2 Cautionary Tales From Private Equity and Private Credit Markets

Why It Matters

These incidents highlight how illiquid private‑equity exposures can trigger regulatory breaches and investor exits, forcing the industry to tighten disclosure and liquidity safeguards for hybrid funds.

Key Takeaways

• ERS's XOVR ETF exceeds SEC 15% private‑equity cap
• SpaceX stake volatility driven by fixed‑dollar position and inflows
• Investor outflows follow unmet expectations of SpaceX markup
• Blue Owl halted quarterly redemptions, sparking liquidity concerns
• Heavy SaaS loan exposure raises AI‑driven credit risk doubts

Summary

The episode spotlights two high‑profile setbacks in the public‑private market convergence: ERS’s XOVR ETF, which blends listed stocks with private‑equity stakes—including a coveted SpaceX exposure—and Blue Owl Capital’s direct‑lending fund, which abruptly shut its quarterly redemption window.

XOVR’s SpaceX position, fixed at $34 million for most of 2025, swelled to $162 million after a December inflow surge, pushing its portfolio weight to roughly 45 %—far above the SEC‑imposed 15 % illiquid‑holding limit. The fund has underperformed, losing about 3.6 % year‑to‑date versus an 11 % gain in the S&P 500, prompting investors to pull hundreds of millions of dollars. Blue Owl, meanwhile, faced an unprecedented wave of redemption requests and responded by closing the window, citing a need to wind down the fund and sell assets amid concerns that its SaaS‑focused loan book could be vulnerable to AI‑driven disruptions.

Morningstar’s Jeff Bac explained that the XOVR volatility stems from a “relatively fixed‑dollar position” combined with volatile inflows, while the manager has yet to disclose a concrete remediation plan for the SEC breach. Blue Owl’s co‑CEO reassured clients that the portfolio contains “no red flags, only green flags,” a claim that investors will scrutinize as the firm seeks to restore confidence.

Both cases underscore the regulatory and liquidity risks of blending private assets with public vehicles. Investors must demand transparent valuation and redemption policies, and managers may face tighter SEC oversight, potentially reshaping product design across the alternative‑asset industry.

Original Description

What investors can learn from the sagas involving ERShares and Blue Owl Capital.

Two high-profile cases in the public-private markets are testing boundaries and investors. ERShares Private-Public Crossover ETF’s stake in illiquid holdings, including SpaceX, has apparently run afoul SEC rules. Meanwhile, a high-flying alternative assets manager has changed the rules for returning investors’ cash from one of its funds. And Blue Owl Capital is now facing backlash.

Lessons From a Private Markets Bust: Why This ETF’s Investors Missed Out on SpaceX Gains https://www.morningstar.com/alternative-investments/lessons-private-markets-bust-why-this-etfs-investors-missed-out-spacex-gains

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On this episode:

00:00:00 Welcome

00:00:54 How XOVR ETF Differs From Typical ETFs

00:01:41 XOVR ETF Performance Versus Broader Stock Market

00:02:18 Why XOVR’s SpaceX Stake Swung Sharply

00:08:51Blue Owl Capital’s Origins and Current Problems

00:12:21 Who Invests in Blue Owl’s Direct Lending Funds

00:17:06 Investor Lessons From Blue Owl’s Redemption Halt

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