall still looms. The 2026–27 refinancing cycle in high-yield and leveraged loans will test private credit’s resilience. Already, $17B of private credit debt has been taken over by lenders in the past six months, much of it from the aggressive 2021–22 vintages (VanEck).
Commercial Real Estate: Valuations holding, distress building
➕ Fundraising looks stronger on the surface. H1 2025 real estate fundraising totaled $110.5B, up 16% YoY. But nearly $20B of that came from two Blackstone funds, highlighting concentration rather than broad recovery. More than half of funds still close below target (Alter Domus).
➕ Dry powder keeps piling up. Private equity holds $350B+ earmarked for CRE, with Blackstone alone at $177B. Funds launched 3–5 years ago now face deployment deadlines, raising the risk of capital being pushed into marginal deals to avoid returning money unspent (CRE Daily).
➕ Office remains the weakest link. Delinquencies hit new highs, while Chicago office sales averaged just $61 per square foot in 2025, far below pre-pandemic levels. Trophy buildings still lease well, but the broader inventory is becoming structurally obsolete (CommercialCafe).
➕ Valuation lags remain wide. Green Street’s CPPI fell 0.1% in July, but private appraisals often lag months behind market conditions, creating artificial stability. Non-traded REITs may go 18 months before repricing—a setup for sharp downward adjustments when reality forces it (Green Street; SEI).
➕ Sector resilience is selective. Industrial real estate distress remains low at 0.5%, while multifamily delinquencies climbed to 6.6% in Sunbelt metros where acquisitions peaked at high prices. Retail delinquencies are still elevated at 7.1%, showing lingering structural pressure (CRE Consult).
Artificial Intelligence: Adoption attempts grow… so do failed projects.
➕ Risk management struggles to keep pace. Generative AI failures are mounting: July saw 50+ cases of fake legal citations attributed to AI hallucinations, a cautionary signal for finance. Experian launched an AI model risk assistant to speed validation, but faster approvals may cut against the need for deeper oversight (Vinciworks; Yahoo Finance).
➕ Cyber risks escalate. Financial services firms face 300x more cyberattacks than other industries, with AI-enhanced threats on the rise. In phishing simulations, 45% of employees fell for AI-crafted emails, underscoring exposure both from external attackers and internal AI adoption (CPApracticeAdvisor; Cloud Security Alliance).
➕ Regulation diverges. Trump’s July AI Action Plan emphasized deregulation, while the SEC has prioritized enforcement against “AI washing.” The FCA in the UK has pushed responsibility onto firms, leaving a fragmented global landscape (Faegre Drinker; WealthTechToday).
➕ Concentration risk grows. A few providers—Anthropic, Microsoft, Google—dominate financial AI deployments. With 75% of large banks integrating AI by 2025, synchronized behavior could amplify volatility if systems fail or err (nCino).
➕ Hallucinations are a feature of LLMs. Far from rare, hallucinations appear to be a structural feature of current LLMs. In finance, that risk extends beyond research errors into compliance, regulatory filings, and risk reporting—areas where fabricated outputs may pass with little scrutiny (Vinciworks; Freewritings). Human review is critical.
Worth your time
Our monthly recommendation of books, articles, research, and announcements we found interesting, important, or just plain entertaining enough to share. Sometimes, we’ll have a lot—other times, not so much. The objective is to share things that might be useful or interesting for your clients, not filler.
➕ Private Markets for the People? Or Just More People for Private Markets?: Ludovic Phalippou continues to ask the important questions. In this paper, he examines the industry push to expand access to private equity. He’s very much in line with our view on Evergreen Funds from the megafund managers and “argues that this shift exposes individuals to high fees, opaque structures, and misleading performance metrics. Without strong governance and transparency, this is not democratization but exploitation.”
➕ How One Big Private-Equity Fund Makes Its Numbers Incomprehensible: The Wall Street Journal. This article was making the rounds on LinkedIn last week. We agree with Mark J. Higgins on this, i.e., “Anybody considering an investment in private markets should read this article…”
➕ Wall Street’s Big, Bad Idea for Your 401(k): The Wall Street Journal. Jason Zweig has been shining his light in some of the darker corners of the private markets. We’re right on board with him … With all the talk about opening up access to private investments and the regulatory support … we urge caution. Happy to talk about it in detail if you’re interested. Please reach out.
➕ When Cloud AI Stops Making Sense: Pure Math AI. Our friends at Pure Math fed a series of articles into Google’s NotebookLM and asked it to create a short presentation video. It discusses controlling prototyping and R&D costs for generative AI projects by purchasing an Nvidia T4 GPU and hosting it on-premises. There are a bunch of reason you might want to consider on-premises solutions for AI (security, alignment, etc.). This is one of them.
Disclosure:
This newsletter is for informational purposes only and does not constitute investment advice. All investments, including those in equity, debt, and alternative assets, carry certain risks, notably potential liquidity and transparency issues associated with many private investments. These risks should be considered in the context of an individual investor’s objectives and risk tolerance.
The views expressed are those of Third Wire as of the date of publication and are subject to change. The information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed.
Past performance is not indicative of future results. Investors are advised to consult with qualified financial, legal, or tax advisors before making any investment decisions. Third Wire does not accept liability for any loss or damage arising from the use of this newsletter.
By subscribing to this newsletter, you agree and acknowledge that Third Wire is not liable for any decisions made based on the information provided herein.
1. The Morningstar Indexes are the exclusive property of Morningstar, Inc. Morningstar, Inc., its affiliates and subsidiaries, its direct and indirect information providers, and any other third party involved in, or related to, compiling, computing, or creating any Morningstar Index (collectively, “Morningstar Parties”) do not guarantee the accuracy, completeness, and/or timeliness of the Morningstar Indexes or any data included therein and shall have no liability for any errors, omissions, or interruptions therein. None of the Morningstar Parties make any representation or warranty, express or implied, as to the results to be obtained from the use of the Morningstar Indexes or any data included therein.
The Fund seeks to replicate certain characteristics of private equity buyout strategies but may not achieve the same results. Past performance is not indicative of future results. Investments are subject to risk, including loss of principal. Investments in public equities may involve significant risks, including market volatility, economic uncertainty, and potential deviations from the Fund’s intended strategy. There is no guarantee that the Fund will achieve its investment objectives.
The Fund is a private offering and is not registered under the Investment Company Act of 1940 or the Securities Act of 1933. As such, it is not subject to the same regulatory requirements as registered investment vehicles. Fees and expenses associated with the Fund may impact overall performance. Investors should review the private placement memorandum for a detailed description of fees and costs.
This document is for informational purposes only and may be shared with the general public under Rule 506(c). Any offer to invest is made exclusively through the Fund’s private placement memorandum or other authorized offering documents and is available only to verified accredited investors. Verification of accredited investor status is required prior to any investment.
The Index uses advanced AI methodologies, including Long Short-Term Memory (LSTM) neural networks, to guide security selection and leverage adjustments. The effectiveness of these methodologies is not guaranteed and may be impacted by unforeseen factors or market conditions.
This document may contain forward-looking statements regarding the Fund’s strategy or expected performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially.
