You’ve heard the phrase “Sunshine is the best disinfectant,” and now investors in some private funds are getting a full decontamination. In The Wall Street Journal, Jason Zweig explains that some private funds that have gone public have seen valuations for their holdings drop when scrutiny is applied. He writes:
For all fund investors, NAV is supposed to stand for “net asset value.” For some, however, it’s turning out to mean “not actual value.”
That’s the hard lesson of recent weeks when some funds that invest in private assets have sought to become publicly traded. Prices that investors expected to be stable have collapsed as soon as the portfolios were exposed to public markets.
These transitions from private to public cast doubt on Wall Street’s narrative that investors can have their cake and eat it, too. You can have the mild price fluctuations of nontraded assets, or you can have access to your money whenever you want—but it’s turning out that you can’t have both.
And this situation bolsters arguments that asset values in private-markets funds don’t always reflect reality.
On Dec. 16, what used to be a nontraded portfolio called Bluerock Total Income+ Real Estate Fund began trading on the New York Stock Exchange as the Bluerock Private Real Estate Fund BPRE. With a stated net asset value of $24.36 a share, the fund closed at a market price of $14.70—a 39.7% discount from NAV. For every dollar the fund manager said your shares were worth at 9:30 a.m., the stock market was willing to pay you only 60 cents by 4 p.m.
Action Line: You know that private equity is the next big thing coming for you, and your 401(k). Be cautious any time someone wants you to load up on investments that lack transparency. When you want to talk about what’s in your portfolio, email me at ejsmith@yoursurvivalguy.com. And click here to subscribe to my free monthly Survive & Thrive letter.
