The Gilded Age Circus is Back in Town

One-Day Gains are Fueling Dangerous Speculation in Secondaries

“For many denizens of Wall Street at the time, the measure of a man was not his honor or the value of his word, or even his net worth; it was the audacity of his scheming, regardless of whether the securities he was trading were legitimate, fabricated, or even his to sell.”¹

—MICHAEL HILTZIK, author of Iron Empires

Several people have asked me what section of Investing in U.S. Financial History was the most fun to research. The answer is Part 2, which covers the post-Civil War period spanning from 1866 to 1895. Commonly referred to as the Gilded Age, it was an exciting and treacherous time for investors. On Wall Street, it was a period of peak clownery, as ethically challenged stock operators, such as Jay Gould, Daniel Drew, and “Jubilee” Jim Fisk, were not only rewarded financially for their capers, but they also enjoyed bonus points for the flair of their delivery.

More than any other Gilded Age scoundrel, “Jubilee” Jim embodied the absurdity of the era. Fisk was born on April Fool’s Day in 1835. At the age of 15, he ran away from home to join a traveling menagerie and circus. It was there that he honed his knack for theatrics and sleight-of-hand. During the Erie Railroad War in the late 1860s, Fisk applied his skills deftly, allegedly boasting that he was exercising his constitutional right to “freedom of the press” while printing millions of dollars of illegal shares in the Erie Railroad. Then, in a farcical reenactment of George Washington’s crossing of the Delaware River, Fisk and Jay Gould fled New York City police by navigating a rowboat across the Hudson River with a pile of pilfered cash in stow. Ultimately, neither Fisk nor Gould was held accountable.²

Reading about Gilded Age schemes was entertaining because the behavior was so outlandish it was impossible not to laugh. But it was important to remember that victims were not amused. It takes many years before financial horror shows can be recast as comedies.

A Circus Act That Would Put the “Jubilee” in Jim Fisk

Well, ladies and gentlemen, that distinct Gilded Age scent is in the air again. The circus is back in town. The resurgence of meme stocks is reminiscent of 19th century market corners. Crypto assets and decentralized banking are yielding countless frauds, scams, and even violent kidnappings. But the most dangerous act is playing out in private markets. The peril derives from its scale, rapid growth, deceptive returns, and appalling fees.

Before detailing the main event unfolding in the center ring, it is important to first note that private markets, which include buyout, venture, and private credit funds, have experienced massive over-allocations of capital over the last several decades. The driver was an effort by institutional plans to replicate the performance of the Yale University Endowment by crudely mimicking their asset allocation. The multi-decade flood of capital all but assures that most investors will suffer disappointing returns for many years to come.³

Perhaps realizing the folly of their ways, a growing number of institutions—including the Yale University Endowment—are now selling positions in the secondary market. A frequent buyer is a new type of fund, often referred to as an “evergreen fund.” These funds offer retail investors (and even some institutional investors) with access to private markets. These Frankenstein-like creations claim to offer opportunities to enhance returns by providing access to previously inaccessible private markets in a vehicle that offers liquidity comparable to public markets. Only the passage of time will reveal the final verdict, but it seems the most likely outcome is that they will provide neither.

Nevertheless, over the past several years, evergreen funds have attracted massive inflows of capital (see Figure 1). A key driver is the breathtaking returns they tend to generate during their first few years of operation. But what is the source of these exceptional returns? Is it sustainable? Is it even real?

Figure 1: Growth of Evergreen Funds ($ Billions) (2015-2025E)

Sources: Pitchbook, CapGemini World Report Series 2024 (January 2025), Hamilton Lane.

Over the past several months, reporters at the Wall Street Journal, such as Jason Zweig and Jonathan Weil, combined with laudable efforts by freelancers, such as Tim McGlinn and Leyla Kunimoto, have unearthed many disturbing facts. Their revelations strongly suggest that evergreen fund prospects are dim at best, and catastrophic at worst. The fatal flaw is simple: their liberal use of one-day gains.

One-Day Gains: The Heart of Evergreen Fund Financial Engineering

Yes, you read that previous sentence correctly. Many evergreen fund managers are literally reporting enormous gains within a single day of purchasing assets—and they are doing it as a matter of routine. If you’re like most people who hear this for the first time, your next question will probably be: “is that even legal?” It’s hard to believe, but indeed it is. It is permitted because of a relatively obscure accounting rule established in 2009. At the time, the primary investors in private markets were institutional plans, such as pension plans and endowments. These investors rarely sold their positions before the funds were fully liquidated. As a result, the secondary market was relatively small in the early 2000s (see Figure 2).

