Are private markets really offering differentiation, or are ETFs, mutuals just as good?

A new analysis is challenging one of private markets’ core selling points: differentiation.

The report finds that semiliquid private market funds, often marketed as exclusive and hard to replicate, frequently hold many of the same underlying investments, blurring the line between private and public market diversification.

Despite claims of proprietary deal flow and unique sourcing, the Morningstar study shows that overlap is widespread, particularly in private credit. More than one third of assets in direct lending strategies are tied to companies held by at least five different funds, based on identifiable holdings.

Even when comparing individual portfolios, the distinction is less pronounced than many investors might expect. On average, private credit funds share roughly 20% of their borrowers with peers, suggesting a meaningful degree of common exposure across the category.

That similarity becomes even more striking at a broader level with semiliquid private portfolios differing from one another about as much as comparable public strategies, such as small-cap equity or bank-loan funds. In other words, while these funds are not identical, their level of differentiation resembles what investors already see in less-liquid corners of public markets.

Fees in context

Fees, in that context, take on greater importance. When portfolios begin to look alike, cost structures can become a primary driver of long-term outcomes.

Many private equity strategies operate as fund-of-funds, allocating capital to the same underlying vehicles. In fact, roughly a quarter of funds in the category hold stakes in the four most widely owned private equity funds, underscoring how concentrated exposures can become.

Private credit markets show similar patterns. While loans are not syndicated as broadly as traditional bank loans, the average borrower still appears in about 3.5 different direct lending portfolios, indicating that fully unique deals are relatively uncommon.

At least 15% of semiliquid direct lending assets are invested in companies that also show up in bank-loan funds, and those shared names make up a large portion of bank-loan portfolios on a dollar-weighted basis.

ETFs and mutual funds

For advisors and investors, that raises a practical consideration: similar issuer exposure can often be accessed more cheaply through traditional mutual funds or ETFs.

Beyond overlap, the report flags concentration risks. Semiliquid funds tend to have heavier exposure to a handful of industries than public benchmarks, with the top five sectors accounting for about 55% of assets compared to just over 40% in the S&P 500.

Technology, particularly software, stands out with roughly 27% of assets in the largest holdings tied to software companies, and broader definitions suggest the true exposure could approach one-third of portfolios.

Liquidity management adds another layer of complexity. Private equity semiliquid funds hold close to 15% of assets in cash on average, nearly double the level seen in private credit strategies, reflecting the need to balance redemptions with investment deployment.

At the same time, loan maturities—typically four to five years—provide a natural source of liquidity, though the timing of repayments remains uncertain, particularly in stressed market conditions.

The findings of the ‘How Private Is Your Private Portfolio?’ report suggest that while semiliquid private market funds can offer access to less traditional investments, their portfolios may be less distinct—and more interconnected—than their marketing implies.

For advisors, that reality reinforces the need to look beyond labels and assess what clients actually own under the hood.