Understanding Private Equity Risks in Today’s Market
By Richard Walsh
I have been following the private equity sector now for almost 6 months, and I am becoming increasingly concerned. There have been several issues raised over this period.
The following articles are just some examples of problems developing in the Private Equity Sector. This environment reminds me of the financial crisis in June of 2008. As my clients’ will remember, I was fortunate back then, because I liquidated all their portfolio holdings and went to 100 percent cash. I am not suggesting that we are currently going to experience a repeat of that market correction, but I am suggesting that we need to be extremely vigilant. This is why I have attached a summary of the risks associated with private equity funds above. The issue back in 2008 was the lack of regulation and issuance of toxic debt in the sub-prime mortgage market. Currently, there exists over 3.1 trillion dollars in private debt in the US, and some of these private debt managers have gone out and purchased Insurance companies, which adds another layer of complexity to the situation. Currently, there is not a great deal of transparency, oversight, and regulation in this sector. This lack of regulation makes it easer for greed to grow and flourish in this environment and lead to another financial crises.
Here are some current developments that I have noticed.
Based on reports from March 2026, Cliffwater LLC is facing significant investor pressure regarding its $33 billion flagship private credit fund, the Cliffwater Corporate Lending Fund.
Here are the primary problems and challenges:
- High Redemption Requests (Liquidity Crunch): Investors requested to pull out approximately 14% of shares in the first quarter of 2026, a significant increase from previous, lower levels.
- Capped Withdrawals: Due to the high volume of requests, Cliffwater limited quarterly repurchases to 7% of shares, which is the maximum amount allowed under its "interval fund" structure.
- Concerns over Loan Quality: The surge in redemption requests reflects growing anxiety over the quality of private credit, particularly with loans to software companies that may be vulnerable to artificial intelligence (AI) advancements.
- Industry-Wide Pressure: Cliffwater’s situation is part of a broader trend where investors are exiting private credit funds. Similar restrictions have been placed on funds by other major firms like Morgan Stanley and BlackRock.
- Defensive Position: While Cliffwater has argued that fund performance remains strong (with an A credit rating from S&P Global) and that selloffs are driven by sentiment rather than fundamentals, it is currently managing a significant liquidity test.
BlackRock faces significant scrutiny over its massive influence, with criticism centering on its promotion of ESG (environmental, social, and governance) policies, which have led to divestments by several U.S. states. The firm also faces backlash for conflicting investments in fossil fuels, the arms industry, and Chinese companies, along with concerns regarding its close ties to the Federal Reserve.
Key Problems and Criticisms:
- ESG Backlash: Several U.S. states, including Florida, Louisiana, and West Virginia, have divested funds or refused to do business with BlackRock, claiming its ESG focus harms their economic interests.
- Contradictory Investments: Despite promoting sustainability, BlackRock has been criticized for maintaining investments in companies contributing to climate change (fossil fuels) and in gun manufacturers.
- China Exposure: Critics have targeted BlackRock for investments in Chinese companies linked to human rights violations and the People's Liberation Army.
- Excessive Influence ("Too Big to Fail"): As the world's largest asset manager, concerns exist regarding its power, its common ownership across competing companies, and its close ties with the Federal Reserve.
The private credit and private equity markets are not new, but what is relatively new is how they are perceived and how visible they have become to the broader market. Today’s issues in this segment stem partly from that shift.
Private credit/private equity firms have seen significant declines in recent months. BlackRock, the world’s largest asset manager, has already lost over 20% of its valuation over the last two months. This is not an isolated case, but a clearly sector-wide trend.
From early summer 2023 to the close of January 2025, private equity stocks staged what may rank as the single biggest surge, over a tight time frame, in the annals of financial services. In that eighteen-month span, Blackstone notched total returns 58.2%, Ares, Apollo, and Blue Owl achieved 68.1%, 77.9%, and 80.6% respectively, and KKR led the charge at 103.4%. Then the cyclone came. Starting in September of last year, an historic selloff that from their peaks sent down Apollo 41%, Blackstone 46%, and Ares and KKR 48% each, while Blue Owl dropped by two thirds. The wipeout has erased over $265 billion in market cap; Blackstone and Blue Owl are now trading far below their levels of late 2021, and the sudden drop left KKR, Apollo and Ares showing puny, market-trailing gains over that near half-decade.
The Ins and Outs of Private Equity
Private equity has become one of the most influential forces in modern finance. Large private equity firms now manage trillions of dollars and play a growing role not only in buying companies, but also in lending, real estate, and even insurance and retirement products.
While private equity can offer attractive long‑term returns, recent events have revealed important risks that are especially relevant for retirees and institutional decision‑makers. These risks center on:
- Limited access to cash during market stress
- Private equity ownership of insurance companies and annuity providers
- Lower transparency compared with public investments
My analysis attempts to explain these issues in clear, non‑technical language and provides practical guidance tailored to two audiences:
- Retirees and pre‑retirees
- Institutional investment committees
The goal is not to discourage private equity use, but to ensure it is understood, sized appropriately, and governed carefully.
