Hilary Wiek: Perspective on Private Markets

Episode Summary

Executive Summary: Morningstar and PitchBook’s Hillary Wick discussed the state of private markets heading into 2026: deal activity is recovering but remains constrained by weak distributions, valuation resets, and macro uncertainty. She explained how LP/GP structures, fund performance measurement, fees, volatility, evergreen/semi-liquid vehicles, ESG/impact, and possible 401(k) access are reshaping private markets, while urging careful manager selection and suitability review.

Main Topics: Current state of global private markets (Priority: 5/5): Wick described private markets as cautiously hopeful, with improving deal activity and falling rates supporting a more normal market, though U.S. policy uncertainty and delayed exits still weigh on the space. Why fundraising slowed in 2025 (Priority: 5/5): She attributed weaker capital raising to poor distributions, aging portfolios, valuation disagreements, and the decline of pensions as a capital source, especially in venture capital. How private-market performance should be evaluated (Priority: 5/5): Wick emphasized that private funds use IRR and public funds use time-weighted returns, so headline returns are not directly comparable; PME is a better translation tool. Fees, volatility, and what investors miss (Priority: 4/5): The discussion covered the 2-and-20 fee model, wide manager dispersion, and how quarterly marks can mask true volatility in private assets while real money changes hands in semi-liquid vehicles. Rise of evergreen/semi-liquid funds (Priority: 5/5): Wick explained the growth of interval funds, tender offer funds, BDCs, and non-traded REITs as managers seek new capital sources and investors seek lower minimums and some liquidity. Access for smaller investors and retirement plans (Priority: 4/5): The conversation explored whether private markets belong in individual portfolios and 401(k)s, with Wick saying access should likely come through managed solutions and only for investors with patience and appropriate horizons. ESG and impact investing in private markets (Priority: 3/5): Wick argued that ESG can apply to any asset, but impact investing is especially natural in private markets because ownership control allows more direct measurement and influence.

Key Arguments: Private markets are improving, but a normal recovery depends on more exits, better distributions, and less macro/policy uncertainty. Capital formation has been slowed because LPs are over-allocated when they do not receive distributions back from aging funds. Valuation resets after the pandemic made deal-making harder because buyers and sellers anchored to very different price expectations. Secondary funds and continuation funds have become major growth areas because they address portfolio aging and liquidity needs. Private-market performance cannot be judged using public-market return methods; IRR and PME are better tools than simple comparisons to index returns. The 2-and-20 model is accepted because it aligns incentives, but fees and layered expenses make manager selection crucial. Reported volatility is often lower in private markets largely because assets are marked infrequently, not because true risk is necessarily lower. Evergreen/semi-liquid funds are growing because public markets and pensions are no longer the only or dominant capital pools, and managers want steadier fee-driven growth. These products require strong liquidity management; underlying assets must match the redemption promise or the fund can become stressed. Most semi-liquid structures today are better suited to income-generating assets like private credit, real estate, and infrastructure than to venture capital or buyout. Smaller investors may gain access through these products, but they should be patient, understand fees, and avoid assuming short-term tradability. Private markets in 401(k)s are likely to appear only inside managed solutions such as target-date funds, not as unrestricted stand-alone sleeves. Impact investing is more actionable in private markets because ownership and governance rights make it easier to implement and measure change.

Data Points: Experience in investment world: Since 1992 - Wick said she has worked in investing since 1992 and has seen markets from multiple vantage points. PitchBook tenure: 6 years - She said she joined PitchBook six years ago. Private equity portfolio size at utility employer: $1 billion - Wick first encountered private equity while working at a public utility with a billion-dollar private equity portfolio. South Carolina retirement systems role start: 2007 - She joined the South Carolina Retirement Systems and helped launch its private equity program in 2007. Private market fundraising/exit trend reference: 2021-2022 slowdown - She noted a dry spot in deal activity following the 2021-2022 period. Secondary strategy performance period: Over 5 years - Wick said secondaries have been a strong area for more than five years. Continuation funds as a trend: Fairly new; common now - She said she had never heard of continuation funds when she joined PitchBook six years ago, but they are now common. Private fund fee model: 2% management fee and 20% performance fee - She described the standard drawdown-fund fee structure. Illustrative fee example: $20 million over 10 years - A $100 million commitment at 2% a year over 10 years would generate about $20 million in management fees. Private equity 10-year return example: ~13% - She cited a 10-year global private equity return number around 13%. Morningstar Global Equity Index example: ~10% - She contrasted that with a time-weighted public equity index return around 10% over the same period. Private fund minimums: $1 million or more - She said private-market minimums can often be a million dollars or more. Typical quarterly liquidity in interval funds: Up to 5% of fund assets - She explained that interval funds commonly allow redemptions of up to 5% of assets per quarter. 401(k) private-market exposure expectation: 10% to 20% - She said private-market exposure in managed retirement solutions would likely be 10% to 20%, not 100%. Impact fund universe tagged by PitchBook: Over 5,000 funds - She said PitchBook has tagged more than 5,000 private-market funds that appear to seek impact.

Pivotal Quotes: "The main thing people should take away is if they see a number... they are using different calculations." — Hillary Wick: On why private fund IRRs and public-market time-weighted returns cannot be directly compared. "It is super important to spend a lot of time on manager selection because the experiences can vary widely in the private markets." — Hillary Wick: On fees, dispersion, and the importance of diligence in private-market investing. "If you're not able or willing to put in the time to understand it, then I think there are perfectly good options in the public space." — Hillary Wick: On whether investors should simply avoid private markets if the structure is too complex.

Implications: Private markets are likely to broaden through semi-liquid funds and retirement-plan access, but growth depends on better liquidity, transparency, and manager skill. For most investors, suitability, fees, and patience matter more than headline return claims.