The Global Wealth Illusion Is Paper-Thin
Mark-to-market values have become less reliable as more money moves into private investments. The next crisis may bring a rude awakening.
We’re taking a flyer with this trend.
Photographer: Oliver Burston/BloombergThe world is wealthier now than it’s ever been — but only on paper. Much of this prosperity may prove illusory as a global shift toward less liquid investments undermines the basis of valuation.
Private equity, infrastructure and private credit have become a bigger share of investment portfolios, making mark-to-market values increasingly uncertain. The standard method of valuing assets assumes prices are available and that there is adequate trading liquidity to be able to sell at those levels. This may hold for traditional investments such as stocks and bonds. But assets such as private equity are rarely traded or not tradable at all, necessitating the use of models or proxies instead.