Evaluating total cost of ownership and liquidity in private market investments

Abstract

Private market investments have become core assets within institutional portfolio construction, offering investors access to growth companies, private credit, infrastructure, venture capital and other assets that are usually unavailable through public exchanges (BlackRock, 2019). Despite this, the appeal of private markets is frequently assessed through return expectations rather than through a full lifecycle analysis of ownership costs and liquidity constraints (SEC, 2023). This paper evaluates private market investments through a total cost of ownership framework, analysing acquisition friction, ongoing maintenance fees, valuation costs, governance burdens and eventual liquidation timelines. It then compares these characteristics with the comparatively high-liquidity baseline of public equity markets and emerging liquidity infrastructure in on-chain markets.

The analysis argues that private market assets are not simply less liquid versions of public securities but operate according to a different ownership logic. Investors usually face a more complex entry process, as access to private markets often depends on negotiation, due diligence, legal structuring and sizeable minimum commitments (ILPA, 2019). Once invested, the cost of ownership continues through management and performance fees, administrative requirements, valuation uncertainty and the opportunity cost of capital being locked away for long periods. Exit is also less straightforward, as investors may depend on secondary market demand, IPO conditions, trade sales, fund distributions or manager-controlled redemption mechanisms. These routes can involve delays, discounts or limited investor control (Bain, 2025). Public equities, by contrast, usually provide clearer price discovery, exchange-based execution and shorter settlement cycles, while on-chain markets introduce the possibility of faster transferability, programmable settlement and more transparent transaction records.

Tokenised representation may improve transferability, transparency and settlement efficiency, but these benefits mainly relate to the infrastructure surrounding the asset rather than the liquidity of the underlying asset itself (OECD, 2025). Private market exposure can still be affected by valuation uncertainty, regulatory restrictions, counterparty controls and the need for credible secondary-market demand. Therefore, the opportunity is not simply to tokenise private assets, but to develop market infrastructure that reduces transaction friction, makes ownership costs more transparent, improves secondary liquidity and gives investors a clearer understanding of the true cost of holding and exiting private market investments (BIS, 2024c).

Introduction

Private markets are no longer reserved for large institutions and are becoming a mainstream component in diversified investment portfolios (BlackRock, 2025b). Pension funds, sovereign wealth funds, endowments, family offices and wealth managers allocate an increasing amount of capital to private equity, venture capital, private credit, infrastructure and real assets (Preqin, 2026; BlackRock, 2025b). They do this as private markets can offer exposure to companies earlier on in their lifecycle. This provides access to differentiated return streams whilst also reducing short-term market volatility in reported valuations and potentially capturing illiquidity premia unavailable in public markets (BlackRock, 2019; BlackRock, 2025a).

Yet the growth of private markets has also created a structural problem. Investors often compare private assets with public securities using return-based metrics such as internal rate of return, total value to paid-in capital, public market equivalent analysis or net asset value growth (Invest Europe, 2024; CFA Institute, 2021). These metrics are useful, but they do not fully capture the investor's lived experience of ownership. A private equity fund commitment, a direct secondary purchase, or a tokenised private-market instrument cannot be evaluated solely by expected return. It must also be evaluated by the cost and complexity of acquiring the position, the fees and obligations incurred while holding it, and the time, uncertainty and potential discount involved in selling it (SEC, 2023; Bain, 2024).

This paper therefore applies total cost of ownership (TCO) as a framework for assessing private market investing. TCO is commonly used in business and technology procurement to understand the full cost of owning an asset over time, rather than focusing only on the initial purchase price (IBM, 2025). In an investment context, this is useful because the real cost of private market exposure is not limited to headline returns. Direct costs include identifiable charges such as management fees, performance fees, legal costs, custody arrangements, fund administration expenses and platform charges (SEC, 2023). Indirect costs are less visible, but can still materially affect investor outcomes (IPEV, 2025; Bain, 2024). These include valuation uncertainty, execution delays, capital being locked up for long periods and the opportunity cost of being unable to redeploy funds quickly into other investments. For this reason, TCO provides a more complete way of evaluating private market investments, as it considers the costs, restrictions and trade-offs involved across the full process of entering, holding and exiting a position.

Liquidity is treated as a separate but connected concept. In investment markets, liquidity is not simply the ability to sell. It is the ability to sell a meaningful quantity, at a reliable price, within an acceptable timeframe, without materially affecting market value (ECB, 2007). A listed large-cap equity can usually be sold quickly because there is continuous price discovery, a centralised trading infrastructure, deep order books, regulated intermediaries and post-trade settlement systems (SEC, 2021). A private company stake, by contrast, may require consent rights, transfer restrictions, information disclosure, legal review, buyer matching and negotiation over price (ILPA, 2019; Bain, 2024). A tokenised asset may settle quickly on-chain, but if there are few buyers, shallow liquidity pools or regulatory restrictions on transfer, technical transferability does not necessarily translate into economic liquidity (OECD, 2020; OECD, 2025).

