Why is time an essential factor in private market investing?

Private market transactions usually require six to nine months of due diligence at entry and the same at exit. Moreover, the implementation of value creation plans associated with private market investments generally spans three to five years. These plans are the main source of performance and are necessary to transform an asset in order to sell it at a potentially significant markup. Therefore, time is the third dimension of private market investing, alongside risk and potential performance.

This focus on time is unusual in finance. Measuring the time exposure of capital is often an afterthought, if there is any concern at all. Traditional asset allocation models generally assume that assets can be bought and sold quickly in liquid markets. Illiquidity is therefore often treated as a risk that investors should be compensated for through higher returns. However, in private markets, this feature is advantageous, since it offers investors the freedom to sell an asset only once they feel the timing is right. 

Nonetheless, this three-dimensional effort also has significant consequences. Assessing how much time is required for making private market investments matters to investors who are willing to allocate capital efficiently and build a sound portfolio. This evaluation matters for cash flow planning and buffering, as well as for minimising the opportunity costs associated with idle cash.

How long is capital really invested?

A common misconception is that investor capital remains tied up for the entire life of a private market fund. While closed-end funds typically have a lifespan of around ten years, capital is deployed progressively over three to five years and returned as investments are realised. Investor capital is therefore generally employed for a much shorter period than the fund's legal duration. This pattern of capital deployment and return is commonly referred to as the J-curve.

Understanding for how long capital is used in private markets is also useful for investors who choose to allocate it via open-end (i.e. evergreen) funds. These funds deploy capital on an ongoing basis and usually recycle sale/listing proceeds into new transactions. Investors wishing to exit an open-end fund and redeem their investment must contact the fund manager, who will try to serve these requests on a best-effort basis (the maximum is usually set quarterly at 3%–5% of the net asset value of the fund). If there is no cash, investors must wait until the manager executes the redemption, a phenomenon known as ‘gating’. Hence, the duration of private market investments effectively conditions this execution. 

The time-to-liquidity metric and why it matters

Private markets are notorious for their opacity, since it is difficult to observe and monitor how long funds hold onto assets. Traditional holding-period data is limited and is only indirectly relevant to fund investors. What matters more is how long it takes for invested capital to be returned through distributions.

To capture this, we introduce the concept of time to liquidity, defined as the capital-weighted average time required for investors to receive distributions. Unlike asset holding periods, time to liquidity reflects the impact of credit facilities, dividend recapitalisations, interest payments, and other distributions that accelerate cash returns without affecting how long underlying assets are held.

Across most private market strategies, time to liquidity ranges from three to five years, although it varies significantly by asset class. Importantly, strategies with longer times to liquidity have historically generated higher returns, suggesting a relationship between patience and performance. By contrast, the relationship between time to liquidity and risk is much weaker, indicating that greater patience does not necessarily imply greater risk.

Why are market conditions a defining factor?

Time to liquidity is strongly influenced by market conditions. During favourable periods, managers may sell or list assets quickly at attractive valuations, producing both shorter times to liquidity and stronger returns. Conversely, weaker market environments often result in longer holding periods, delayed exits, and lower performance. A closer look at the minimum and maximum time to liquidity and the performance of leveraged buyout (LBO) funds, venture capital (VC) funds, secondary funds, and fund of funds sheds additional light. A minimum time to liquidity seems to be linked to higher performance in VC and LBOs; fund managers have opportunistically sold or listed assets in less than three years at very attractive valuations. This was the case for VC funds that were active during the dot-com boom and LBO funds that were active during the recovery following the Persian Gulf War. These examples suggest that the relationship between time to liquidity and performance is often driven by favourable market conditions and opportunistic exits rather than by investment duration itself.

How to manage liquidity risk through diversification 

Industry averages provide useful benchmarks, but individual funds can differ significantly in terms of performance, loss rates, and time to liquidity. Individual investments within those funds may exhibit even greater variation. For investors, the key risk is therefore the dispersion of liquidity outcomes around the average. Managing this risk requires diversification across managers, strategies, and vintage years. It also requires rigorous scenario analysis and stress testing to assess how portfolios would perform if distributions were delayed beyond expectations.

Ultimately, private market investing should be viewed through three lenses: risk, return, and time. Time to liquidity provides a practical framework for understanding how long capital is likely to remain invested, helping investors set realistic liquidity expectations, improve cash-flow planning, and build more resilient private market portfolios.