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There used to be a clear distinction between public and private companies. Firm would take years or even decades to grow, build their revenues and profits, and eventually tap the public markets to go national or even global. That doesn't seem to happen anymore. As endless amounts of capital sloshes through the system, more and more companies are staying private. but there's a group of private investors that are accessing public capital through various wrappers, including ETFs. To help us unpack all of this and what it means for your portfolio, let's bring in Dave Nottig. He's president and director of research at ETF.com, and he shares with us how investors should navigate these public-private hybrids. Dave is also the author of the book, A Comprehensive Guide to Exchange-Traded Funds, So Dave, there was once a very bright line between public and private markets. Has that line disappeared or has it simply just moved into wrappers that investors don't fully grok?

I think it's more the latter. I think the rules haven't really changed. I think that's important to point out here. It's not like we passed a law that said everybody can get in. What's changed is that there's a willingness by the issuers of product to get a lot more aggressive in what they're positioning as retail-appropriate vehicles. So there's not a new wrapper here. What there are are new ways of stretching the edges of wrappers that have been

around for almost 100 years at this point. So let's put some numbers on that. Since 2010, private credit raised something like $1.8 trillion. Every major firm, Blackstone, Apollo, KKR, Aries, Blue Owl. They're building retail channels. There were 314 interval funds, tender offer funds with $277 billion in assets as of January of this year, of 2026. A lot of chatter that private is going after the 401k market next. What does all this capital mean

to investors? Well, you know, I think the thing investors need to realize is that if you're the one being offered a product, you need to ask yourself why, right? If somebody is coming to you and saying, I want to give you access to private credit or private equity, it's very smart to say, who is selling this to me and why are they selling it to me now? And unfortunately, the real answer here is that, you know, look, we're in this incredible bull market. Let's just be really honest. Things have been going up for a very, very long time. And because of that, there is a lot of money that is looking for exits. And at the end of every cycle in my career, it is retail that is looked at to be the exit, whether that's buying beanie babies, used cars or stocks. It doesn't really matter. At the end of the day, the retail investors. the one that the quote unquote smart money, the big institutional money, is looking to unload their positions onto. And so it's not surprising to me that we're seeing a lot of discussion around quote unquote democratizing private investing, whether it's venture capital or private credit, it doesn't really matter. It's all the same thing. And so now that we just have to accept that we're going to be marketed these products. And for the most part, I think investors are not well-served by them, but I think that that's worth poking at.

So we should all take some advice from that great alternatives investor, Groucho Marx. I don't want to be a member of any club that would have me. Exactly. So let's talk a little bit about how this used to look in the old days. Historically, companies would go public to raise growth capital. Today, it seems like a lot of the best known private firms can stay private indefinitely. And those that go public seem just to be reaching for liquidity for insiders. Is that what's happening with these various 40 act funds in all sorts of new wrappers? Yeah, there's two things going on here. So on

the one hand, eventually these private companies go public and there's a lot of effort to get investors involved in those IPOs. That's the end state of what we're talking about. I want to focus a little bit more on the beginning state, which is how the actual money in private equity gets there. And historically, how that money ends up in a private company is pretty simple. There's some pool of assets. Generally, it's an LLC or a limited partnership. And it collects a billion dollars of money from a bunch of rich people and endowments and institutions and financial advisors. And that money goes into a pool, which then makes a bunch of small investments in, say, 15 different startups in Silicon Valley. And the idea is that one of those hits big, and then the payout from that is either that company gets bought or it goes IPO, and all the investors in that limited partnership then get a big check. That's sort of the structure. How that little pool of private money gets managed can really vary. It's very common for it to be in just literally a limited partnership, but the problem with that is you can only get so many investors into it. When you want to get a lot of investors, you have to go to some sort of regulated vehicle, and then you end up in usually a closed-end fund of some kind, whether it's a traded closed-end fund, a non-traded closed-end fund, an interval fund, a tender offer fund. They're all sort of versions of the same things. They're funds that are roach motels. Money goes in. Money never comes out.

Define those various things. What's the difference between a tender offer fund, a limited fund, a closed-end fund for people who may not be hip to all these different acronyms? What is going on in these and interval funds? Go through the whole list.