The comparison with public equity and on-chain markets is especially important because these markets create useful liquidity baselines. Public equities provide the traditional benchmark for exchange-based liquidity, as listed markets offer observable bid and offer prices, organised trading infrastructure and regulated execution mechanisms (SEC, 2021). They are not frictionless, but they are generally more transparent, more standardised and easier to exit than private investments, particularly where private market exits depend on secondary buyers, IPO conditions or fund distribution timelines (Bain, 2024). On-chain markets provide a newer benchmark based on programmable settlement, digital wallets, stablecoin rails, smart contracts, automated market makers and continuous trading (BIS, 2021; BIS, 2024c). They show how ownership transfer and settlement can be compressed from days into minutes or seconds (OECD, 2020). However, they also reveal that liquidity can fragment across venues, chains, bridges, pools and market makers (OECD, 2025).

The central thesis of this paper is that private market investments should be evaluated not only according to expected returns, but according to full lifecycle cost and liquidity quality. The true cost of private ownership is created across three phases: acquisition, maintenance and liquidation. Acquisition involves sourcing, due diligence, legal structuring, onboarding and price negotiation, all of which reflect the less standardised nature of private market access and fund terms (ILPA, 2019). Maintenance involves fees, reporting, valuation, compliance and capital management (SEC, 2023; IPEV, 2025). Liquidation involves exit timing, buyer availability, discounts, fund discretion and settlement timelines (Bain, 2024). When these elements are compared with public equities and on-chain markets, the economic trade-off becomes clearer. Private markets may offer differentiated exposure and return potential, but investors pay for this through higher friction, lower transparency and reduced exit certainty.

This question is highly relevant for modern market infrastructure providers because wider access to private markets cannot be achieved through fractionalisation or digital representation alone. While tokenisation may make private assets easier to record, divide or transfer, it does not automatically create functioning secondary markets or reliable liquidity (BIS, 2024c; OECD, 2025). The more important challenge is to design infrastructure that makes total ownership costs clearer, standardises entry and exit processes, improves the reliability of private asset valuation processes and connects private market exposure to credible liquidity venues (SEC, 2023; IPEV, 2025; OECD, 2025). In this context, tokenised market infrastructure should be assessed not only by its technological efficiency, but by whether it improves transparency, valuation reliability, secondary liquidity and investor protection (BIS, 2024c).

The main issue is not just whether private markets can become more accessible, but whether the next generation of market infrastructure can make private market ownership more transparent, transferable and cost-aware. For investors, the key question is not just about access. It is increasingly about whether an asset's true cost can be understood, whether its value can be assessed with confidence, and whether an exit can be achieved on acceptable terms when market conditions change. This is where tokenisation becomes particularly relevant. Its value should not be assessed by the novelty of placing assets on-chain, but by whether it improves the practical infrastructure of ownership. Tokenisation is not a technological shortcut, but a potential way in which private market infrastructure can evolve to meet rising investor expectations around transparency, liquidity and control.

This paper adopts a comparative qualitative methodology. It does not seek to produce a numerical cost model or forecast future market behaviour. Instead, it compares private markets, public equity markets and on-chain markets through a total cost of ownership framework. Where indicative cost figures are used, they are drawn from published industry sources and are intended to illustrate relative orders of magnitude rather than to serve as precise estimates. The analysis focuses on four main criteria: acquisition friction, ongoing ownership costs, valuation and price discovery, and liquidation timelines. This approach allows each market structure to be assessed against the same lifecycle stages, making it easier to evaluate their relative strengths, weaknesses and liquidity trade-offs.

Defining Total Cost of Ownership in Investment Markets

Total cost of ownership in investment markets refers to the full economic cost borne by an investor from the moment of acquisition to the moment of exit (IBM, 2025). Traditional performance reporting often separates transaction costs, management fees and realised returns, but a TCO framework integrates them into one lifecycle view (Invest Europe, 2024). This is particularly important for private markets because many costs are either delayed, embedded, opaque or indirectly borne by the investor (SEC, 2023).

