2 Cautionary Tales From Private Equity and Private Credit Markets

Two high-profile cases in the public/private markets are testing boundaries and investors.

Why it matters: ERShares Private-Public Crossover ETF’s XOVR stake in illiquid holdings, including SpaceX, has apparently run afoul of SEC rules. Meanwhile, a high-flying alternative-asset manager has changed the rules for returning investors’ cash from one of its funds. And Blue Owl Capital is now facing backlash.

But first, let’s start with ERShares’ saga. Morningstar’s Managing Director of Manager Research Jeff Ptak has been tracking the firm and its crossover fund.

7 Questions on Private Equity and XOVR

1. What are the nuts and bolts that make up ERShares Private-Public Crossover ETF, and how does it differ from a typical exchange-traded fund?
2. This private/public crossover ETF also holds cash and dozens of public stocks. How has the fund performed against the broader stock market?
3. Ptak’s chart shows SpaceX’s estimated weight in XOVR. The red line plunged and skyrocketed just before January 2026. Can you explain what happened here?
4. We’re recording this episode on Wednesday, March 11. Investors yanked hundreds of millions of dollars out of the ETF last month? Why are they leaving?
5. This departure has created a problem. The fund’s SpaceX stake sits at almost 3 times the SEC cap for illiquid holdings in an ETF. What are the paths to whittle this down, and how long would the firm have to do it?
6. What are the risks if the private position grows more?
7. What is the takeaway for current XOVR investors and folks considering public/private investments?

Key Quote on XOVR’s Outflows in the Private Equity Market

I think that one of the reasons they’re leaving, and we can only infer this, but one of the reasons they’re leaving is I think they came in hopes of participating in a markup of the SpaceX position. And as far as we can tell, they have not conferred any benefits from a markup it appears the manager did do in early February. Once they made the announcement they had marked up the position, but XOVR didn’t appear to reap any benefits, we saw many of the investors who had piled in late last year, January of this year, they piled out just as quickly. And as a result, you saw the SpaceX position as a percentage of the portfolio swell dramatically.

The Takeaway: SpaceX has the telltale signs of a unicorn. It has bright fundamental prospects and looks like it’s growing by various estimates. However, Ptak says, investors need to be careful what they wish for and sweat the details. The firm behind XOVR thought its illiquid position in a SpaceX special-purpose vehicle was manageable, but it got away from them. Investors should understand how a manager is valuing a private position and managing the associated illiquidity risk. Also, pay attention to the role the private asset plays in the portfolio on an ongoing basis and the benefit it provides, says Morningstar’s managing director of manager research.

More From Morningstar on Private Credit and Private Equity Markets

Alexander Davis, the head of enterprise reporting at PitchBook, joined Investing Insights to discuss another wake-up call ringing loudly within the public/private market convergence. Blue Owl Capital is facing intense scrutiny after closing the quarterly redemption window in one of the firm’s direct-lending funds. Davis says the leading alternative asset manager’s troubles started late last year when it received an unusually large number of redemption requests from investors. Blue Owl decided to sell some portfolio assets to wind down one of its funds and return money to investors as it sees fit. Davis says Blue Owl is trying to reassure investors that there are no issues in their portfolio as backlash builds. Check out his explainer on Blue Owl Capital and its strategy.

Are you debating whether to invest in the private equity and private credit markets? Morningstar’s senior manager research analyst Chris Tate writes about what investors should consider. Watch Morningstar CEO Kunal Kapoor lead a discussion about the convergence of public and private markets from his Investor First series. And bookmark Morningstar’s Guide to Semiliquid Funds to stay up to date on insights from Morningstar’s analysts.

Securities Mentioned in This Episode

ERShares Private-Public Crossover ETF XOVR

Blue Owl Capital OWL

Blackstone BX

BlackRock BLK

Apollo Global Management APO

KKR & Co KKR

Ares Management ARES