Mark Higgins, CFA, and Leyla Kunimoto: Cracks in Private Markets and the Risks of Semi-Liquid Funds

In this episode of The Enterprising Investor, host Mike Wahlberg is joined by Mark Higgins, CFA, and Leila Kunimoto to discuss growing cracks in private markets, particularly in semi-liquid and evergreen private credit funds. Kunimoto outlines a recent exodus of retail capital from these vehicles, with $4.6 billion stuck in exit queues as of Q1 2026, driven not by deteriorating asset quality but by shifting sentiment—especially concerns over software companies' exposure to AI disruption and the unsustainability of ARR-based lending. Higgins provides historical context, warning that massive capital inflows, misaligned incentives, and the illusion of liquidity are classic precursors to financial distress, citing past bubbles like the dot-com era and the GFC. The conversation centers on the dangerous practice of 'NAV squeezing'—where secondary fund managers buy illiquid assets at a discount and immediately mark them up to NAV, generating artificial gains and incentive fees. This creates perverse incentives, especially when fund managers act as both buyer and seller in continuation vehicles, raising serious conflicts of interest. The episode concludes with a sobering assessment: many private funds may face forced IPOs, closures, or permanent capital lockups, and the semi-liquid label is fundamentally misleading for retail investors who need liquidity. Both guests stress that illiquidity is not a flaw but a feature—yet when combined with false liquidity narratives, it becomes a systemic risk. Key takeaways include: 1) The real danger isn’t default rates but sentiment-driven redemptions in semi-liquid funds; 2) NAV squeezing is a regulatory loophole enabling misleading performance reporting; 3) Continuation vehicles create severe conflicts of interest; 4) Investors must look beyond marketing materials to assess cash flow sustainability and return sources; 5) Retail investors should avoid semi-liquid private funds unless they can afford to lock up capital for years; 6) The current crisis is likely just the beginning of a broader market correction; 7) Regulatory reform of ASC 820’s practical expedient is urgently needed; 8) Due diligence on private fund structures is non-negotiable. The tone is cautionary and urgent, with a strong emphasis on historical patterns and structural risks, earning a sentiment score of 7.8.