This one is hard to spot, because it never feels like a mistake. Not when it happens, and not for a long time after. You hire a professional. You listen to the pitch. You sign where they point. As far as you can tell, you did the responsible thing. This couple did all of that. Nobody lied to them. Nobody stole from them. They still ended up somewhere they never would have picked.
The situation
They had built real wealth, and at some point it crossed a line. All of a sudden they qualified for investments most people never get to touch. Private equity. Private credit. The “institutional” stuff. Their advisor built them a portfolio full of it, walked them through it, and it sounded great.
He told them the lockups were a good thing. That’s how you earn the “illiquidity premium,” he said. Your money goes to work in places that reward patient capital. And if they ever needed cash, no problem. The funds offered quarterly liquidity. Just put in a request.
So they signed. They felt good about it. For a few years nothing seemed wrong, mostly because nothing was being tested.
Then they needed some of their money back. And “put in a request” turned out to mean something very different than it sounded. Their broker filed the redemption paperwork, and then they waited. A whole quarter sometimes, just to find out how much they’d be allowed to take. Some quarters they got a slice. They never once got back what they actually asked for.
That’s when they finally sat down and added everything up. It was not a good afternoon. Somewhere along the way they had drained almost all of their liquid savings, a lot of it on things they never planned to buy, while the private funds just sat there, locked. Most of their net worth was now parked in vehicles they couldn’t sell and, honestly, couldn’t even describe. They knew the names printed on the statements. What was inside them was a mystery.
What I found
That’s when they called me. The first job had nothing to do with trading. It was figuring out what they actually owned. So I put every position on one page. What is it. What’s it really worth. What does it cost. And the one that had quietly become the whole game: how, and when, can you get your money out?
A few things jumped out.
- “Quarterly liquidity” was never a promise. It was a request, and the fund got to decide. They can cap it, prorate it, or shut it off completely in a rough market. Those partial payouts weren’t bad luck. That’s just how the thing is built.
- Nobody could tell me if the “illiquidity premium” was even real here. Between the layered fees and valuations that hadn’t been updated in months, you couldn’t say if they were getting paid to wait or just paying to wait.
- A lot of the funds owned the same stuff under different names. So they were far less spread out than that long list of holdings made it look.
- The cushion was gone. With the liquid money spent, they had almost nothing on hand for the next surprise. There’s always a next surprise.
What I did
First I built a liquidity calendar. Fund by fund: what can come out, when, and under what conditions. “Quarterly liquidity” stopped being a vague hope and turned into an actual schedule. I worked with their CPA on the stack of K-1s the whole setup had created.
Then we stopped the bleeding. Before anything fancy, we rebuilt a real cash and liquid base, so they would never again have to ask a fund for permission to spend their own money. After that, a slow, deliberate wind-down of the illiquid pile. Redeem through the windows that genuinely exist. Sell a few stakes on the secondary market when the price is fair. No fire sale. All of it paced around their real life instead of somebody’s sales pitch.
Illiquidity isn’t the scary part. The scary part is not knowing how much of it you own, and finding out the hard way.
Where it stands
They understand what they own a lot better now. I say “better” on purpose, because fully understanding it isn’t really on the table. Most of these private funds are black boxes. A handful of people on the inside know what’s in them, and everybody else is guessing. More than once we asked pointed questions and the fund’s own people couldn’t give us a straight answer about what an investment was or how it was doing. That’s not me picking on them. That’s the product.
So here’s the honest version. They know more than they did. They have liquid money again. The illiquid positions are winding down on purpose instead of running their life. But can I tell them the exact day the last dollar comes home? No. Nobody can. That uncertainty was baked into what they bought, even if no one ever said it out loud. I had a friend put money into a private credit fund that went bad. Eight years and a pile of legal bills later, they’re finally seeing the end of their “institutional grade” investment. That’s the risk hiding inside the word illiquid.
This isn’t me saying private investments are evil. It’s me saying you should be able to explain, in one sentence, what you own and roughly how fast you could turn it into cash. If you can’t, that’s the first thing to fix. And it’s a lot easier to fix before you need the money than after.