Private market (PM) investing, acco r ding to the autho r s of Asset Allocation a nd Private Markets, entails some notewo r thy challenges. Fo r instance, analyzing returns is problematic, owing to stale pricing that arises fr om relatively illiquid trading.

The task is further complicated by the difficulty of calculating co r relations between private a nd public asset returns. Fund managers can game internal rate of return (IRR) calculations through the timing of company sales o r by piling debt onto companies in o r der to pay large dividends. Also, volatility is a poo r proxy fo r risk in PMs. Rebalancing is harder to implement than in public markets. Secondary markets in private assets are not reliable venues fo r disposing of holdings, in 2008–2009, discounts to net asset value soared to 50% fo r leveraged buyout funds a nd mo r e than 70% fo r venture capital funds. Fees are higher than those fo r public investments. Facto r analysis is inapplicable because of the sparsity of trading activity.