The few secondary transactions that occurred at the time were usually purchased at a discount to the general partner’s (GP’s) last-reported net asset value (NAV). This created a reporting problem. Buyers of secondaries questioned whether the purchase price or the NAV should be used to value the investment on their books. The accounting principle of conservatism, not to mention common sense, dictates that what you just paid for an asset provides a more accurate reflection of its value. But reporting entities voiced concerns to the Financial Accounting Standards Board (FASB) because of the added work required to reconcile future NAV updates with their cost basis.

In September 2009, the FASB addressed these concerns by issuing Accounting Standards Update No. 2009-12, subtitled “Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” A component of the update was the allowance of a “practical expedient,” which permitted (but did not require) reporting entities to immediately use the GP’s reported NAV rather than the purchase price to value secondaries. Reporting entities opting to use the practical expedient recorded one-day gains when they immediately marked the secondary position up from the purchase price to the NAV.

Fundamental to FASB’s decision was the fact that secondaries were relatively uncommon and were being sold at temporarily distressed prices due to the pressures of the 2007-2009 Global Financial Crisis. The Update explained this rationale stating, “Some constituents also asserted that principal-to-principal or brokered transactions are uncommon for the types of investments within the scope of the amendments in this Update and often involved a distressed seller.”⁴

Given the low volume of secondary transactions and abnormality of market conditions in 2009, the FASB appears to have assumed that the purchase price and NAV of secondaries would eventually converge. They acknowledged that one-day gains would inflate the perceived performance of secondary positions for some time, but they concluded that the cost of performance distortions was less important than the benefits of reducing the administrative burden for reporting entities.

A Secular Change in Secondaries

One could argue that allowing one-day gains was never advisable, but in fairness to the FASB, the impact was relatively immaterial in 2009. Secondary transactions were uncommon and legitimately occurring in broadly distressed markets. But this is hardly the case in 2025. Over the past 16 years, secondary transactions have grown more than sixteen-fold, rising from a mere $10 billion in 2009 to $162 billion in 2024 (see Figure 2). In the first half of 2025, transactions hit $110 billion, putting them on a pace to far exceed 2024 levels.⁵ Further, securities markets are healthy, which discredits the common claim that steep discounts applied to secondaries are a function of temporary market dislocations.

Instead, it seems far more likely that discounts accurately reflect the true value of portfolios. After all, many indicators suggest that private equity firms have taken on far too much capital over the past several decades and that reported NAVs are likely inflated. Evidence includes an enormous backlog of investments awaiting exit, sharp rise in the use of continuation vehicles, tepid activity in IPO markets, and a general lack of interest from strategic buyers in purchasing portfolio companies at current prices. It is quite logical, therefore, to assume that the price paid in secondary transactions is closer to the real value of the portfolio than the GP’s reported NAV. In fact, the sharp rise in competitive bids for secondaries suggests that buyers may be overpaying. Finally, it is also possible, if not probable, that the NAV and price paid for secondaries will never converge.⁶

Figure 2: Secondary Transactions 2002-2024 ($ Billions)

Source: “Lodge, Cari, et. al. “Blossoming New Era of Secondaries.” Commonfund. (March 6, 2025).

Evergreen Funds Use a Practical Expedient as a Sales Accelerant

“Human nature being what it is, small loopholes are likely to be exploited until they become big ones, and big ones until they turn into financial disasters.”⁷

—SETH KLARMAN, owner of Baupost Group

Now that you understand the history of one-day gains and the secular changes in secondaries markets, it is easy to understand the danger of investing in evergreen funds that depend on them. The following six problems explain why these types of funds are unattractive investments.

Problem #1: Past Returns are Heavily Driven by One-Day Gains

Many evergreen funds allocating heavily to secondaries report lofty returns during their first several years, and these returns are often disproportionately driven by one-day gains. Take Hamilton Lane’s Private Assets Fund as an example. Citing an inception date of January 1, 2021, the fund reported the cost basis and fair value of its holdings to the SEC for the period ending March 31, 2022. The table below shows several metrics based on this report.

Figure 3: Hamilton Lane Private Assets Fund Holdings (March 31, 2022)

Source: Hamilton Lane Certified Shareholder Report N-CSR for Period Ending March 31, 2022.