The first component of TCO is acquisition cost. In public equity markets, acquisition costs are usually visible and relatively narrow, including brokerage commissions, bid-ask spreads, taxes, foreign exchange costs and potential market impact. For highly liquid securities, these costs may be small relative to the overall investment amount (SEC, 2003; SEC, 2021). In private markets, acquisition costs are broader because investors may need to account for legal review, due diligence, adviser fees, placement fees, valuation work, tax structuring and onboarding requirements (ILPA, 2019; Invest Europe, 2024). These costs are reinforced by minimum ticket sizes, investor qualification tests, documentation requirements, transfer restrictions and negotiation delays. Even where these costs are not stated, they still affect the investor's net economic outcome.

The second component is holding cost. In private funds, this includes management fees, performance fees, fund administration, audit, custody, legal expenses, valuation costs, reporting costs and potentially portfolio-level transaction expenses (SEC, 2023; Invest Europe, 2024; IPEV, 2025). The scale of the difference is material. Private fund investors commonly pay an annual management fee in the region of 1.5% to 2.0% of committed capital, alongside carried interest of approximately 20% of profits above a hurdle rate, whereas broad index equity exposure through a mutual fund or ETF is typically available for an annual expense ratio measured in basis points rather than percentage points (ILPA, 2019; ICI, 2025). Compounded across a multi-year holding period, this fee differential alone can account for a substantial share of the gross return spread that private markets are expected to deliver. In direct private investments, investors may need to monitor governance, financial performance, valuation and exit planning. Public equity ownership is generally less operationally demanding, especially where exposure is obtained through listed shares, index funds or exchange-traded funds (SEC, 2024b). On-chain markets may reduce some administrative costs through automated records and programmable settlement, but they also introduce custody requirements, wallet management, protocol risk, gas fees and cybersecurity costs (BIS, 2023; BIS, 2024c).

The third component is liquidity cost. Liquidity cost refers to the economic penalty associated with converting an investment into cash. In private markets, this may include lock-up periods, redemption gates, secondary market discounts, transfer restrictions, manager consent rights and long exit timelines (ILPA, 2019; Bain, 2024). This penalty is directly observable in the private secondary market, where fund interests sold before their natural end of life frequently transact at a discount to reported net asset value rather than at par, with the size of that discount varying by strategy and market conditions (Jefferies, 2025). A discount of this kind is not a theoretical cost; it is realised value transferred from the seller to the buyer in exchange for early liquidity. In public equities, liquidity costs may appear through bid-ask spreads, market impact and volatility during execution (SEC, 2003; SEC, 2021). In on-chain markets, liquidity costs can arise through slippage, fragmented pools, gas fees, bridge costs, pricing-oracle risk and thin secondary markets (BIS, 2021; BIS, 2023; OECD, 2025).

The fourth component is valuation uncertainty. Public equities are generally priced continuously through observable market transactions, with prices reflected through market bids, offers and executed trades (SEC, 2021). Private assets are usually valued periodically through valuation models, comparable transactions, funding rounds, manager estimates or third-party valuations, reflecting the absence of continuous exchange-based price discovery (IPEV, 2025). On-chain assets vary. Crypto-native assets may have continuous trading prices, but tokenised real-world assets may still depend on off-chain valuations, legal ownership records and oracle inputs. This means that on-chain representation does not automatically create reliable price discovery, particularly where secondary-market activity remains limited (BIS, 2024c; OECD, 2025).

The fifth component is operational and regulatory burden. Private market investors may need to manage or respond to subscription documents, capital calls, tax reporting, investor qualification requirements, transfer restrictions and legal review (ILPA, 2018; SEC, 2024a; SEC, 2024c). Public equity investors rely on established brokers, custodians, exchanges, clearing agencies and settlement systems, which reduce the direct operational burden on the investor (SEC, 2024b; Investor.gov, 2024b). On-chain investors must manage wallet infrastructure, private keys, smart contract risk, custody models and regulatory uncertainty (BIS, 2023; BIS, 2024c). Each market therefore imposes a different kind of ownership burden.

A TCO framework allows these differences to be compared more fairly, as it assesses the full cost of ownership across the investment lifecycle rather than focusing only on headline return (IBM, 2025). It avoids the mistake of treating private markets as attractive simply because headline returns may be higher, public markets as superior simply because they are more liquid, or on-chain markets as transformative simply because they settle faster. The more relevant question is whether each market's benefits justify its full cost of ownership.

Acquisition Friction Across Private, Public and On-Chain Markets

Acquisition friction refers to the cost, complexity and time required to enter an investment position. It is one of the clearest differences between private, public and on-chain markets.

