Liquid Claims on Illiquid Assets: The Economics of Retail Access to Private Markets

Expanding retirement account access to alternative investments requires delivering illiquid returns to small-balance investors without compromising valuation integrity or liquidity. This paper studies the intermediation process using 110 registered interval and tender offer funds (>$100B AUM, 2015-2024) that offer periodic rather than daily repurchases. The performance gap between these vehicles and institutional drawdown peers averages approximately 130 basis points per quarter. A factor decomposition attributes roughly one-third of the gap to fees and a larger share to imperfect replication of the private-market return stream; liquidity buffers (8-15% of NAV) contribute at the margin. The funds hold an average of 76% illiquid assets, but valuations are frequently stale, with 40% of trading days recording zero NAV changes. Approximately 40% of interval funds face excess repurchase demand in a given quarter. Despite aggregate underperformance, retail-held assets generate comparable IRRs to same-vintage institutional peers while distributing significantly more cash, consistent with managers selecting liquid, distribution-friendly assets to satisfy repurchase obligations. The current equilibrium is one where regulatory frameworks permit access, but the structural costs of liquidity provision limit the transmission of the private equity premium to retail portfolios.