The SEC filing does not provide enough data to fully dissect Hamilton Lane’s returns, but it provides plenty of insight into the return dynamics. Most importantly, it shows that soon after the fund’s inception, gains from secondary transactions dwarfed gains on direct investments. This makes it unsurprising that the fund recorded a 22.11% return in 2021. Moreover, this practice appears to have continued, as revealed in Jason Zweig’s article published on June 6, 2025 in the Wall Street Journal.⁸ Finally, given that Hamilton Lane has publicly defended the use of one-day gains—euphemistically referring to them as “NAV uplifts”—investors would be wise to assume that most of the gains in this fund will continue to be derived from these mark-ups.

This newsletter does not include an investigation of every evergreen fund in detail, but similar practices at other funds have been reported by journalists.

Problem #2: Future Returns Depend Heavily on Continuous Inflows of Capital

Evergreen funds that depend on one-day gains have a strong incentive to attract inflows of new capital to continue generating competitive returns. Even if the existing portfolio produces positive returns, it simply cannot match the power of adding fresh batches of one-day gains. The math here is illustrated with a simplified one-year return scenario for two hypothetical funds.

Figure 5: Hypothetical Return Scenario for Evergreen Funds

Key Assumptions:
1. Purely for the sake of simplicity, it is assumed that all secondaries are purchased on Day 1.
2. Fund A and Fund B both generate a one-day gain of 20% on new secondary purchases and a 3% gain on the remaining portfolio.

In this scenario, Fund A produces a total annual return of 11.5%, while Fund B produces a total annual return of only 4.5%. Unless the remaining portfolio generates a gargantuan return, the only way Fund B can remain competitive with Fund A is to buy massive amounts of secondaries and record more one-day gains. In this case, Fund B, would need to purchase $2 billion in secondaries to match Fund A’s return.

Problem #3: The Impact of One-Day Gains Deteriorates as Funds Grow

The third problem with evergreen funds is a byproduct of the second problem. Because evergreen funds must continuously purchase incrementally larger amounts of secondaries to remain competitive, it won’t take long before demand for secondaries outstrips supply. This will reduce the negotiating power of evergreen funds, as secondary transactions begin receiving multiple bids. In fact, there is abundant evidence that this has already happened. For example, the New York City pension system’s recent $5.0 billion sale of private equity holdings attracted 80 bidders!⁹

Another problem is that the sheer volume of transactions required to satisfy evergreen funds’ appetite for one-day gains will likely force fund managers to be less discerning with their purchases. All else being equal, it is much easier to be selective when you only need to buy $100 million of secondaries versus several billion dollars worth.

The combination of increased demand from buyers and reduced ability to discriminate on purchases seems highly likely to impair future returns. The performance of the Hamilton Lane Private Assets Fund appears to validate this thesis (Figure 4).

Figure 4: Annual Net Returns and Total Assets of the Hamilton Lane Private Assets Fund - R Shares (XHLRX) (January 1, 2021 - December 31, 2024)

Sources: Hamilton Lane Fund Fact Sheet as reported for period ending April 30, 2024. SEC Forms N-PORT for periods ending 12/31/2021, 12/31/2022, 12/31/2023, 12/31/2024.

Of course, Hamilton Lane could claim that a decline from a 22.11% return to a 9.17% return is hardly catastrophic. That may be true, but only if we conveniently forget that these returns were driven heavily by one-day gains, which may not be real.

Problem #4: Liquidity Can Evaporate Quickly

Evergreen funds claim to offer investors liquidity despite the fact that their portfolios consist primarily of illiquid assets. Once again, using Hamilton Lane as an example, the co-CEO, Juan Delgado-Moreira publicly stated:

“These customers can redeem [from evergreen funds]. I find it paradoxical that when customers can vote with their feet, I am seen to be doing something that is not market competitive. Whereas that’s not the discussion about locked-up structures where customers have a harder time leaving.”¹⁰

Well, that’s a relief. That is, of course, until you read the prospectus for the Hamilton Lane Private Assets Fund. It’s difficult to imagine a public statement that contrasts more sharply with a fund’s actual rules. A screenshot of the introduction to the section on share repurchases is below.

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Source: Hamilton Lane Private Assets Fund, *Prospectus*, Form 424B-3, U.S. Securities and Exchange Commission, March 28, 2025, accessed [August 17, 2025], https://www.sec.gov/ix?doc=/Archives/edgar/data/1803491/000101376225004230/ea0236008-01_424b3.htm.

