In Today’s Podcast Episode of Smarter Money Matters with Dr. Jeff, Lou, & Anna…
Private equity, private credit, and alternative investments are showing up more often in portfolios—and even inside 401(k) plans. While these investments can sound sophisticated, they work very differently from publicly traded stocks, ETFs, and mutual funds.
In this episode of Smarter Money Matters, we explain what alternative investments really are, how private equity and private credit function, and why they carry unique risks. Unlike public markets, private investments do not trade on open exchanges, which means pricing is often based on internal estimates rather than real market transactions. As a result, valuations may look stable on statements even when the underlying investments are under pressure.
We also discuss private credit, which typically involves lending to higher-risk companies that cannot obtain traditional bank financing. These investments often come with higher interest rates, but that added yield reflects increased risk. Another key concern is liquidity. Many private investments include lockup periods and redemption limits, sometimes referred to as gating, which can restrict when and how investors access their money.
The conversation also addresses the role of high fees, commissions, and potential conflicts of interest, particularly when these products are promoted as diversification tools or introduced into retirement plans. Understanding how these investments work—and when they may not be appropriate—is especially important for long-term and retirement investors.
This discussion is intended to help investors better understand the structure, risks, and trade-offs of private equity and private credit before making decisions with their retirement assets.
This content is for educational purposes only and does not constitute investment advice. Always consult a qualified fiduciary advisor before making investment decisions.
Video Chapters & Transcript:
As promised last week. We’re going to be talking about some of you know what what is generally referred to as alts. You know, alternates can mean anything in the investment world. My goodness, without getting into the details, but specifically private equity and private debt or private credit to distinguish, you know, private debt, private equity, private credit, you know, private is means it’s not publicly traded, you know, which is what the investment most people are familiar with and specifically what we’re talking about with publicly traded. So, it’s it’s available on public exchanges and it could be, you know, freely purchased and sold by the general public. Yeah. just be the New York Stock Exchange or NASDAQ or mutual funds. I mean, these are available to the public and very highly because of that very highly regulated by the Securities Exchange Commission and other regulators to make sure that the public is given a fair shake, right? Yeah. But private equity and private credit is not like that. It’s wicked complicated. It, you know, it used to be you had to be an accredited investor. It was called a regulation offering and you had to have somebody that’s pretty sophisticated and smart to go assume often that wasn’t the case but assumed to know enough to be able to assess the risk and make a good investment decision but it was a bit of a chore to be able to get it and to offer it to the public. But the the companies that generate this sort of vehicle are huge. They have a lot of political influence and now this stuff is available everywhere. Crackers are putting it in 401ks, you know. So I think it is important I think for us to kind of talk and a lot of it stuff is blowing up you know then this is the prompted by a recent Wall Street article journal article says private credit investors are cashing out in droves redemptions by individual investors and funds sorted the end of 2025 after performance declined reviving questions about suitability. So the so some of the concerns we have about well have you have you any of your clients pinged you on private credit debt equity or alternates in general? Not a huge amount. I mean we’ve had these conversations with with a few clients but it’s not something that’s at least from my experience it hasn’t been something that’s you know just out there all that much you either. Yeah. I think only maybe a few questions. Um but but more like how to you know if they wanted to be involved in in like a private equity or a company that’s not publicly traded invest in that. Um, but yeah, not something that’s really on their radar because they’re probably not noticing it in the 401ks, you know, or or but and some companies, some CEOs just refuse, and I’m among them to uh to allow this in there because they’re so hard to understand and they’re so risky. And there there’s a couple of really really big red flags. And I tell you, when you speak to folks that are not clients that they’re invested in private equity, they’re happy as pigs. And you know what? Uh and and the reason I think is because they look great on paper. But here’s the thing about private equity and private debt, private investments, right? There’s no public market for them. Remember, if I’m selling a share XYZ, I know pretty precisely what it’s worth because I can see it on exchange. This is what people are paying for it. This is what they’re selling it for. You know, there’s a lot of, you know, and there’s a lot of people looking at it. So, the pricing mechanism is very transparent. It’s a very liquid market. Everybody knows what the value is based on a willing buyer and a willing seller, which is really the definition of of a of a of a fair price, right? Um, but private is different. Nobody knows what it’s worth. So, when a private equity investor gets a statement, see, if I’m the manufacturer, I’m going to say, “Well, what do you think it’s worth, Lou?” No, I don’t know. Just come up with a number. Come up with a number. Go ahead. Go ahead. $50. $50. What do you think it’s worth, Anna? could be $55. 55. You know what? But we told the clients it was worth 55 last quarter. They won’t be happy with the same number. Let’s say it’s worth 60. It’ll look really good. What do you think? Hey, 60. 60. I’ll go with 60. Can you Will you give me 62? 