I’ve written in the past on the difference between public and private investment valuation, and how the lack of a daily mark to market “smoothes” returns on unlisted investments.
That Munger quote is brutal but accurate. The NAV smoothing vs REIT volatility comparison really nails the illusion. What gets me is how many advisors genuinely belive their private fund marks reflect real value rather than stale pricing. I watched a family office pitch deck last spring where they showed a Sharpe ratio that looked amazing until you realized it was all mark smoothing, no actual liquidity tests.
Have a client trying to sell LP units… this quarter the fund was able to met 0.48% of redemptions. The investors are trapped, even in this benign environment. If public markets decline and interest rates rise, the eventual losses will be catastrophic.
That Munger quote is brutal but accurate. The NAV smoothing vs REIT volatility comparison really nails the illusion. What gets me is how many advisors genuinely belive their private fund marks reflect real value rather than stale pricing. I watched a family office pitch deck last spring where they showed a Sharpe ratio that looked amazing until you realized it was all mark smoothing, no actual liquidity tests.
Have a client trying to sell LP units… this quarter the fund was able to met 0.48% of redemptions. The investors are trapped, even in this benign environment. If public markets decline and interest rates rise, the eventual losses will be catastrophic.