Can the language be any clearer? The prospectus states (in bold font no less) that there is “No Right of Redemption” and “The Fund is not a liquid investment.” With this inconvenient fact out of the way, the prospectus further explains the repurchase policies. Yellow highlights were added by the author to focus your attention:

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Source: Hamilton Lane Private Assets Fund, *Prospectus*, Form 424B-3, U.S. Securities and Exchange Commission, March 28, 2025, accessed [August 17, 2025], https://www.sec.gov/ix?doc=/Archives/edgar/data/1803491/000101376225004230/ea0236008-01_424b3.htm.

In effect, this statement reveals that the fund anticipates redeeming no more than 5% of the Fund’s net assets during a repurchase event (generally quarterly), and it is subject to the Board’s sole discretion as to whether to honor redemption requests. This is an extremely light commitment to liquidity. Sure, investors can vote to redeem their shares, but if the Board is not in a redeeming mood and/or investors holding more than 5% of assets simultaneously cast their votes, there is a good chance their money is going nowhere. Anybody who believes that this will never happen is frighteningly naïve to the nature of securities markets.

Problem #5: Nauseatingly High Fees

In light of the questionable past returns, poor return prospects, and highly conditional liquidity, one would think that these funds are incapable of demanding high fees. Well, think again. Figure 6 provides a breakdown of actual fees charged by the Hamilton Lane Private Assets Fund, as well as estimated fees charged by the GPs of the underlying funds in the portfolio.

Figure 6: Estimated Layers of Fees for the Hamilton Lane Private Assets Fund

Source: Hamilton Lane Private Assets Fund. 2025. “HLP AF Fact Sheet, June 2025.” PDF, Hamilton Lane. Accessed August 15, 2025; Author’s estimates for underlying funds.

It is important to note that these figures may underestimate the fees. First, it assumes a management fee of only 1.5% (rather than 2%) for the underlying private fund interests, as it is plausible that most secondaries are in the later stage of their fund lives. Second, it assumes no incentive fees will be paid on funds that Hamilton Lane purchases in the secondary market because this is simply too difficult to estimate. Third, it does not account for other fees, such as fees charged by custodians to hold these funds.

Problem #6: Untrustworthiness

“The first thing is character…a man I do not trust could not get money from me on all the bonds in Christendom.”¹¹

—J. PIERPONT MORGAN (December 19, 1912)

The final problem may be the easiest to observe but most frequently overlooked. This may sound harsh, but executives at many firms promoting these products have proven, through their actions and public statements, that they cannot be trusted. The statement regarding liquidity from Hamilton Lane’s co-CEO is one example. Another is the convoluted reporting practices embraced by many evergreen funds, including Hamilton Lane, the Partners Group, and several others. On August 13, 2025, Jonathan Weil published an article in the Wall Street Journal revealing how many evergreen funds provide the cost basis of hundreds of investments in an absurdly confusing footnote style. This seems like an intentional obfuscation tactic designed to hide the role of one-day gains (see image below).

Let’s put this in a slightly more relatable context. Suppose you asked a general contractor to itemize every cost on a home renovation, and they sent you a list of 200 items with a single footnote listing 200 cost figures separated by commas. Would you trust them? I doubt it. So, why is it okay if a fund manager does it?

If a fund manager resorts to juvenile behavior like this, one must ask what else they are hiding. Then again, do you really need to know? They’ve already given you a taste of their character. It would be imprudent to trust them managing the inventory at a bake sale, much less a multi-billion dollar fund.

Steer Clear of the Secondaries Circus

“When people are cautious, questioning, misanthropic, suspicious, or mean, they are immune to speculative enthusiasms.”¹²

—JOHN KENNETH GALBRAITH, author of The Great Crash: 1929

Over the past 230 years, financial engineers have assembled many circus-like events. While private markets evergreen funds may not qualify as the zaniest, they certainly deserve a spot under the tent. Funds that depend on one-day gains are reporting returns that are likely to be grossly exaggerated—assuming they’re real at all. But even if they are real, simple arithmetic and early evidence reveals they cannot be sustained for long. Meanwhile, many investors who place their well-earned money into these funds are rewarded with highly conditional liquidity and exorbitant fees. If there is a way for these funds to defy the steep odds stacked against them, I don’t see it.

