Thinking of exiting the market? Why trying to time private markets can undermine long-term investment strategies

For many long-term investors, staying consistently invested in private markets often beats waiting for the "perfect" moment to enter or leave.

Thinking of exiting the market? Why trying to time private markets can undermine long-term investment strategies

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There is a tempting logic to market timing. When economic headlines are uncertain — interest rates, geopolitical tension, a slowing IPO market — it feels rational to exit the markets and to wait on the sidelines before committing capital to illiquid private market investments. After all, if you can pick your entry and exit point, why not pick a good one?

The problem is that private markets don't work that way. And the data, across decades and market cycles, makes the case for a different approach: consistent commitment, vintage diversification, manager diversification, and patience.

Staying invested historically drives higher returns

The long-run performance case for private markets is well-established across multiple independent data sources:

Private Equity:

Private Credit:

  • J.P. Morgan Private Bank research indicates that private credit has outperformed high-yield bonds over the long term, with direct lending historically ranging from 8–12% annualized
  • Morgan Stanley research shows that during seven rising-rate periods since 2008, direct lending averaged 11.6% — two full percentage points above its long-term average

These returns are not one-cycle anomalies. They are the product of structural advantages — the illiquidity premium, covenant-rich deal terms, active value creation — that compound over time if investors stay invested in private markets rather than exiting when market conditions get bumpy. Some investors view illiquidity as a behavioral advantage, preventing the emotional panic-selling that plagues public market investors.

The market timing problem: Investors may risk missing periods of strong performance

Timing private markets is harder than it looks, for a fundamental reason: it requires predicting not one unknown, but two. You need to accurately forecast:

  1. The entry environment
  2. The exit environment

Deciding when to re-enter the market creates an ongoing cycle of timing decisions that is highly prone to compounding errors.

Commonfund's analysis makes this point directly: even if an investor could time vintage years perfectly, the performance improvement would be slight. The variance between the best and worst vintage years is smaller than most investors expect — and the cost of sitting out is concrete and immediate.

Dawson Partners' 25-year analysis drives this home: 

  • In 97 out of the last 100 quarters, private equity tracked to higher 10-year net returns than public markets.
  • In the three quarters where public markets led, private equity outperformed the very next quarter.

There is also a counterintuitive pattern embedded in the data: some studies have found that funds launched during recessionary periods have historically generated strong performance.

  • CAIS research shows that private equity funds vintaged during recession years have historically outperformed those launched in the years leading up to a recession — across buyout, venture, and private real estate
  • DealEdge data cited by Advisor Perspectives shows buyout fund median IRRs rising from 11% in 2000 to 25%, 40%, and 47% in the three years following the dot-com crash
  • Post-Global Financial Crisis vintages from 2009-2011 generated median net IRRs of 18-22% compared to 2006-2007 vintages that averaged 8-12% returns

Waiting for stability may result in missing out on the best vintages.

The upside of being right doesn't offset the downside of being wrong

Pausing commitments doesn't just mean missing one fund cycle — it creates a structural underweight that can persist for years:

  • UBS and Burgiss data cited by Advisor Perspectives quantifies the asymmetry: For example, if an investor had missed out on the best vintages from 1986 to 2010, it would have hurt performance twice as much as avoiding the worst ones

The takeaway: Getting timing right has the potential to add modest upside, while getting it wrong may result in the potential cost of missing strong vintages.

The right framework: Two types of diversification (and patience)

What the evidence supports is not timing the market, but diversifying across it — in two distinct dimensions.

1. Vintage diversification

A consistent commitment program — deploying capital across multiple vintage years — is like the private markets equivalent of dollar-cost averaging. By automating these allocations, investors remove the emotional friction of trying to time the market. 

 Key considerations:

  • Smooths return profiles by capturing different market entry and exit environments
  • Reduces concentration risk so no single economic cycle dominates your outcome
  • Keeps you invested through the dislocated periods that tend to historically produce the strongest vintages
  • Becomes self-funding over time as distributions from earlier vintages are recycled into new commitments

iCapital's research underscores why this matters: private equity returns show meaningful counter-cyclicality, meaning different vintage years often perform well in different conditions. Diversifying across vintages doesn't reduce return potential — it reduces the volatility around achieving it.

2. Manager diversification

Vintage diversification alone is not sufficient. In private markets, we believe manager selection is one of the most important determinants of outcome — and the spread between “good” and “bad” managers can be vastly wider than in public markets.

The data suggests:

This dispersion exists because, unlike public markets, there is no index that consistently reflects average returns. Private equity performance is driven by what managers actually do — sourcing proprietary deals, adding operational value, and optimizing exit timing. Skilled managers typically get preferred access to better deals and have demonstrated track records of value creation across cycles.

Because dispersion is so wide, diversifying across managers — not concentrating in a single one — is a meaningful risk management tool. 

The same principle applies to private credit. Manager skill in underwriting, covenant negotiation, and portfolio monitoring drives differentiated outcomes across market environments.  Additionally, being able to diversify across different segments of the market (e.g., lower middle market, core middle market, and upper middle market) can also enhance risk-adjusted returns.

The takeaway for long-term investors: Stay invested

If you are an accredited investor with a five-plus year time horizon, the question may be less "when should I invest?" and more "am I consistently invested with the right managers?" 

The data suggests:

  • The best entry points are often the ones that feel the most uncomfortable — recession and post-crisis vintages often historically outperformed those launched in stable, optimistic environments
  • Private equity outperformed public equities in roughly 87% of rolling three-year periods, per Commonfund
  • Private credit has historically delivered 8–12% returns across rising, stable, and falling rate environments

The managers on Heron’s platform reflect that same long-term orientation. The average fund manager has a track record spanning more than two decades, having invested through multiple market cycles — including the conditions that historically produce the strongest vintage returns.

Remember, while historical data can provide useful context, outcomes in private markets can vary widely depending on market conditions, manager selection, strategy, and the timing of investments. Private market investments are typically illiquid and involve risks that differ from publicly traded securities. Investors should carefully consider whether such investments align with their financial circumstances, investment objectives, and risk tolerance.

Invest in a diversified private markets portfolio with Heron

At Heron, our platform is designed to take the timing decision off your plate — automatically deploying and reinvesting capital across vintage years, asset classes, and fund managers so you stay consistently invested without having to predict market cycles.

It’s easy to get started…

  • Get a private market portfolio recommendation with exposure to private credit, private equity, and private infrastructure. 
  • Invest and start earning from 20+ funds and 10,000+ assets.
  • Choose from options for monthly income payments or automatically reinvest your earnings to fuel long-term compounding.
  • Plus, get optional 1:1 support, every step of the way.

Get a diversified private markets portfolio built to withstand market volatility.

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Heron Finance offers accredited investors access to institutional-quality private market funds across private credit, private equity, and private infrastructure. Past performance is not indicative of future results. This content is for informational purposes only and does not constitute investment advice. Private market investments involve risk, including potential loss of principal and illiquidity. Private market returns are not directly comparable to public market indices due to differences in liquidity, valuation methodologies, and investment structure.