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I’ve made jokes over the past couple of years about FoFoF and the layers (and layers) of fees, but the fact that Tertiaries are now a reality… It has to be the dumbest thing I’ve seen in a while.
Dan, tell us how you really feel?
Tertiaries? A fund that buys stakes in secondary funds that hold stakes in primary funds?
We’re three layers deep in the fee stack here, folks.
This? Evergreen funds? It’s the typical Wall Street playbook. When the institutional money leaves, repackage and target individual investors. It literally turns my stomach.
Meanwhile, hedge fund strategies—which private equity and private credit pundits have spent the last decade declaring dead money (in general) have been doing exactly what they’re supposed to do. Generating differentiated returns, managing volatility, and providing reasonable liquidity. Funny how that works.
Of course, manager selection is key. It always has been. No matter the strategy.
Look, I get it. Your clients are asking for alternatives. But the innovation we’re seeing in ‘private markets’ isn’t innovation—it’s desperation sporting a brand new suit. A costume, if you will.
Happy Halloween 😉
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: Performance is broader than tech—but manager selection matters more than ever.
What you’re hearing: “Tech stocks are driving all the hedge fund gains.”
What we’re seeing: Hedge funds gained 2.4% in September with surprising breadth—Macro strategies (+3.4%) and trend-following CTAs (+4.5%) led. Healthcare (+6.9%) and energy (+6.4%) outpaced technology. About 80% of funds made money, but the gap between winners and losers is widening.
Bottom line for clients: Hedge fund returns aren’t just riding the tech wave—diversified strategies are working.
Private Equity: Financial engineering replaces value creation as exits remain elusive.
What you’re hearing: “PE continues to innovate with new liquidity solutions for investors.”
What we’re seeing: The emergence of tertiaries—$315M raised to buy stakes in secondary funds—represents unprecedented fee complexity. Combined with 6.4-year holding periods, continuation funds proliferating, and NAV lending expanding, the industry is creating elaborate structures to avoid actual exits. Mega-deals like the $55B Electronic Arts bid rely on sovereign wealth, not traditional LPs.
Bottom line: Today’s PE looks less like the buyout shops that built businesses and more like structured credit with longer lockups. When liquidity solutions need their own liquidity solutions, that’s not innovation—it’s desperation.
Source(s): HFR, Bennett Jones, Ropes & Gray, Reuters
Private Credit: Low defaults mask deteriorating fundamentals.
What you’re hearing: “Private credit offers bank-like safety with equity-like returns.”
What we’re seeing: Q2 defaults remain low at 1.76%, but payment-in-kind (PIK) financing exceeds 11% (4-year high)—meaning borrowers increasingly pay interest with more debt, not cash.
Bottom line: Current default rates don’t tell the full story. Rising PIK usage and weakening coverage ratios suggest stress is building beneath the surface. Quality underwriting matters more than ever as the cycle matures.
Source(s): Fitch/SFN, Affinity WMG
Real Estate: Office fundamentals worsen while residential momentum fades.
What you’re hearing: “The office sector has bottomed; housing demand remains robust.”
What we’re seeing: September CMBS delinquencies rose to $2B with 51% from maturity defaults—borrowers can’t refinance. Office delinquencies are 227 bps higher than last year. Despite improved builder sentiment (NAHB index at 37), 65% still offer incentives and 38% cut prices, averaging 6%.
Bottom line: Office distress continues with $290B in loans maturing by 2027—expect more pain. Residential markets are stabilizing but hardly booming; widespread builder incentives signal caution, not strength. Think opportunistically.
Artificial Intelligence: Real transformation, excessive equity valuations—a familiar pattern.
What you’re hearing: “AI is either revolutionary or a complete bubble.”
What we’re seeing: Massive capital deployment continues—$40B for Aligned Data Centers, $300B OpenAI-Oracle contract. AI infrastructure stocks up 32% YTD. Yet the IMF warns of market instability and Jamie Dimon acknowledges some investments will be “lost.” Morgan Stanley projects $400B in 2025 tech capex.
Bottom line: The technology is genuinely transformative and new capabilities are being created daily, but the equity market is getting ahead of the fundamentals. Like the internet boom, if you’re looking to transform how your business works, this technology will be at the core for the foreseeable future. If you’re trying to pick stocks and guess who the winners and losers will be, good luck!
Source(s): Datamation, Stoxx, AI Magazine
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.
➕ The 900 lb. AI Problem in the Room: AI Document Processing Limitations Explained: Pure Math AI. This one is for all the folks who think you can upload a bunch of PDFs to ChatGPT, Claude, or Perplexity and prompt your way to some magic solution. It’s pretty simple, really; these chat systems don’t currently handle PDFs the way you think they do. Our friends at Pure Math AI took the time to break it all down for you.
➕ Beyond Banks: How Insurers Are Reshaping Private Credit with Leo Svoboda: Pensions & Investments. If you don’t know Angelo Calvello, you should. Long time columnist and Chief Dissident at Institutional Investor, this is episode 11 of his new podcast, The Institutional Edge: Real Allocators. Real Alpha. Our recommendation is: don’t sleep on this.
➕The $500 Million Question: Is That Family Office Real?: Horizons Family Office & Investor Magazine. We’re dropping some gems on you this month. Another person you should know and follow is Matthias Knab. He founded Opalesque around 2003 and has been a consistent source of institutional-intelligence and alternative investment insight since then. Opalesque pioneered daily digital news services and events for our industry.
➕Limited Partners vs Unlimited Technologies: How Tech Could Transform Investing in Private Capital Funds: Ludovic Phalippou. This is a working paper from Ludovic Phalippou at Said Business School. The paper examines how artificial intelligence and machine learning may alter decision-making in private markets. They outline a research agenda that integrates computational methods with economic reasoning, emphasizing oversight, causal inference, and transparency as preconditions for reliable adoption. Enjoy!
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.