Yeah. So really the main structure is the closed-end fund or the CEF, which is part of the 40 Act, just like an open-ended fund, which is an ETF or a mutual fund. same rules, same laws that have a board, very similar structures at the very, very high level. The biggest difference is a closed-end fund is basically subscribed to once, like an IPO. You go out, you say, I want to raise a billion dollars. You see if you can get a bunch of people to give you that billion dollars. Now that is a closed pool of money. And whether or not money ever comes out of that pool again depends on how the rules are written for that fund. In the most investor-friendly version, it tends to be a traded closed-end fund, meaning you can go to NYSE and you can get a bid for it, and it may be trading at a discount or not. That's the version that, for instance, Pershing Square just launched. Pershing Square just filed PSUS, which is a fairly traditional closed-end fund. They raised a bunch of money. Now it trades in the open market, and much to the dismay of Bill Ackman, it's trading at a 20% discount to what it's actually worth. That's pretty common in closed-end funds because there's no liquidity. You can only buy it or sell it from other people who happen to want it or own it.

And to clarify, PSUS, are the holdings private or public or both?

At the moment, that's really going to be public equities. I think what people are trying to buy there is Bill Ackman's high concentration, use some leverage to get better exposure, special situations kind of investing. That was a specific offering that he's tried. I think this is his third tilt at this windmill and finally got this one to close, albeit not with the pricing that he probably would have hoped for. But that's actually a pretty traditional closed end fund. You raise a bunch of money, you trade it back and forth with your friends. Maybe it throws off dividends. Maybe it throws off a capital gain someday if they have a big win. But you're never you're never expecting to get your money out. You can do the exact same thing and not have it ever be traded. and that's That's a non-traded private equity fund. And that's a pretty common thing. BREIT, a really well-known REIT fund, is one of those sort of non-traded closed-end funds. And we've had a bunch of those launched recently, also really targeting private equity. So that's another very common version of it.

And full disclosure, what I'm about to talk about is something I own. Boaz Weinstein has an ETF, CEFS, closed-end funds, that he looks for these closed-end funds that are trading at a discount to NAV. He buys them and then either agitates for the manager to either buy back enough stock so it's trading at NAV or to break it up and just sell all the pieces and return the money or give the stock back to the investors. Why do so many of these closed end funds trade at such a discount that activists are haranguing management for what essentially is a dollar trading at 75 cents?

Well, the discount comes because of what you just said. There's no liquidity in there. There's no way to ever extract real value from the fund. It's permanent capital, largely from the perspective of the issuer. That's why the issuer loves it, because they're just like, I have a $2 billion portfolio. I never have to worry about providing liquidity. I'm fine. So if it trades at a discount, that manager really doesn't care. They're still getting paid based on NAV. Often they're getting paid on NAV that's been goosed by a bunch of leverage. So they still get paid. The end investor is the one sitting here going, why did I pay? Why am I sitting here at a discount? So that ARBing out of the discount is a classic tale. People have been doing that since the 60s. And that's been the story for closed-end funds.

Right. ETFs, the ARB means that there's no discount because you could always buy it and open the wrapper and sell the stock. So it just seems weird that closed-end funds don't have the same response to ARB.

It's like an appendix on regulatory structure, right? It's this like vestigial piece of flesh that's attached to the 40 act. And that's why you mentioned the top of the show. There are only a couple hundred of these things. Right. And generally people only use the closed end fund structure when they have one of a couple problems to solve. One is they're buying stuff they literally can't sell. So in the case of USVC, which is the one that Angel lists, Naval just launched, I'm still trying to get my money into. The whole idea there is that buying stakes in SpaceX and private companies like that, they can't just liquidate that. They need to be able to close the liquidity gate. That's usually reason number two. And reason number two is usually leverage. So if you're trying to do some sort of sort of, you know, like levering up bonds to try to get 15% returns out of them, you know, those kinds of portable alpha strategies or risk parity strategies where you really need to be able to go long and short and get lots of leverage, you can do that in the closed end fund structure where you can't do that in a traditional mutual fund or ETF. So it does solve a problem. The issue is it's very rarely a problem the normal investor has.

Yes. So you mentioned PSUS, and I remember that fee was not five bips. What was the fee on PSUS? I think it's 2% out of the gate. Oh, that's a chunk of cash. But no 20. It's not a two and 20 hedge fund. It's just a two. Yes, exactly. And what about products like USVC? By the way, I love that these all have the name US in it. I guess the plan is they'll do a overseas version one day as well.

I guess, I guess. Look, they're all, all of these funds are generally pretty expensive. You know, something like the USPE, which is the one that's come from TAP, which is basically just going to buy a bunch of private stuff that they get access to. That's charging 2%. But then they're, what they're buying is other funds. And so you get a lot of acquired fund expenses. So it's not uncommon to see these expenses creep up towards three or 4% when you start rolling all this stuff together. It's fees on fees because it's fees on fees. Now, I should point out, though, the US VC is the one that made a bunch of big splash lately because they're basically saying the limit's $500. Get your money in now. And they're structuring that as a bit more of an interval fund where once a quarter they're saying we'll give 5% liquidity to people who want to get out. That's, again, a fairly common structure, although none of those things are written in stone. They can say they're going to do that and then not do it and there's no recourse. And USBC does not trade on any – It won't trade anywhere. It's non-traded. So the only way you'll ever get your money out of it is either they make a distribution because something big happened in the fund or you sign up for one of these quarterly windows where you can get 5% of your money out.