Private market acquisition is usually the most complex. Access is often less standardised and may depend on manager selection, adviser networks, broker relationships or existing investor status. Investors may need to satisfy eligibility requirements, negotiate subscription terms, review limited partnership agreements, complete due diligence, assess valuation and obtain legal or tax advice (ILPA, 2019; SEC, 2024a). Direct private investments may also involve transfer restrictions, board consent, shareholder approval, rights of first refusal and bespoke transfer documents (SEC, 2024c; Brodies, 2025). This makes private market entry expensive and time-consuming.

However, this friction is not always negative. Due diligence, legal review and investor qualification can protect both issuers and investors, particularly where private market assets are complex, information is less standardised and investor access is restricted to those able to assess the risks involved (ILPA, 2019; SEC, 2024a). The problem is not that friction exists, but that it can be costly, opaque and difficult to compare across transactions, especially where fees, expenses and fund terms are not presented in a consistent format (SEC, 2023; ILPA, 2019).

Public equity acquisition is more standardised. Investors can buy listed shares through brokers or investment platforms, and execution can occur quickly for highly liquid securities. Public markets benefit from exchange rules, established brokers, clearing agencies, common settlement systems, standardised instruments and visible prices (SEC, 2021; SEC, 2024a; Investor.gov, 2024b). This lowers acquisition friction and allows investors to build or reduce positions more easily than in less standardised private markets.

Yet public market acquisition is not cost-free. Investors may still face bid-ask spreads, commissions, applicable taxes, custody or platform charges, foreign exchange costs and market impact (SEC, 2003; SEC, 2021). Large institutional orders may need to be executed carefully to avoid moving the market, while less liquid public equities, such as small-cap or emerging market stocks, may involve wider spreads and thinner order books (MSCI, 2019; BIS, 2024c; IOSCO, 2007). Therefore, public markets reduce acquisition friction but do not eliminate it.

On-chain acquisition varies significantly depending on the asset. Crypto-native tokens may be purchased quickly through centralised exchanges, decentralised exchanges or automated market makers, which can make entry appear highly efficient (BIS, 2021; BIS, 2023). However, investors may still need wallets, custody arrangements, blockchain-specific knowledge, network fees and risk controls (BIS, 2023). For tokenised real-world assets, acquisition may also require whitelisting, investor verification and compliance checks, making the process closer to private markets than to open crypto trading (BIS, 2024c; IOSCO, 2025b; OECD, 2025).

On-chain markets therefore occupy an intermediate position between public and private markets in acquisition terms. They can reduce technical settlement friction but may also increase operational and technological complexity (BIS, 2024b). A transaction may settle quickly on-chain, but the investor still needs confidence in the underlying asset, the smart contract, the custody model, the liquidity venue and the legal rights attached to the token (BIS, 2023; BIS, 2024c; OECD, 2025).

The comparison shows that acquisition friction is not simply a question of speed. Private markets are slow but may provide access to differentiated opportunities. Public markets are fast but expose investors to market competition and price volatility. On-chain markets can be technically efficient but operationally and legally complex. A balanced TCO analysis must account for these different forms of friction.

Ongoing Maintenance Costs and Ownership Burdens

The second stage of TCO is the cost of holding the asset. This includes fees, administration, monitoring, valuation and operational risk.

Private markets generally involve higher ongoing ownership costs than more standardised public market exposures. Fund investors commonly pay management fees and performance fees, and may also bear fund expenses, audit costs, administration fees, legal expenses, tax reporting costs and valuation costs (SEC, 2023; Invest Europe, 2024; IPEV, 2025). These charges are often justified by the active role of private market managers, who source deals, conduct due diligence, structure transactions, monitor portfolio companies and manage exits (ILPA, 2019). However, they reduce net returns and make the investor's final outcome dependent not only on asset performance but also on fee structure.

Private market investors also face cash-flow management burdens. Many funds draw capital over time through capital calls rather than investing all committed capital immediately (ILPA, 2018; Invest Europe, 2024). Investors must therefore maintain liquidity for future obligations. Distributions are irregular and depend on asset realisations, creating uncertainty in cash-flow planning (Buchner, Kaserer and Wagner, 2009). In addition, investors must monitor unfunded commitments, manager reports, valuation updates and portfolio exposure (Invest Europe, 2024; IPEV, 2025).

Public equity ownership is usually less difficult to manage than private market ownership. Investors can hold listed shares through brokers or custodians or gain wider market exposure through mutual funds and ETFs (SEC, 2024b; Investor.gov, 2025). Fees still vary between products and providers, but passive public equity strategies are generally cheaper to access and maintain than private market funds, especially where private funds include management fees, carried interest and other fund expenses (ICI, 2025; Invest Europe, 2024). Public equities also have observable market prices, which makes portfolio valuation and risk monitoring more straightforward (SEC, 2021).

