Bloomsbury blog Liquidity trap: private markets and retail investors

Bloomsbury blog post, 09 March 2026

Retail investors are becoming increasingly interested in private market investments. A 'retail investor' is an individual (usually non-professional) investor - also known as an 'everyday investor'. Tokenised slices of private assets are now widely promoted as alternatives to traditional investment in public assets, like listed shares and bonds. Despite this growing excitement, we are concerned about one fundamental issue: liquidity. For everyday investors, who don't have institutional backing, a loss of liquidity means you're trapped.

Liquidity: Can you access your money?

Liquidity is the ease with which an asset can be turned into cash without materially affecting its price. Listed shares and bonds, along with units in listed property trusts, are highly liquid assets. They can typically be bought or sold on any trading day, with transparent market pricing, deep pools of buyers and sellers, and low transaction costs. However, private investment assets, like private debt, private equity, and unlisted property are more illiquid. These assets usually have a smaller pool of potential buyers, less frequent valuations, required lock-up periods or selective redemption rules, and higher friction costs when buying or selling.

Most investors face periods in life where they need to access funds quickly. Liquidity is often needed when big life changes occur – losing a job, unforeseen medical expenses, or unexpected property transactions. Liquidity is the tool that makes these life events manageable rather than painful.

Private markets are growing in popularity for retail investors

Globally, more retail investors are being drawn to investment in private market assets. Institutional investors expect that the popularity of retail investment in private assets will continue to grow over the next few years. An 'institutional investor' is a large organisation, e.g. a bank or asset manager, that pools investment capital. State Street recently conducted a global survey of 500 institutional investors, finding that 56% of respondents believe half of private market flows will come through investment vehicles marketed to retail investors within a couple of years. This sentiment was supported by a report by Apex Group, who found that 86% of private equity firms expect private market investments to dominate retail portfolios in the next five years.

In New Zealand, while the popularity of semi-liquid, retail-style private equity vehicles lags slightly behind global trends, retail investment in unlisted commercial property continues to grow in popularity. Bayleys reported that last year the proportion of private non-institutional investors in commercial real estate reached a seven-year high. The report found that private investors purchased 68% of properties sold worth over $20m in 2024. This was supported by CBRE's New Zealand Transaction Monitor, which found that 51% of the total value of commercial property transactions were bought by private investors.

Both globally, and in New Zealand, retail interest in private equity, private debt, and unlisted property is growing. When it comes to ordinary retail investors making investments in these markets, we worry about liquidity. Investments in private market assets are fundamentally less liquid. Even when packaged in a semi-liquid vehicle, the investment involves assets that cannot be traded as freely as listed shares and bonds.

The liquidity trap

Traditionally, the lack of liquidity in private markets meant that investment was predominantly sourced from corporate and institutional investors. However, the growing popularity of retail investment in private markets is in part fuelled by new investment vehicles, designed to improve liquidity and transparency for ordinary investors. These new vehicles tokenise real-world assets, (like unlisted real estate, private debt, or private equity) through fractional ownership and global accessibility. A 2023 paper which investigated tokenised real-world assets found that, despite the promise of greater liquidity, most real-world asset tokens exhibit low trading volumes, long holding periods, and limited investor participation. The paper concludes that “liquidity remains a critical bottleneck” for retail investment in private markets.

Liquidity risk often appears harmless, right up until it's needed. When markets are calm and an investor doesn't need to convert their investment assets to cash, low trading volumes or high transaction costs don't impact the investor at all.

Private equity funds can freeze redemptions during stress, preventing an investor from converting their investment to cash. Fractional property vehicles may suspend trading if buyers attempt to pull out to soon or too frequently. Tokenised private assets show long stretches of near-zero trading activity. Valuations, which may be updated infrequently or via appraisal, can lag market conditions, creating the illusion of stability or strong returns that isn't reflected in the marketplace when it's time to sell.

For retail investors, who typically have fewer liquid reserves than institutions, liquidity bottlenecks can force poor decisions. Illiquidity turns a portfolio into a trap when life changes faster than your investments.

Liquidity = freedom

The ability to turn investments into cash is a core feature of a resilient financial plan, particularly for individuals and households.

Retail investors should be cautious about replacing listed equities, bonds or real estate trusts with private equity or debt funds, or fractional property products. Investors shouldn't sacrifice their liquidity simply because private markets appear more sophisticated or promise higher returns. Understanding lock-up periods, redemption rules, valuation methods and secondary-market depth is essential before committing capital to an unlisted real-world asset.

As private markets become more accessible and aggressively marketed to non-institutional investors, the temptation to treat them like liquid assets will grow. Investors should remember that liquidity matters most when you least expect it. Don't get trapped holding an asset that you wish you could sell. Instead, invest in listed assets with deep pools of buyers and sellers, up-to-date and transparent pricing, and low trading costs.

Inspired by:

• Of Dollars and Data - Having Water in the Desert
• Of Dollars and Data - The One Thing My Worst Investments Had in Common