Q2 2025 Market Commentary
by Timothy J. Videnka, CFA, CFP®
“The most important question anyone can ask is: What myth am I living?”
– Carl Jung
In my early twenties, I had the good fortune to land a job as a sales assistant on the bond desk at Lehman Brothers in New York City. It was late 2000. The stock market had been on an extraordinary run, the economy was booming, and short-term interest rates hovered around six percent. A sense of optimism was palpable.
The opportunity to work at a storied Wall Street firm was thrilling – especially for someone eager to see how the “big boys and girls” played the game. The job itself, however, was far from glamorous. Opening new accounts, sorting mail, grabbing lunch, and chasing down traders for quarterly portfolio marks (valuations) were routine parts of the day.
But there were also moments of real excitement, like executing billions in overnight repurchase agreement trades, which provided the firm with its daily operating capital. It was a front-row seat to the flow of money through one of the capital markets’ main arteries.
Of course, that experience came with a dose of verbal and psychological abuse from more senior people on the desk – an unspoken initiation rite. But for the other sales assistants and me, it was a price worth paying for a chance to be inside the machine, learning how the system really worked.
Would A Portfolio Mark by Any Other Name Be Accurate?
Like any job, working on a bond desk had its rhythms – some seasonal, some cyclical, and some, well, just plain predictable. Right on cue after each quarter-end, asset managers would start flooding Lehman Brothers and other firms with requests for portfolio “marks.”
Let’s be clear: they weren’t asking what a U.S. Treasury Note was worth – that’s easy. You can find that on Bloomberg, Reuters, or scrawled on the back of a napkin during lunch. Treasuries are liquid, they trade constantly, and their prices are as visible as a neon sign in Times Square.
What the asset managers were asking for help with was the murky stuff: the securities that don’t trade often or, in some cases, at all. These were the more exotic creatures in the financial jungle: mortgage-backed securities (MBS), collateralized debt obligations (CDOs), and the like – custom-tailored products that firms like Lehman lovingly structured, packaged and sold.
And this is where things got interesting … or problematic, depending on your point of view.
Every quarter, a familiar dance unfolded across Wall Street. Investment Bank A creates an exotic, opaque product and sells it to Asset Manager B. Fast forward a bit: Asset Manager B needs to report how things are going (performance) to their own clients. To do that, they need to know what this now-illiquid, barely-trading product is worth. Who do they ask? Why, Investment Bank A, of course – the very same folks who made and sold the thing.
You can probably see the issue here.
Asking the seller to tell you what the thing they sold you is “worth” is like asking a used car salesman to appraise the lemon he just unloaded on you. Investment Bank A, naturally, has an incentive to provide a nice, optimistic mark – something that says, “See? Great investment!” Asset Manager B, for his or her part, doesn’t always question that rosy valuation too rigorously, since it helps them show good numbers to their own investors.
And thus, the Kabuki theater continues, quarter after quarter. That is, until Asset Manager B actually wants to sell the product. They go back to Investment Bank A and say, “Hey, can you make me a bid?” Some time passes and, eventually, a price comes back – significantly lower than the last mark.
Cue the awkward silence.
“Wait,” says Asset Manager B. “Why is your bid so much lower than the mark you just gave me?”
And, with the straightest of faces, Investment Bank A replies: “Because a mark is not a bid.”
Even now, more than 20 years later, it lingers like a fingerprint on glass – a mental note etched deep, reminding me to stay alert should that pattern ever reemerge.
So What?
Why am I dusting off stories from the early days of my career? Because the rise – and now near ubiquity – of so-called “alternative investments” feels a lot like a visit from the Ghost of Career Past. Let me explain:
Back when I was at Lehman Brothers, alternatives like hedge funds, private equity, and now the latest darling, private credit, weren’t something your average investor could touch. These were the exclusive domain of institutional giants: pension funds, university endowments and the like. Fast forward to today and, suddenly, these same investments are being neatly packaged and pitched to retail investors.
That shift raises a question, at least for the cynical part of me: If these investments were so great, why is Wall Street now opening the gates instead of keeping them all to itself? The easy (and skeptical) answer? There’s more money to be made selling the dream than hoarding the returns.
