By Jason Zweig

For all fund investors, NAV is supposed to stand for "net asset value." For some, however, it's turning out to mean "not actual value."

That's the hard lesson of recent weeks when some funds that invest in private assets have sought to go public. Prices that investors expected to be stable have collapsed as soon as the funds were exposed to public markets.

These transitions from private to public cast doubt on Wall Street's narrative that investors can have their cake and eat it, too. You can have the mild price fluctuations of nontraded assets, or you can have access to your money whenever you want -- but it's turning out that you can't have both.

And this situation bolsters arguments that asset values in private-markets funds don't always reflect reality.

On Dec. 16, what used to be a nontraded portfolio called Bluerock Total Income+ Real Estate Fund began trading on the New York Stock Exchange as the Bluerock Private Real Estate Fund. With a stated net asset value of $24.36 a share, the fund closed at a market price of $14.70 -- a 39.7% discount from NAV. For every dollar the fund manager said your shares were worth at 9:30 a.m., the stock market was willing to pay you only 60 cents by 4 p.m.

On Nov. 13, another nontraded investment, FS Specialty Lending Fund, went public at a net asset value of $18.67 -- and closed the day at $14, a 25% discount from NAV.

Meanwhile, other private portfolios seeking to go public have gotten stymied by their investors.

On Dec. 16, shareholders at Priority Income Fund's annual meeting rejected a proposal for the fund to offer stock to the public next year with a 270-day period in which existing investors wouldn't be able to sell all their shares.

In November, Blue Owl Capital aborted a plan to merge one of its private funds into an NYSE-listed vehicle that trades at about a 20% discount to NAV.

You don't need a class in economics to know the most fundamental fact about prices: Any asset is only worth what you can get someone else to pay you for it.

That's why these recent deals are such a shock to the system. All these funds started out as nontraded entities -- meaning that investors could sell only at predetermined times, as with Bluerock or Priority Income. Or investors couldn't sell at all until the managers created a future "liquidity event," as with FS Specialty Lending and Blue Owl Capital II.

That meant you could lock your money up for the long run in such potentially high-yielding assets as commercial real estate or private lending, sheltered from the upsetting fluctuations of public financial markets.

The managers could put your money into investments that sometimes take years to pay off. They could crank up the returns with borrowed money without having to worry that you'd want to pull out in a downturn. And they could earn annual management fees of 1.5% and up.

Often, performance was strong, until 2022 and 2023, when private markets began seizing up. Then some funds struggled to meet even the limited demand for periodic liquidity they had promised to investors.

Ramin Kamfar, chief executive of Bluerock, says he isn't surprised that its real-estate fund has begun trading so far below what his firm states the shares are worth.

After its earlier respectable performance flagged in the past three years, more investors had been asking to cash out than the fund's previous structure could accommodate. Now, they're lined up to sell, so there's a "temporary supply and demand imbalance," Kamfar says.

Before, Bluerock investors could cash out only 5% of their holdings per calendar quarter. Now, they can dump their entire position in a single trade -- with an important difference.

Before, Bluerock would redeem that 5% quarterly at net asset value. Now, investors can sell out completely -- but only at the price someone else is willing to pay.

And other people aren't willing to pay anywhere near what Bluerock Private Real Estate or FS Specialty Lending say their assets are worth. Kamfar thinks that will change and that the Bluerock fund's market price will converge toward net asset value over time. That's not a sure thing.

To be fair, most funds (or their close relatives, business-development companies) that are newly listed on the stock exchange tend to trade at less than net asset value. This is partly because of the costs and risks that come with portfolios of unusual assets that are sometimes leveraged with borrowed money.

But it's hard to overlook the irony here. For years, the managers of some of these funds have been marketing them as a way to escape the volatility of public markets. "And now, they're just throwing them onto the [stock] exchange," says John Cox, CEO of Cox Capital Partners, an investment firm in Philadelphia that offers to buy illiquid portfolios.

That doesn't apply to FS Specialty Lending or Blue Owl Capital II, which had previously told investors that they could eventually go public.

But more transitions like these are inevitable, says Leyla Kunimoto, an individual investor who blogs about private funds at AccreditedInsight.com. That's because as soon as many private funds stop growing, investors start demanding their money back at NAV. That can rapidly shrink the funds -- and their managers' fees. So the managers take them public in self-defense.

Most of all, these switches from private to public highlight a deeper risk. As Kunimoto says, private-fund valuations are often "a figment of imagination."

The fund managers say their valuations of private assets are accurate and fair. When these funds hit the markets, though, investors are getting a shocking public lesson in how subjective private valuations can be.

Write to Jason Zweig at intelligentinvestor@wsj.com

(END) Dow Jones Newswires

December 19, 2025 10:00 ET (15:00 GMT)

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