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Public-Private Solutions: Squaring the Circle?

Wesley Phoa

This article describes the challenges of reconciling the inherent liquidity risks of private markets investing with the demands of investors. We begin by, conceptually, unpacking the nuances of liquidity risk and the illiquidity premium. We continue with a parallel history of the growth of private markets, the unfolding of successive liquidity crises and the development of new liquidity management tools. Finally, we discuss recent innovations that may expand access to private markets significantly, while improving portfolio resilience in the face of liquidity risk. Certain investors seek a portfolio-level investment approach that addresses the undesired layers of liquidity risk—in particular, portfolio-level spillovers and tail risks—while accepting the inherent illiquidity of private assets. They can then retain a substantial portion of the potential benefits of private markets investing, including both the illiquidity premium and other return and diversification benefits. Actively managed public-private solutions can achieve this for investors who lack in-house liquidity management capabilities, such as individual investors.

KEY TAKEAWAYS

  • The costs, risks and operational complexity of liquidity management have a significant impact on the feasibility, return and diversification potential of private markets investing.
  • Costs, risks and complexity can be managed most effectively via strategies that marry illiquid private assets with liquid public securities.
  • An effective public-private strategy requires a joint investment process that combines stewardship of private assets, active management of public securities and an integrated approach to market and liquidity risk management across both sleeves.
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Wesley Phoa is a solutions portfolio manager with 33 years of industry experience (as of 12/31/2025). He holds a PhD in pure mathematics from Trinity College at the University of Cambridge and a bachelor’s degree with honors from the Australian National University.

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