However, public equity ownership has its own burdens. Continuous price discovery makes volatility immediately visible, meaning investors may experience short-term mark-to-market losses even where the long-term investment case remains unchanged (SEC, 2021). This visibility can create behavioural costs, including overtrading, panic selling or excessive focus on short-term performance. Barber and Odean (2000) find that individual investors who trade most actively earn materially lower net returns than those who trade least, indicating that the ease of exit which defines public market liquidity can itself become a cost. Public market investors may also incur costs through frequent rebalancing, tax events, custody arrangements and foreign exchange exposure (Investor.gov, 2026a; Investor.gov, 2026b).

On-chain ownership costs vary again. On-chain systems can automate some administrative functions like ownership records, transfer logs, settlement and fee collection. This reduces reconciliation burdens and improves transparency. Despite this, investors still face technical and operational risks that are less common in traditional markets. These can include the management of private keys, wallet security, potential issues with the smart contract, oracle risk, bridge risk, protocol governance risk and cybersecurity issues (BIS, 2023; BIS, 2024c; OECD, 2025).

Custody is important for on-chain markets as self-custody gives investors control but also creates the risk of losing assets if keys are compromised or misplaced (BIS, 2023). Custodial solutions reduce this risk but, in turn, introduce counterparty and platform risk (IOSCO, 2023). Institutional investors require strong governance surrounding wallet access, asset separation, insurance, recovery methods and regulatory compliance. This can increase the cost of on-chain ownership (FCA, 2025d; IOSCO, 2023).

As a result, maintenance costs differ not only in amount, but also in form. Private markets create fee and manager dependent costs. Public markets are lower cost but expose investors to volatility and behavioural trading pressures. On-chain markets can reduce administrative friction but also introduce technical, custody and governance costs. This shows that no specific market offers a costless form of ownership.

Valuation and Price Discovery

Valuation is a key component of both TCO and liquidity as investors need confidence that the valuation of the asset reflects what it could reasonably be sold for.

Private market valuation is periodic and often relies on valuation techniques rather than continuous market prices. Venture capital, private equity, real estate and private credit assets are commonly valued using methods such as comparable company analysis, discounted cash flow models, recent transactions, funding rounds, manager estimates or third-party valuations (IPEV, 2025; FCA, 2025b). Although these approaches can be thorough, they are not the same as continuous price discovery, as private markets lack the frequent trading and regular price formation present in more liquid public markets (FCA, 2025c). Valuations may therefore lag market conditions, particularly during periods of volatility (CFA Institute, 2022).

This creates both advantages and disadvantages. Periodic private market valuations may reduce short-term pricing noise, allowing managers to focus on long-term fundamentals (CFA Institute, 2022). On the other hand, infrequent valuations may delay the recognition of economic risk and create uncertainty around actual value (FCA, 2025c). An asset may be reported at a certain NAV, but a secondary buyer may only be willing to purchase it at a discount (Jefferies, 2025).

Public equity valuation is continuous and market-based. Listed shares trade throughout the day, producing observable prices through bids, offers and executed transactions (SEC, 2021; Investor.gov, 2024a). This improves transparency and allows investors to value portfolios quickly. Public prices also tend to incorporate new information more quickly than periodic private market valuations, supporting more timely portfolio and capital allocation decisions (Fama, 1970; Fama, 1991).

Despite this, continuous price discovery also has some disadvantages. Research in behavioural finance suggests that public prices can overreact to news, investor sentiment, macroeconomic shocks or liquidity flows (De Bondt and Thaler, 1985; Baker and Wurgler, 2007). A company's share price may fall sharply even if its long-term prospects have not changed. Public markets provide investors with transparency, but this does not guarantee stability or rationality in every period.

On-chain valuations depend heavily on the type of asset. Crypto-native assets may have continuous price discovery across exchanges and liquidity pools (BIS, 2021). Tokenised real-world assets, however, may depend on a combination of on-chain trading, off-chain valuations and oracle feeds, as the token may record ownership or transfer rights on-chain while the underlying asset still relies on external valuation and legal infrastructure (BIS, 2024c; IOSCO, 2023). This creates a hybrid valuation problem: the token may trade continuously, but the underlying asset may not have continuous price discovery (OECD, 2025).

This is one of the main limitations of tokenisation. Tokenisation does not resolve the valuation problem. A token may move on-chain, but the value of the underlying private company, private credit instrument or real estate asset may still depend on periodic appraisal, manager estimates or external data sources (BIS, 2024c; IPEV, 2025). Where secondary trading develops, tokenisation may improve price discovery, but it can also create valuation uncertainty, volatility and discounts where the token price diverges from the value of the underlying asset (OECD, 2025; Jefferies, 2025).