Part I: The Changing Face of Private Equity
Historically, private equity was a niche strategy used mainly by large institutions. Investors committed capital for 10–12 years and understood that their money would be locked up for the full life of the fund.
Over the last decade, this has changed. Private equity firms have created new products designed for individual investors, including retirees. These products often promise:
- Monthly or quarterly income
- Limited volatility
- Periodic access to capital
Examples include non‑traded real estate funds, private credit funds, and so‑called “evergreen” vehicles.
The key difference is that these products appear liquid, even though the underlying investments are not.
Part II: Liquidity Risk — When You Can’t Get Your Money Back
What “Semi‑Liquid” Really Means
Many private‑market products allow investors to request withdrawals on a monthly or quarterly basis. However, these requests are subject to strict limits set by the fund.
If too many investors ask for their money at once, the fund can:
- Pay only part of the request
- Delay payment
- Temporarily restrict withdrawals
This is not a failure of the fund—it is how these structures are designed. The risk is that many investors do not fully understand this before investing.
Why Liquidity Becomes a Problem in Down Markets
Private equity‑linked assets such as real estate and private loans:
- Take time to sell
- Often rely on appraisals rather than daily market prices
- Can decline sharply in value during stress
When markets weaken, investor redemption requests tend to rise at the same time that assets are hardest to sell. This creates pressure that often results in withdrawal limits.
Part III: Private Equity and the Insurance Industry
Why Insurance Matters
Life insurance companies and annuity providers hold retirement savings for millions of Americans. These companies are expected to invest conservatively so they can meet long‑term obligations to policyholders.
Private Equity’s Entry into Insurance
In recent years, several major private equity firms have:
- Bought insurance companies outright
- Partnered with insurers to manage their investment portfolios
- Acquired reinsurance companies that take on insurance liabilities
This gives private equity access to large, stable pools of long‑term capital.
Why Regulators Are Paying Attention
Private equity‑owned insurers tend to invest more heavily in:
- Private credit
- Structured products
- Assets that are harder to value or sell quickly
While these investments can increase returns, they also increase:
- Complexity
- Dependence on financial models
- Potential stress during market downturns
For retirees who rely on annuities or life insurance guarantees, this shift makes risk oversight critically important.
Part IV: Transparency and Information Gaps
How Private Equity Differs from Public Markets
Public investments such as stocks and bonds provide:
- Daily pricing
- Standardized reporting
- Clear regulatory oversight
Private equity investments generally do not. Instead:
- Valuations are periodic and model‑based
- Fees are complex and vary by investor
- Side agreements (“side letters”) may grant special rights to large investors
Why This Matters
Lower transparency makes it harder to:
- Compare funds objectively
- Identify hidden risks
- Understand how liquidity and fees behave under stress
Recent regulatory efforts to improve disclosure were delayed by court challenges, meaning investors must still rely heavily on careful due diligence.
Audience‑Specific Guidance
Section A: Guidance for Retirees and Pre‑Retirees
Key Questions to Ask Before Investing
- When can I realistically get my money back?
- What happens if markets decline sharply?
- Is this investment essential income or long‑term growth capital?
- How much of my net worth is already illiquid?
Best Practices for Retirees
- Treat private equity‑linked products as long‑term commitments, even if they offer withdrawal windows
- Avoid using these investments for near‑term income needs
- Limit exposure to a modest portion of total assets
- Ask for written explanations of withdrawal limits and worst‑case scenarios
Core principle: Never invest money you may need quickly.
Section B: Guidance for Financial Advisors
Advisor Responsibilities
Advisors play a critical role in helping clients understand private equity risks. Best practices include:
- Clearly explaining liquidity limits in plain language
- Stress‑testing client portfolios for delayed withdrawals
- Avoiding over‑concentration in illiquid assets
- Documenting suitability discussions thoroughly
Advisor Due‑Diligence Checklist
- How are valuations determined?
- Who controls redemption decisions?
- Are there conflicts of interest between the manager and underlying assets?
- What happened during prior market stress?
Advisor takeaway: Complexity increases fiduciary responsibility, not reduces it.
Section C: Guidance for Institutional Committees
Governance Considerations
Institutional investors should focus on:
- Liquidity modeling under multiple stress scenarios
- Clear policies on side letters and preferential terms
- Oversight of insurance‑linked strategies and reinsurance structures
- Independent valuation and audit processes
Portfolio Construction Discipline
- Separate truly illiquid capital from liquidity‑sensitive allocations
- Avoid using semi‑liquid products as liquidity substitutes
- Require enhanced reporting for private credit and insurance‑related assets
Institutional principle: If liquidity matters, it must be structurally guaranteed—not assumed.
Conclusion: A Balanced Perspective
Private equity is not inherently risky—but misunderstood private equity is.
The recent experience with withdrawal limits, insurance ownership, and opaque structures highlights a central lesson:
Liquidity, transparency, and alignment matter more than headline returns.
For retirees, advisors, and institutions alike, the path forward is not avoidance, but informed, disciplined use of private equity within a well‑governed framework.
When risks are clearly understood and properly sized, private equity can play a constructive role. When they are not, the consequences tend to appear precisely when investors need stability most.
Disclaimer: Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Richard Walsh and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.
