Illiquidity premium is shrinking

Is private equity still worth it — or has the industry scaled its way into mediocre returns? In this episode, I talk with Nolan Bean, CFA, CAIA, Chief Investment Officer and Head of Portfolio Management at FEG Investment Advisors, an independent, employee-owned firm advising on $90+ billion in assets for endowments, foundations, healthcare systems, and mission-driven institutions. We dig into the state of OCIOs, interval funds, private equity, and why Nolan believes the lower middle-market still offers the clearest path to real alpha. Nolan also breaks down the coming wave of 401(k) access to private markets, why large-cap buyout is structurally challenged, and how FEG uses a “crisis playbook” to lean into markets without pretending to time them perfectly.

Highlights:

• How FEG advises on $90B+ across 300+ clients, mostly nonprofits.
• OCIO incentives, risk-taking, and why some firms drift toward being too conservative.
• Interval funds: easy access, hidden liquidity risks, and “Hotel California” redemptions.
• Why large buyout PE faces pressure from high entry multiples, rates, and too much capital.
• Why lower middle-market buyout still works: founder-led deals, ops value-add, less leverage.
• Main risks in small companies: fragility, client concentration, and key-person exposure.
• Factor models vs. real alpha: where Fama-French stops explaining PE returns.
• Shrinking small-cap universe and why public markets may have adverse selection.
• The coming 401(k) and retail flow into alternatives — and shrinking illiquidity premia.
• FEG’s VFS (valuation, fundamentals, sentiment) crisis framework for drawdowns.
• Four key risks: goal risk, market risk, illiquidity risk, and maverick risk.
• Nolan’s top two lessons: don’t fight the Fed, and relationships compound.

Guest Bio:

Nolan Bean is the Chief Investment Officer and Head of Portfolio Management at FEG Investment Advisors, where he has worked since 2004. He leads portfolio construction, research oversight, and investment strategy across FEG’s OCIO and advisory clients. Nolan is both a CFA and CAIA charterholder. He holds a finance and quantitative analysis degree and an MBA from the University of Cincinnati.

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Links FEG Investment Advisors: https://www.feg.com/

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(0:00) Introduction (0:28) Growth catalysts and criteria for RIAs and investment advisors (2:13) Criticisms of OCIOs and conservative risk-taking (3:59) Discussion on interval funds and private equity buyouts in 2025 (7:39) Challenges in large buyout funds and lower middle market opportunities (16:23) Risks and benchmarking in lower middle market investments (21:45) Democratization of private markets and 401(k) investments (24:36) Illiquidity premium and institutional investors' response (27:06) Identifying opportunities in out-of-favor sectors and portfolio construction (31:07) Managing risk tolerance and market downturn strategies (34:24) Behavioral finance and liquidity in portfolio management (37:18) Evaluating hedge funds and strategies for market downturns (41:21) Diversification benefits and long-term market trends (44:03) Public policy influence on markets and timeless investment advice (47:55) Interest rates' impact on asset prices and politicians' market influence (53:14) Investing during crises and the importance of relationships (56:18) Venture capitalists, reciprocity, and value in relationships (58:22) Closing remarks