But let’s not stop there. What exactly is Wall Street selling here? What’s drawing in the everyday investor? And, perhaps, most importantly: What risks are hiding behind the shiny brochures and glossy pitch decks?
To unpack this, let’s take a closer look at “alternative investments.”
Alternative Investments: A Primer
There’s a buzzword making the rounds in investment conversations these days: alternatives. Or, if you’re reading marketing materials, “alts.” It sounds sleek and sophisticated, like the kind of thing serious investors are using to get ahead while the rest of the world zigzags through stock market swings and low-yield bonds.
As Wall Street increasingly markets these strategies to everyday investors, it’s worth taking a step back and asking: What, exactly, is being sold here? Why the sudden surge in accessibility? And what risks are hiding beneath the polished surface?
What Are ‘Alternatives’?
The term “alternative investments” is broad – and intentionally so. It’s essentially a catch-all for anything that isn’t a traditional stock or bond. That includes:
- Private Equity (investing in private companies not traded on any stock exchange)
- Hedge Funds (strategies that go beyond just buying and holding stocks)
- Private Credit (lending to companies that don’t issue public debt)
- Real Assets (real estate, infrastructure, commodities)
- Venture Capital, Structured Products, Collectibles and more
What ties them together isn’t the specific asset but the fact that they live outside the traditional stock and bond markets – and often behind a curtain of exclusivity, complexity, and illiquidity.
What’s Wall Street Actually Selling?
Wall Street is selling a story – a powerful one. It goes something like this:
“The old 60/40 portfolio is dead. Public markets are volatile, bonds are unreliable, and you need something different to protect and grow your wealth in a changing world. Alternatives are how the smart money invests – and now you can, too.”
It’s a compelling narrative and, for many, it resonates. After years of market whiplash, inflation scares, rate shocks, and geopolitical surprises, the idea of something “less correlated” to the headlines is appealing. Add in the mystique of institutional access – endowments, pensions, family offices – and the pitch becomes irresistible.
But here’s the truth: Wall Street isn’t suddenly sharing its best ideas out of generosity. It’s expanding the market.
The institutional world – those big pensions funds, sovereign wealth funds and endowments – already have significant exposure to alternatives. For private investment firms to continue growing, they need new capital. And the next big pool of untapped assets? You.
Why Are Individual Investors Buying In?
- The investment Holy Grail: Lower risk (volatility) for the returns you are expecting to get. By virtue of “marking” portfolios quarterly, you launder volatility* away. Lower volatility or risk is a ruse and achieved by infrequent valuations/marks.
- Diversification: Many alternative assets move differently from public stocks and bonds, offering the appearance of smoother returns over time. (See “Holy Grail” above.)
- Fear of missing out: When you hear that institutions allocate 20–30% of their portfolios to alternatives, it creates a sense that, if you’re not participating, you’re falling behind.
- Polished marketing: “Private markets.” “Uncorrelated alpha.” “Institutional access.” The language is aspirational – and often intentional in its complexity.
* The term “Volatility Laundering” was coined by Cliff Asness of AQR Capital Management.
What Are the Risks Hiding Behind the Pitch?
Here’s the part that’s often downplayed or downright ignored in marketing decks:
- Illiquidity: Many alternatives lock up your capital for years. There is no “click to sell” when you need cash.
- Complexity and opacity: Strategies can be difficult to understand. You may not have full visibility into holdings, operations, or performance until long after the fact.
- High fees: Many alternatives come with layers of costs – management fees, performance fees, fund-of-fund structures – that eat into returns.
- Tax inefficiency: If it’s advantageous for you to take a capital gain or a loss, good luck. You don’t have a say when sales will happen.
The Bottom Line
What Wall Street is selling now is access – access to a world that used to be closed off. But access isn’t the same as alignment and not every alternative is created with the investor’s best interest in mind. Some are just new wrappers on old risks, with better storytelling.
So before stepping into the world of alternatives, ask yourself: Am I buying a well-designed investment … or just a well-marketed one?
At Forza, we believe in a clear understanding of the investments we manage on behalf of our clients. We prioritize high liquidity and transparent valuation, key ingredients that help us reduce unnecessary fees and manage tax impacts more efficiently. In our next installment, we’ll take a closer look at private equity and private credit.