Reliable valuation in tokenised markets therefore depends on strong oracle systems, transparent valuation methodology, independent data sources and clear disclosure (BIS, 2024c; FCA, 2025c). Without these safeguards, tokenisation may give the impression of real-time tradability while the underlying valuation remains uncertain (OECD, 2025).

Liquidation Timelines and Exit Risk

Exit is where the differences between private, public and on-chain markets become most visible.

Private market exit is often slow, uncertain and dependent on external conditions (Bain, 2026). Private equity exits may occur through IPOs, trade sales or sponsor-to-sponsor sales, while dividend recapitalisations can provide partial liquidity and fund distributions return realised proceeds to investors (CSSF, 2025). Venture capital exits may depend on IPO windows or strategic acquisitions (NVCA and PitchBook, 2026). Private credit exits may depend on repayment, refinancing or secondary loan sales (Macfarlanes, 2025; Cai and Haque, 2024). Real estate and infrastructure exits may require lengthy sale processes due to asset-specific due diligence, buyer financing, legal review and transaction negotiation (Devaney and Scofield, 2015).

The main issue is that private market exit is episodic rather than continuous. Investors cannot usually sell whenever they want at a transparent market price. Fund investors may wait years for distributions, particularly where asset sales are delayed or holding periods extend (Edlich et al., 2026). Investors seeking early liquidity may need to sell fund interests in secondary markets, potentially at a discount to net asset value (Jefferies, 2025). Semi-liquid structures may offer periodic redemption windows, but these are often subject to repurchase limits, notice periods, proration, queues or manager discretion (ICI, 2026; Investor.gov, 2020; eCFR, 2026).

Private market illiquidity is not always a negative. For long-term investors, illiquidity can support careful capital allocation and reduce pressure to sell during periods of public market volatility, particularly where investors have a long investment horizon and tolerance for illiquidity (BlackRock, 2026). Over the holding period, managers may improve companies, restructure assets or pursue long-term strategies (Kaplan and Strömberg, 2009). However, investors should be compensated for giving up flexibility, as illiquidity restricts their ability to trade or rebalance freely (Ang, Papanikolaou and Westerfield, 2014). Illiquidity can therefore become a cost if the return premium is insufficient.

Public equity exit is more flexible. Investors can usually sell listed shares during market hours, although execution price and speed may still depend on market liquidity, bid-ask spreads and order size (SEC, 2021). Once trades are executed, established settlement systems provide a more predictable timetable for completion than private market transfers. This allows investors to rebalance portfolios, raise cash and respond to changing conditions more quickly than in private markets.

However, exiting public markets is not riskless. During periods of stress, liquidity can weaken, causing bid-ask spreads to widen, order books to thin and market impact to increase (SEC, 2021; SEC, 2003). Small-cap shares, emerging market equities and concentrated positions may be difficult to sell without moving the price (IOSCO, 2025a). Public markets offer stronger exit flexibility than private markets, but exit quality is still dependent on market depth and wider market conditions.

On-chain exit can be technically fast but economically variable. A token can often be transferred outside traditional market hours, and settlement may occur quickly because tokenisation allows digital representations of assets to be issued, transferred and settled on programmable platforms (BIS, 2024c; IOSCO, 2025b). This can be a clear advantage over many private market structures. However, the investor still needs a buyer or liquidity pool. If the pool is shallow, the trade may suffer significant slippage (BIS, 2021; BIS, 2024a). If the token is subject to whitelisting or investor eligibility rules, the potential buyer base may be limited (IOSCO, 2025b). If the underlying asset is illiquid, redemption may still depend on off-chain processes (IOSCO, 2025b; OECD, 2025).

On-chain markets can improve technical transferability by making asset transfer and settlement faster (BIS, 2024c; IOSCO, 2025b). However, economic liquidity requires sufficient demand, reliable pricing and legal certainty (IOSCO, 2025b). A tokenised private asset may be transferable on-chain, but if there is no deep secondary market, it remains economically illiquid (OECD, 2025).

Public Equity as the Traditional Liquidity Baseline

Public equity markets remain the clearest benchmark for high-liquidity investing. Their strength comes from the combination of standardised securities, regulated exchanges, visible prices, broker networks, custodians, clearing systems and established investor protections (SEC, 2021; IOSCO, 2022).

The first advantage is transparency. Investors can observe live prices, trading volumes, bid-ask spreads, market depth and historical price performance (London Stock Exchange, n.d.a; SEC, 2021). This allows for more efficient portfolio management and risk assessment. Public companies also disclose financial results, material information and governance updates through ongoing reporting and market-abuse disclosure obligations (FCA, 2026; FCA, 2020). Although disclosures are not perfect, they are generally more standardised than private market information.