It is difficult to predict the timing and severity of financial disasters, but I strongly suspect that most evergreen funds will end in one. There will come a time when inflows reverse into outflows, redemptions are denied, portfolios are revalued to reflect reality, and investors find themselves stuck in overpriced, poor-performing funds for a very long time. When that moment will arrive is anybody’s guess, but my personal belief is that the day of reckoning will be measured in a few years, at most.

The structures of these funds are unstable; promises of enhanced returns are hollow; and pledges to redeem shares are unreliable. Fund managers know or should know that they are undeserving of the enormous fees they charge to simply feast on secondaries. Prospective investors should not only beware; they should be scared. The laws of math don’t respect hubris, nor do they suffer fools who deny their existence.

The secondaries circus will surely draw a crowd, but it’s a risky, high-priced ticket. If this suits your fancy…well, open your wallet, glue yourself to a seat, and enjoy the show!

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Disclaimer: This is a personal newsletter written by Mark J. Higgins, CFA, CFP, in his individual capacity. The views expressed herein are solely those of the author and do not necessarily reflect the views, opinions, or practices of IFA or any other organization or entity with which the author is affiliated. This content is intended for informational and educational purposes only; it does not constitute professional investment advice, an offer, solicitation, or endorsement of any specific financial strategy, product, or service. The discussion contains the author’s opinions based on publicly available information and should not be interpreted as factual or predictive of future events.

Nothing in this newsletter should be construed as a guarantee of investment results, nor should past performance discussed herein be taken as indicative of future outcomes. Investing involves risks, including the potential loss of principal, and investors should consult their financial adviser or other qualified professional before making investment decisions. Additionally, every effort has been made to ensure an accurate portrayal of market practices and conditions, but the author disclaims responsibility for errors, oversimplifications, or omissions. By publishing this newsletter, the author aims to foster dialogue and education and does not intend to disparage any individual, organization, or investment strategy. Readers are encouraged to consider differing viewpoints and conduct their own research before forming opinions or investment strategies.

1. Michael Hiltzik, Iron Empires: Robber Barons, Railroads, and the Making of Modern America (New York: Houghton Mifflin Harcourt, 2020).

2. Robert H. Fuller, Jubilee Jim; The Life of Colonel James Fisk, Jr. (New York: The Macmillan Company, 1928).

3. For more information on on this history, encourage you to read the article, entitled “A 45-Year Flood: The History of Alternative Asset Classes.”

4. Financial Accounting Standards Board, Accounting Update No. 2009-12: Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (September 2009), https://storage.fasb.org/asu2009-12.pdf.

5. ^1 Alternatives Watch, “PE Secondary Market Roars to Record $110 Billion Start in H1 2025,” August 18, 2025, accessed [August 18, 2025], https://www.alternativeswatch.com/2025/08/18/pe-secondary-market-record-110-billion-first-half-h1-campbell-lutyens/.

6. Patrick Warren, Daniel Hadley, Uday Karri, and Abdulla Zaid, “Private Capital in Focus: Depressed Distributions, No End in Sight,” MSCI, May 22, 2025, accessed August 15, 2025, [https://www.msci.com/research-and-insights/blog-post/private-capital-in-focus-depressed-distributions-no-end-in-sight]

7. Seth A. Klarman, “Blundering Down Wall Street,” The Washinton Post, November 24, 1990.

8. “The Future Ain’t What It Used to Be for These Funds.” The Wall Street Journal, June 6, 2025.

9. Toledo, Matt. “NYC Pensions Sell $5B in Private Equity Secondaries to Blackstone.” Chief Investment Officer, May 27, 2025. Accessed August 16, 2025. https://www.ai-cio.com/news/nyc-pensions-sell-5b-in-private-equity-secondaries-to-blackstone/.

10. Eden, Joseph, Olivia Bybel, John Schaffer, and Selin Bucak. 2025. “Hamilton Lane Co‑CEO: We Do NAV Uplifts Because It’s ‘Market Standard.’” Citywire Wealth Manager, August 4, 2025. Accessed [August 15, 2025].

11. U.S. House of Representatives. Testimony of J. Pierpont Morgan before the Subcommittee of the Committee on Banking and Currency, Money Trust Investigation, December 19, 1912. In Hearings before the Subcommittee of the Committee on Banking and Currency, House of Representatives, Washington, D.C. Accessed August 16, 2025. https://www.sechistorical.org/collection/papers/1910/1912_12_19_Morgan_at_Pujo_C_t.pdf.

12. John Kenneth Galbraith, The Great Crash, 1929 (Boston: Houghton Mifflin, 1955).