So some of these are – private and hold non-liquid assets. Some of these are public and hold public assets. Are there public versions of these that hold private assets?

Well, the equivalent to that would be something like USPE, which is the one that's coming from TAP. The idea there is that they're going to have, it'll be trading on the exchange. No, it's not an ETF. It's still a closed-end fund, but it'll be a traded closed-end fund. So it'll have its big discounts. The other version of this is you can take an ETF and use the 15% illiquid bucket that all mutual funds are technically allowed to have. And you can try to use that aggressively. There are ETFs doing that. XOVR is the big one that has a 15% SpaceX chunk in it. Ron Barron's funds, RONB, has a big chunk of SpaceX in there right now. So there are more ETFs and mutual funds that are trying to do that. But it's obviously fraught with peril. You don't want to go too far down that road and then have a giant pile of redemptions you can't meet.

So here's the obvious question. USPE or even better, Pershing Square, PSUS with Bill Ackman, these funds convinced savvy institutional investors and others to put a bunch of money in. they launch at a couple of billion dollars. Wait, I could buy me some Bill Ackman at a 20% discount. How come more people don't see this and say, oh, I get to buy a premier hedge fund manager at a discount to NAV. What's the disconnect? Why haven't people themselves just said, I want some of this? Is the expectation that, hey, if you want to be in Pershing Square, That's where all the good stuff is taking place. But the PSUS just isn't going to have – the closed-end fund isn't going to have the same juice.

Interestingly, part of the reason Ackman had such a hard time getting this capital raise done over the years was exactly that argument. People were like, I want to be part of the management company. I don't want to own this garbage fund. And so what they actually floated was the combo platter, where I think it's every four or five shares of the fund, you get one share of the big daddy.

So you're both an LP. So if this was a hedge fund, you would both be an LP and a GP at the same time, which is a very clever way to do it. How much of the overall GP did Ackman allow outsiders to buy, or is it just built into the fund?

It's built into the structure of the fund. I don't know exactly-

So you're not getting 20% of the GP.

You're simply not getting 100% of it, right?

You're getting one out of- Well, if you're buying it, you're only getting one out of five shares or whatever there is. But he could say, we're going to have 100 million shares and I'm going to put a million into this or whatever the float is.

Right. I mean, this is part of the problem with these kinds of funds is that you ask why people aren't storming the gates to try to get into this thing. well you don't know that much about it right you're not getting regular reporting it's not super transparent you don't really know what the marks are obviously if they're only holding public securities you can impute the marks yourself that's fine but on anything that's private you're just kind of guessing and taking their word for it for it so yeah it's trading at a 20 discount to what you think it's worth but is that really even what it's worth and how do you value the gp component of this in that 20% discount, et cetera. So I think the combo platter of lack of transparency and lack of liquidity is enough to scare most rational investors out of something

like this. So those are the downsides. There obviously has to be an upside if someone like Bill Ackman is saying, I have an idea and $2 billion worth of smart money, theoretically, threw some cash into that. What's the upside? Well, the upside is Bill Ackman could be right,

right? I mean, he runs high concentration, somewhat levered portfolios of, I don't know, a dozen stocks. That's a high conviction bet. If he gets those dozen stocks right, he could absolutely blow away the market. I've fully acknowledged that there are investors out

there- And his track record has shown years when he's got the lights out, right? Exactly. Not necessarily consistent, but mostly pretty good years and a handful of spectacular.

Some flashes of genius. Right. So, like, that's why people are buying into these things is because they believe in this case for, you know, Purding Square, they believe in Ackman and his prowess and his access to inside information, quote unquote, or his access to insight that other people aren't getting. In the case of something like USVC, I think what they're counting on is, oh, those are the angel list guys. They're getting to see all of this deal flow from Silicon Valley way before everybody else. USVC is going to get these nice little slugs of whatever the next SpaceX or the next big IPO is going to be way before anybody else. That's not insane, right?

I have some private investments of my own. I've chosen to be much more careful and pick exactly what I want to do. But I'm not going to sit here and tell people private investing is a terrible idea. Lots of people have made lots of money doing it. So that's the allure is, hey, USVC, once they finally let people's money in and start investing, maybe they will, in fact, carry the whole tailwind of everything going on in Silicon Valley Venture. And your $500 becomes $5,000. It's not impossible.

