In a pointed challenge to the private-markets push, the head of asset allocation research at Dimensional Fund Advisors argued that investors can gain ample exposure through public portfolios alone. Speaking this week, the researcher said investors do not need to accept high fees and illiquidity to capture many of the same drivers of return.
The comment comes as institutions and wealthy investors weigh larger allocations to private equity, private credit, and real estate. The debate centers on whether private holdings add unique value or simply repackage risks and cash flows already present in listed stocks and bonds.
The Case Against Chasing Private Markets
“Public portfolios already offer meaningful private exposure without the fees, illiquidity, and complexity,” the Dimensional Fund Advisors executive told InvestmentNews.
The view is that listed companies frequently own or finance private businesses, properties, and loans. Their earnings reflect those interests, offering indirect access at low cost. Public markets also price assets daily, giving transparency that private funds do not provide.
Advocates of this approach argue that broad diversification, systematic factor exposure, and patience can meet most objectives without locking up capital for years. They add that headline private returns often rely on appraisal-based smoothing and leverage, which can make drawdowns appear milder than they really are.
How Public Markets Carry Private Exposure
Large public firms hold stakes in nonlisted subsidiaries, venture portfolios, and joint ventures. Banks and asset managers originate and package private loans. Listed real estate companies own properties across sectors, echoing private real estate funds.
This creates indirect channels:
- Conglomerates with private subsidiaries contribute private-business cash flows to public shareholders.
- Banks and insurers hold private credit and direct lending on balance sheets.
- Public real estate firms own and manage assets that mirror private vehicles.
For investors, these channels can deliver similar economic exposures while retaining daily liquidity and lower fees.
The Counterargument From Private-Asset Backers
Private-market managers say they add value through control, specialized expertise, and flexible deal structures. They claim active ownership can speed operational change and unlock efficiencies that public investors cannot force. They also point to access: some deals never reach public markets.
Supporters also cite the “illiquidity premium,” the idea that investors should earn higher returns for tying up capital. They argue that lower mark-to-market volatility helps clients stay invested, improving outcomes even if headline risk is similar under the surface.
Fees, Liquidity, and Measurement
The Dimensional perspective stresses costs and clarity. Public index funds and systematic strategies charge far less than private vehicles. Lower costs raise the bar for any manager pitching a premium.
Liquidity is a second fault line. Private commitments can run seven to ten years. Rebalancing is hard and cashflows are uncertain. Public markets allow swift changes and easier risk control.
Measurement also matters. Private funds often report returns based on appraisals or models. That can delay loss recognition and smooth the ride. Public prices adjust quickly, which can look harsh but offers real-time information for decision-making.
Implications for Portfolios
The practical takeaway is not that private assets are useless. It is that investors should test whether the promised benefits survive after fees, lockups, and complexity. Many risk factors—size, value, profitability, leverage, and sector exposures—can be reached through listed securities.
For savers who prize transparency and flexibility, public markets provide a simple core. Those still interested in private funds might limit position sizes, focus on top-tier managers, and expect long holding periods and cashflow uncertainty.
Key questions for investment committees include:
- What unique exposure does a private fund add that public holdings cannot match?
- How do fees and carried interest affect expected net returns?
- Can the portfolio meet liquidity needs during stress if capital is locked?
The Dimensional research head’s message lands as fundraising conditions shift and borrowing costs stay elevated. If public portfolios already reflect much of the same economic engines, the bar for private allocations is higher than many assume.
For now, the debate is set to continue. Investors will watch whether public earnings and listed real estate mark a clearer path than private appraisals. The next test may come in a downturn, when transparency, liquidity, and fees face their hardest exam.
