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Public/Private Market Convergence And The Limits Of Liquidity

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  Published in Media and Entertainment on Saturday, September 13th 2025 at 5:38 GMT by Seeking Alpha
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Public‑Private Market Convergence: The Liquidity Limits that Still Hold Them Apart

In the decade since the early 2010s, the line between public and private equity has grown thinner. IPOs of high‑profile tech firms, the rise of special‑purpose acquisition vehicles (SPACs), and the massive inflows of capital into private‑market funds have all made the “public‑private divide” feel more like a spectrum than a chasm. Yet, as the Seeking Alpha piece Public‑Private Market Convergence: Liquidity Limits (published 19 September 2024) explains, the convergence is not a smooth slide; it is still bottlenecked by structural liquidity constraints that are reshaping both markets.

Below is a distilled overview of the article’s key arguments, enriched by the secondary sources it references. (For a deeper dive into any of the linked studies, the reader is encouraged to visit the original research reports or the author’s other articles on Seeking Alpha.)

1. A New Landscape for Investor Liquidity

The old paradigm: Private‑market investors, primarily institutional entities, were forced to wait several years to exit a position. Public markets offered liquid, continuously traded securities, while private assets remained locked‑in until a sale or IPO.

The new reality: According to the article, the secondary market for private‑equity stakes has exploded. Preqin’s 2023 Secondary Market Report (cited in the piece) shows a 45 % increase in transaction volume over the past five years, with a 35 % jump in the average deal size. Fund‑of‑funds, LPs, and even high‑net‑worth individuals are using secondary markets as a way to achieve timely liquidity, blurring the distinction between the public and private arenas.

But the article cautions that this liquidity is not evenly distributed. The bulk of secondary activity concentrates in large, well‑known funds, leaving smaller, niche players in a more constrained liquidity environment. The author argues that, unlike the public market’s near‑instant trade execution, private‑market liquidity still requires negotiation, due diligence, and often the approval of a fund’s limited partnership agreement.

2. The Role of Regulatory Reform

In the wake of high‑profile failures and market turmoil, regulators have begun tightening the rules around private‑market transactions. The Seeking Alpha piece points to the U.S. Securities and Exchange Commission’s Private Placement Rule (revised in 2022) and the European Commission’s Alternative Investment Fund Managers Directive (AIFMD) updates.

Key takeaways:

• Transparency requirements now mandate that secondary buyers obtain detailed portfolio disclosures, which can delay transactions.
• Reporting obligations on the volume and concentration of secondary trades add administrative burdens that can deter smaller players.
• Investor protection measures—particularly for retail participants—have introduced additional compliance steps, effectively raising the cost of liquidity.

The article suggests that while these reforms are well‑intentioned, they have inadvertently amplified the liquidity gap between the public market and the vast majority of private‑market participants.

3. Capital Flow Dynamics and Market Depth

The author highlights a pivotal shift: Capital is flowing more quickly into private‑equity funds than before, but the market depth is not keeping pace. A 2024 PitchBook analysis—also referenced—shows that while assets under management (AUM) in private‑equity funds grew by 12 % YoY in 2023, the liquidity events (IPOs, M&A, secondary sales) increased by only 6 %. This imbalance creates a “liquidity trap,” where investors are eager to exit but cannot find buyers fast enough.

The article breaks down the drivers:

• SPACs have become a hybrid, attracting public‑market money into private‑market deals but also draining liquidity because SPAC sponsors often lock in early‑stage rounds.
• High‑yield bonds and convertible securities issued by private companies add layers of complexity to the exit process.
• The “value‑add” thesis used by many private‑equity firms encourages prolonged holding periods, further limiting liquidity.

4. Secondary Market Mechanics: A New Layer of Complexity

While the secondary market is a key liquidity source, the Seeking Alpha piece notes that it comes with its own set of challenges:

• Valuation uncertainty: Secondary buyers often pay a discount to the book value, but the exact discount can vary wildly depending on the fund’s stage, sector, and prevailing market sentiment.
• Deal structuring: Many secondary transactions are structured as “back‑out” deals, where the buyer assumes certain liabilities, requiring additional due diligence.
• Regulatory alignment: Because secondary trades can trigger the need to comply with both private‑equity and securities regulations, buyers must navigate a complex legal landscape.

In short, the secondary market is not a silver bullet; it merely dilutes the liquidity differential.

5. The Future: Technological Disruption and Institutional Adaptation

The article ends on a forward‑looking note, outlining several potential forces that could reshape liquidity:

• Blockchain‑based tokenization: The rise of security token offerings (STOs) could create a new class of liquid, tradable private‑equity instruments. Several tokenization platforms have already listed fractional ownership in private companies on secondary exchanges.
• RegTech innovations: New compliance tools that automate KYC/AML checks could reduce administrative delays in secondary transactions.
• Institutional demand for “liquid private equity”: Asset‑management firms are increasingly seeking private‑market alternatives that provide regular distributions, such as private‑market real‑estate funds that pay quarterly dividends.

But the author cautions that these developments will likely hit the “public‑private” spectrum unevenly. While large, well‑capitalized funds may adopt new technology quickly, smaller funds may struggle to invest in and maintain such systems.

6. Take‑Away Insights

7. Further Reading

The article itself cites several key reports that can deepen your understanding of the liquidity landscape:

1. Preqin 2023 Secondary Market Report – Offers granular data on transaction volumes and fund types.
2. PitchBook 2024 Private‑Equity Capital Flow Analysis – Highlights capital inflows versus liquidity events.
3. SEC Private Placement Rule Summary (2022) – Outlines the regulatory changes affecting secondary sales.
4. European Commission AIFMD Update – Provides context on how EU rules impact private‑market liquidity.

Each of these resources is linked within the original Seeking Alpha article and can be accessed directly through the platform’s “Related Articles” sidebar.

Final Thoughts

The Public‑Private Market Convergence: Liquidity Limits article paints a nuanced picture. While it is undeniable that private‑market liquidity has improved—thanks in large part to a vibrant secondary market, regulatory oversight, and technological progress—significant limits remain. Institutional investors, especially those managing smaller funds or operating in less liquid sectors, still face a challenging exit environment. The coming years will likely see further disruption, but the key takeaway is simple: Convergence is real, but the liquidity gap is still an important and evolving risk factor for both public and private‑market participants.