Private Market Indexes Go Mainstream: Can Semiliquid Funds Outperform in a Volatile World?

Remember when private markets were the mysterious playground of endowments, pension funds, and anyone with a Rolodex full of Ivy League connections? Those days are fading fast. The latest twist: Morningstar and PitchBook have rolled out new indexes to track semiliquid private market funds, dragging the world of PE, VC, and private credit into the sunlight. The performance? Mixed, but the implications are anything but boring.

The rise of private market indexes is a sign of the times. With public markets whipsawing on every jobs print and AI headline, institutions and high-net-worth investors are desperate for something, anything, that doesn’t move in lockstep with the S&P 500. The pitch is seductive: less volatility, more alpha, and the illusion of stability. But as these new indexes show, the reality is a little messier.

Let’s start with the basics. Morningstar and PitchBook’s indexes aim to provide a transparent, benchmarked look at semiliquid funds, vehicles that offer quarterly or monthly liquidity, but still invest in illiquid assets like private equity, venture capital, and private credit. The idea is to give investors a way to track performance, compare managers, and maybe even build their own private market portfolios, ETF-style.

The numbers tell a nuanced story. According to Barron’s, performance across these new indexes has been “mixed.” Some funds have outperformed public markets, riding the wave of late-cycle M&A and credit spreads. Others have lagged, particularly those exposed to frothy venture valuations or levered buyouts that looked brilliant in 2021 but now resemble a game of musical chairs with the music slowing down.

Why does this matter now? Because the macro backdrop is getting weirder by the day. The JOLTS report showed job openings at their lowest since 2016 (excluding the pandemic), and US companies are cutting jobs at a pace not seen since the financial crisis. Public markets are volatile, with tech stocks stumbling and sector rotations happening in real time. In this environment, the siren song of “private market diversification” is louder than ever.

But here’s the catch: semiliquid funds are not immune to the laws of gravity. Their valuations may lag public markets, but they’re not disconnected. When public equities sell off, private marks eventually follow. The indexes are already showing signs of stress in venture and growth equity, where markdowns are starting to bite. Private credit, on the other hand, is holding up better, at least for now.

The historical context is instructive. Private markets have outperformed public markets over the long run, but the dispersion is massive. The top quartile funds deliver eye-popping returns, while the median fund often barely beats a 60/40 portfolio after fees. The new indexes make this reality impossible to ignore. There’s no hiding behind “vintage year” excuses or cherry-picked IRRs anymore.

Cross-asset correlations are also rising. As more investors pile into semiliquid funds, the risk of forced selling during periods of stress increases. The illusion of liquidity can evaporate quickly when everyone heads for the exits at once. The new indexes may help with transparency, but they can’t eliminate the fundamental mismatch between assets and liabilities.

So what’s the play for traders and allocators? For one, the indexes provide a new toolkit for relative value trades. If private credit is holding up while venture is cracking, there’s an opportunity to rotate within the private market universe. The indexes also make it easier to benchmark performance and spot underperforming managers before it’s too late.

Strykr Watch

Technically, the private market indexes are still in their infancy, but early data shows dispersion between strategies. Private credit funds are trading near their highs, while venture and growth equity indexes are rolling over. The Strykr Pulse sits at 58/100, reflecting cautious optimism but plenty of skepticism. Threat Level is at 2/5, there’s risk, but not panic. Watch for further markdowns in venture and late-stage growth, and monitor flows into private credit. If redemptions pick up, liquidity mismatches could become a real problem.

The risks are clear. If public markets experience another leg down, private marks will follow, just with a lag. Redemption gates could be imposed if too many investors try to exit at once. There’s also the risk of regulatory scrutiny as these indexes bring more transparency to a historically opaque market.

Opportunities exist for those willing to do the work. Allocators can use the indexes to identify relative value trades within private markets, overweighting credit and underweighting venture. There’s also an opportunity to short public market proxies for overvalued private assets, or to hedge private exposure with liquid alternatives.

Strykr Take

The democratization of private markets is real, but so are the risks. The new indexes are a double-edged sword: more transparency, but also more correlation and less room to hide. The days of private markets as a magical volatility sinkhole are over. In a world where liquidity is a mirage, only the nimble will survive.