60. Okay. 60. And that’s how it goes. It’s not a real number. There may be some valuation mech mechanism or formula you know in the um the in the structure but often that is subject to considerable wiggle room and take it as a qualified you know appraiser and valuation professional there’s a lot of ways you can turn those assumptions to get the number that you want um and that really is the problem nobody knows what it’s worth and I tell you this is evident in a lot of these deals because this industry private equity and private credit has been suffering And in fact, here’s a quote. Private fund management Apollo Global and Blackstone and Blue Lame fear-mongering about a recent spate of corporate bankruptcies like automotive supply first brands and so forth, you know, but they’re getting hurt. Nobody wants this stuff. They’re having trouble turning the deals over. And one of the things they’re doing now, I’m making these numbers up, you know, but they’re it’s based on on my my reading. Um is that say that we have a a fund that’s time for it to be liquidated. So, um, the behind the person behind the camera person, Zetta, you’ve got you’re trying, you know, you’re trying to liquidate that. You’re getting out and we give you $30 and we’re setting up an alternate vehicle because there’s nobody wants to buy it on the market. You know, they’re having trouble. So, they have a new one, a new offering that they sell to new investors and they could take that same thing they gave you 30 for and sell it to them at 60. It’s com and begin generating new commissions and new fees and all kinds of stuff. It’s a real shell game. It’s a real shell game. And I strongly caution you uh if you’re considering these, if you have them to maybe peel back the the hood or if you’re looking to 401k. I would not get my in my retirement money in this kind of stuff. Um particularly because the market is is going south pretty bad and has for for a while. Um and the other concerns are lockup periods and and gating. Do you guys know what that is? Yeah, I mean it’s restrictions for when an investor can take the funds out. Um there’s lots of different restrictions that these funds can impose. So it’s not like a ETF or an index fund or a stock that you can sell and have cash very quickly. They can restrict um you know how quickly you can get funds if you need it. Yeah. Do you have any thoughts on that? Yeah. It’s called it’s called gating typically, right? So basically you know keeps you keeps you in there. you can if you want to sell it you know you have to either have a certain volume or a certain timing before you can get out so it’s not you know freely traded and typical mechanism is like you know we will not liquidate more than 5% of the front per quarter correct that’s the gate and once you get there and there’s a lot of guys look at a gate crash they this is not doing what I was told it was doing I want to get out but you can’t maybe you could find somebody in the back of the pizza parlor and sell it to it cheap you know because it’s not a public market but you know in terms of the redemption mechanism with the fund that generated it you know you could be out of luck. This is becoming a real real problem. And these these investments span I’ve seen you know blue collar companies being rolled up into these a bridge maker actually I was evaluating it uh and didn’t get enough information to be able to to be comfortable with it but it couldn’t be they can real estate you know it’s foreign investments it’s rollups a bunch of other companies it’s private credit what does that mean that means that companies that can’t get a loan from a bank or even get a public loan you know they’re like you know risky companies um they got to raise like junk bond rates of private credit is I will take the loans from loose car wash because he can’t get money anywhere else and he’s willing to pay 14% because he’s that close to bankruptcy and he needs the money and I’ll roll it up into a vehicle like that with a bunch of other things and I’ll put a shiny cover and and slick brochure around it and sell it you know to to somebody that is uh works for an electrician in a 401k that’s what’s going on here so beware any any closing comments on this yeah and I I have received a couple of you know I have a few clients that that kind of are out there on social media, whether it’s Instagram, Facebook, you know, and there’s a lot of these so-called advisors that are pushing private equity. And why is that, Lou? Well, there’s high there’s high commissions on this stuff. There’s high, you know, the fees are high, the commissions are high for them. So, it’s in their best interest from, you know, hip national perspective to to, you know, to get this sold. But, um, you know, they’re out there and I just, you know, I want to caution you again to, uh, you know, know who you’re listening to. Uh, make sure that this is a credible source. Make sure these are credible uh people that know what they’re talking about before you take, you know, pieces of your portfolio and invest into something like this. Otherwise, you can get, you know, end up getting burnt. That well said. I mean, exactly. That’s the reason that these are manufactured and being pushed so so hard and and the shenanagas are is because it’s a very profitable product to manufacture and increasingly, you know, um the buyers are drying up and they’re having to play a lot of games to keep their own cash register ringing. I mean that that so be we this is not something this is something we have evaluated for years and for the reasons that we’ve discussed we’ve always shied away from it uh and it’s particularly disappointing the market because it’s sliding downhill. Do you have any closing thoughts? Last word to add no wonder. Yeah I’ll piggy back on Lou. Um as well you know some of these it’s a long climb to get up there. Some of these these people these two hat advisors that aren’t fee only. And what’s a tail hat adviser again? someone who’s a broker and also um a a so say I’m a fiduciary and then you can pay me a small fee but then my advice is going to be to buy these products and you think I’m still a fiduciary but I’m acting as a commission broker and you’re really getting soaked exactly and like he said you know it might be something they’re like oh we can add these alts to your portfolio there these diversify but you got to realize they’re like he said they’re making money from those commissions and fees and so long as you’re looking at the statements again happy as a pig and you know And you know what, but it’s not it’s a make believe number. You know, dangerous. You know, especially if you expect to retire in a reasonable time frame when you actually go and look at what you got. Could be a pile of poopy. Hope not. Anyway, thank you so much for watching our super CFPs Lou and Anna and me, your wealth doctor, Jeff Camarda. Until next time, make sure that you keep your eye on Smarter Money Matters because it matters. Bye.
