The Liquidity Trap

Before we go any further, I want you to sit with three questions.

‍

When did you last actually need liquidity from a private market investment?

What if your liquidity preference is protecting your fear, not your portfolio?

Have you ever lost capital to illiquidity — or to owning poor assets?

Your answers reveal more about your investment strategy than any risk model. Because here is the uncomfortable truth: the obsession with liquidity in private markets is the single greatest destroyer of alpha I have witnessed in my career. It does not protect investors. More often than not, it costs them.

‍

Liquidity should never be the starting point of a private market investment. It should be the by-product of owning exceptional assets.

‍

Why the Liquidity Conversation Has Become So Loud

There is approximately US$1.3 trillion locked in Growth funds older than ten years. Distribution yields in private equity have fallen to 6% —less than half the long-run average of 14.8%. The median buyout holding periodhas stretched to four years and is rising. At the same time, PE and VC-backedcompanies now number nearly 34,000 in the US, compared to just 4,603 publicly listed companies. The centre of wealth creation has moved decisively into private markets — and it is staying there.

But the distribution drought of recent years has made investors nervous. And nervous investors ask for something that feels like control. So the market gave them liquidity products.

‍

What the Market Sold You

More than half a trillion dollars now sits in evergreen and semi-liquid fund structures. Secondaries transaction volumes hit a record in2025 — over US$220 billion globally. The pitch sounds compelling: stay invested in private markets, get the upside, but retain the option to exit. The problem is that this pitch contains a structural lie.

When you combine illiquid assets with liquid redemption promises, you create false engineering. The consequences are predictable: carry drag from cash buffers, forced asset sales to fund redemptions, redemption gates when investors most want to exit, and portfolio dilution from structural complexity.

Conservative estimate: the total opportunity cost of demanding engineered liquidity is $180,000 or more per million dollars over seven years. You paid for liquidity you almost certainly never used.

‍

Liquidity pressure appears at the worst possible moment —compounding losses rather than protecting capital.

‍

True Liquidity Is Earned, Not Engineered

True liquidity is not a structure. It is the natural consequence of owning assets that other people want to buy. Quality assets always have buyers — exceptional companies attract acquirers, IPO markets, and secondary buyers regardless of their fund vehicle.

At BFA, we think about liquidity in two ways. Structural liquidity — what you get from buying well, where strong assets create natural exit pathways. And portfolio liquidity — what the secondary market provides, used deliberately as a tool to rebalance, accelerate exits, and manage duration with precision.

Between these two — buying well and using secondaries with intent — a sophisticated investor has everything they need.

‍

What Control Actually Looks Like

Real control in private markets comes from four disciplines: owning exceptional assets (quality creates its own liquidity), governing with discipline (structure protects capital when it matters most), using secondaries as a precision tool (not a fallback), and diversifying exit pathways (a great portfolio always has multiple potential exits).

‍

Conviction in Practice

In August 2024, BFA invested in Groq — a category-defining AI inference compute platform — at US$2.2 billion. In December 2024, secondary bids emerged at 1.4x. We held. In June 2025, strategic interest valued the business at 2.5x. We held. In December 2025, NVIDIA announced a transaction at approximately US$17 billion — approximately 3.7x gross MOIC and 150% gross IRR over 18 months. We have published the full case study separately.

We did not hold because we lacked liquidity. We held because we trusted our work. That is the difference between liquidity as a constraint and liquidity as a by-product of conviction.

‍

The Question Worth Asking

The next time the liquidity conversation starts, reframe it. Instead of 'how do I get out if I need to?' — ask 'why would I want to get out of this, and under what circumstances?'

Private markets reward patience and conviction. At BFA, we believe in liquidity with intent — not liquidity by design. The difference is significant, and over time, it compounds.