The second advantage is accessibility. Public equities are widely available to retail and institutional investors. Minimum investment sizes can be low, and exposure can be obtained directly or through funds and ETFs (London Stock Exchange, n.d.b). This accessibility contrasts with many private market investments, which may involve large commitments, eligibility tests and long documentation processes (FCA, 2025a; ILPA, 2019).

The third advantage is liquidity. Shares in large, actively traded public companies often have deep trading volumes and market depth, allowing investors to enter and exit positions relatively efficiently (London Stock Exchange, n.d.a; IOSCO, 2025a). Public markets also support diversified investment products, such as ETFs, alongside derivatives and other risk-management tools, improving overall market functionality (London Stock Exchange, n.d.b; LSEG, n.d.).

Despite this, public equities also have weaknesses. Their liquidity can encourage short-term behaviour because investors are able to react quickly to changing prices, news and performance expectations. As prices move continuously, investors may become heavily focused on short-term returns. Public companies may also face pressure from regular reporting cycles, shareholder activism and market expectations, which can encourage decisions that prioritise short-term performance over long-term value creation. This can create a divide between long-term value creation and short-term market reactions (Kay Review, 2012; Graham, Harvey and Rajgopal, 2005).

Public equities can also remain exposed to market-wide shocks. During broad sell-offs, even high-quality companies may fall in share price. Liquidity can become more expensive exactly when investors most need it, as bid-ask spreads, market impact and other trading costs can rise when liquidity conditions deteriorate (CFA Institute, 2026; ESRB, 2016). Therefore, while public markets are highly liquid in normal conditions, liquidity is not unconditional.

Public markets therefore provide the strongest existing liquidity baseline, but not a perfect investment environment. They are efficient, transparent and accessible, but they also expose investors to volatility, market sentiment and conditional liquidity.

On-Chain Markets and Tokenisation as an Emerging Baseline

On-chain markets provide a newer and more experimental liquidity baseline. Their main contribution is not necessarily that they are always more liquid than public markets, but that they demonstrate a different way of organising ownership, transfer and settlement (BIS, 2024c). However, tokenisation does not automatically create deep secondary-market liquidity, and adoption of tokenised assets remains limited in many financial markets (OECD, 2025).

In a blockchain system, ownership can be directly recorded onto a distributed ledger which allows digital representation of the assets to be issued, transferred and settled on programmable platforms (BIS, 2024c). Smart contracts can be used in the automation of transfers, fee payments, compliance checks and settlement conditions (BIS, 2024c; FSB, 2024). Stablecoins act as the digital settlement assets, despite their use depending on appropriate regulatory and safeguarding arrangements (Bank of England, 2024). These features reduce the time and reconciliation costs associated with traditional settlement systems (BIS, 2024c; FSB, 2024).

Tokenisation can also make assets more divisible. A private fund interest, real estate exposure or credit instrument could theoretically be represented in smaller units, allowing broader participation (BIS, 2024c; OECD, 2021). This may reduce minimum investment barriers and improve secondary transferability, although these benefits depend on the legal structure, investor eligibility rules and the development of active secondary markets (IOSCO, 2025b; OECD, 2025).

However, the limitations of tokenisation are substantial. First, legal rights must be clear. Investors need to know whether the token represents direct ownership, beneficial ownership, a contractual claim, fund exposure or a synthetic instrument. If legal rights are unclear, token transferability has limited value because investors may be uncertain whether they are acquiring the underlying asset itself or only a tokenised claim linked to it (BIS, 2024c; IOSCO, 2025b).

Second, tokenised assets need credible valuation. If the underlying asset is private and illiquid, the token still depends on off-chain valuation methods such as fair value methodologies, manager estimates or external valuation inputs (IPEV, 2025; FCA, 2025c). Continuous trading of a token does not automatically equate to a real-time valuation of the underlying asset (BIS, 2024c; OECD, 2025).

Third, tokenised markets require liquidity providers. Without market makers, secondary buyers or redemption mechanisms, tokenised assets may not trade efficiently (BIS, 2021; IOSCO, 2025b). Fractionalisation can increase the number of market participants, but it does not guarantee demand (OECD, 2025). Where liquidity depends on external providers, investors may also face third-party or counterparty risk (BIS, 2024c; IOSCO, 2025b).