Here's the math on private investing that I think a lot of people overlook. The median fund, it does okay. It doesn't do great. You're better off in the S&P. It's expensive and it's a liquid versus the S&P. But a top decile fund does really well. Diversified, non-correlated, and very often outperforms the index. The problem is, unless you get into that, I'll be generous and say top quartile fund, the performance, the juice isn't worth the squeeze. I love that expression. So given all of that, how do you think regulators should be treating this private exposure in these various public wrappers? Well, so my two big issues are liquidity and

transparency, I think we should enforce the liquidity rules, right? Which means that if you're sticking something in like an ETF, you should not be able to violate the 15%. If you cannot trade it and get a price on it intraday, it is not liquid and you should not count it as liquid. So step one, we should actually enforce those liquidity rules. Intraday, meaning once a day or anytime throughout the day? Well, you've got to at least be able to do it once a day. And I would argue holding an intraday-priced vehicle, you should probably be holding most of your assets in intraday-priced securities. 85%. Yeah, 85%. Right. So that seems pretty rational. And then the other – so that's the liquidity side of it. And then the transparency side of it, look, the problem in private equity and private credit, as everybody knows who's played in any of this, is that the marks don't matter. Right? I mean, we've all seen those pitch books that say, look, you should invest in privates. They're so stable. They hardly ever go up or down.

I love Cliff Asnes calls that volatility laundering. And it's exactly what it is. And it's the perfect phrase.

Right. So you're taking what would obviously be wildly volatile assets and you're marking them once a quarter and you're marking them, you know, based on a lower vol metric on what its comps did. So, of course, those are ridiculous and stupid marks. So that would be the next thing I would focus on is independent valuation agents for anything that is going to touch the public hand, right? If it's not in a limited partnership where you've got your own governing documents, if you're going to touch the 1940 Act, we should have independent verification. And we should at least publish valuation rules. That's the other big one is that they don't tell you how they value any of these things. That's the board. The board values whether or not your private thing is worth X or Y. I don't like that. I would like to know the rules. Why do you think SpaceX is worth $185 instead of $500?

Really, really fascinating. Last question. Five years from now, how do you think this public-private distinction, these public wrappers around private investments – I love the phrase liquid alts. kind of reminds me of the George Carlin word routine, jumbo shrimp. Military intelligence. Right, exactly. That's the exact routine. Listen, either it's private and illiquid or public and liquid, but private and liquid doesn't really, at that point, it might as well be public. It doesn't make any sense. How do you think this distinction is going to show up in the minds

of investors and or regulators? I feel, I don't want to be a Doonberg about this, But I feel fairly confident suggesting we're going to have some event in the next couple of years, which is going to pull the scales off our eyes around private securities. Haven't we kind of had those sort of events already this year? We've had a bunch of privates kind of- Oh, no, no, no. Very, very thin. Like Blue Owls, like closing your BBC for redemptions. Who cares? That's course of business.

You're talking not quite GFC, but in the same neighborhood.

Yeah. I think we're going to have a few funds really have to either close, whether it's a high profile private equity fund unwinding, whether it's some of the private credit stuff really coming home to roost. Now, initially, it looks like we may have dodged some of that, like the private credit stuff. I think there was a lot of concern that that was going to blow up the world. We seem to be being a little more rational about that on the private equity.

side, you know, I think most of the money going into private equity is pretty high risk tolerance money anyway. So until we actually cross that Rubicon of shoving this stuff in 401ks, which I think is still going to be a while out. I don't think that's happening tomorrow. I hope that's a very far out. Yeah. So so I think we'll have some high profile blow ups, but I think that they will be they'll be good for investors in the sense that they will wake us up and we'll be more skeptical, which I think is what's happened with private credit. There is not billions and billions and billions of dollars chasing private credit from retail right now. That's a good thing.

I think we dodged a bullet. Well, there certainly was billions of dollars chasing 24 and 25. Now it's millions. That's right. So to wrap up, for those of you interested in everything from liquid alts to interval funds to M&A funds to what have you, you have to be aware of the downside risks. These things tend to be expensive. They often trade at a discount, assuming they trade at all. They are not especially transparent. There is a lot of good faith in relying on management to tell you what these things are worth. No conflicts there. And generally speaking, they seem to operate at a, on a very different plane than publicly traded stocks and bonds. I'm Barry

Ritholtz. You're listening to Bloomberg's At The Money. When you're running a business,

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