Fourth, tokenisation should be treated as a tool rather than a complete solution. It can improve the mechanics of ownership and transfer, but it does not automatically solve private market illiquidity (BIS, 2024c; OECD, 2025). A tokenised private asset still requires credible valuation, legal enforceability, buyer demand and sufficient liquidity depth (IOSCO, 2025b; OECD, 2025).

Finally, tokenised securities and real-world assets may be subject to different regulatory regimes. These can include securities law, custody regulation, transfer restrictions and jurisdictional rules. Compliance may require users to be whitelisted, which can, in turn, restrict secondary markets and reduce liquidity as the buyer pool becomes smaller (IOSCO, 2025b; OECD, 2025).

The balanced view is that on-chain markets have meaningful potential, but their benefits depend on infrastructure quality. They can improve settlement, transparency and programmability, but they cannot remove the need for valuation, legal enforceability, regulation and market depth.

Comparative Findings

The comparison between private, public and on-chain markets has produced three main findings.

First, private markets have the highest acquisition and exit friction, but they may offer the most differentiated exposure. Investors accept complexity and illiquidity in exchange for access to private companies, specialist managers, private credit opportunities or long-duration assets (BlackRock, 2019; ILPA, 2019). This can be attractive where the investor has a long horizon and is compensated for illiquidity (Ang, Papanikolaou and Westerfield, 2014).

Second, public markets offer investors the strongest price transparency and liquidity among the three market types considered. This allows investors to enter and exit positions efficiently, value portfolios more easily and gain access to diversified exposure at a relatively low cost. Despite this, public markets remain exposed to volatility, market sentiment and liquidity risk during times of stress (ESRB, 2016; CFA Institute, 2026).

Third, on-chain markets offer the strongest innovation in settlement and transfer mechanics among the three market types considered. They can reduce operational friction, automate ownership processes and potentially improve secondary transferability (BIS, 2024c). However, their liquidity is uneven and their legal, technical and regulatory frameworks are still developing (IOSCO, 2025b; OECD, 2025).

Taken together, these findings show that no single market structure dominates across all four TCO criteria. Each market resolves the trade-off between access, cost, transparency and exit certainty in a different way, and the appropriate structure depends on the investor's horizon, liquidity requirement and tolerance for valuation uncertainty rather than on any inherent superiority of one venue over another.

Illustrative Scenario: Comparing Market Behaviour Across Private, Public and On-Chain Structures

To further compare the total cost of ownership and liquidity profiles of private, public and on-chain markets, an illustrative scenario can be used to model how each market structure may respond to the same investor objective. The purpose of this scenario is not to produce a precise forecast, but to create a structured comparison of how acquisition, ownership and exit may differ across the three markets. The cost figures used below are indicative and drawn from the sources already cited; they are intended to demonstrate relative orders of magnitude rather than to model any specific transaction.

Assume an institutional investor wants to allocate £10 million to gain exposure to a high-growth technology company or sector. The investor has a five-year investment horizon but wants the option to reduce or exit the position earlier if market conditions change. The investor is concerned with three main factors: the cost of entering the position, the ongoing cost of holding it, and the likely time and cost involved in exiting.

In a private market structure, the investor may access the opportunity through a private equity fund, venture capital fund, secondary transaction or direct private company stake. The potential advantage is differentiated exposure, as the investor may gain access to companies or assets unavailable in public markets (BlackRock, 2019; BlackRock, 2025a). However, the acquisition process is likely to involve due diligence, legal documentation, manager selection, valuation review and investor eligibility checks (ILPA, 2019). Ongoing ownership may involve management fees, performance fees, reporting costs, capital calls and periodic valuation uncertainty (Invest Europe, 2024; IPEV, 2025). Applied to the £10 million commitment, an annual management fee in the region of 2% implies roughly £200,000 per year before performance fees, with carried interest of approximately 20% applying to profits above the hurdle on exit. Across a five-year horizon, management fees alone would therefore consume a meaningful share of the commitment before any return is recognised. If the investor wants to exit early, they may need to find a secondary buyer, accept a discount to net asset value or wait for a fund distribution, IPO or trade sale (Bain, 2024; Jefferies, 2025). A secondary sale executed at a discount to reported NAV would impose a further one-off cost on the £10 million position, payable precisely at the moment the investor most requires liquidity. In this scenario, private markets offer strong exposure potential but weaker exit flexibility.

In a public equity structure, the investor may access a similar theme by purchasing listed technology shares, a sector ETF or a basket of public companies. The main advantage is liquidity. The investor can enter quickly, observe live pricing and exit through an exchange if needed (London Stock Exchange, n.d.a; IOSCO, 2025a). Ongoing costs may also be lower, particularly if exposure is obtained through a low-cost ETF. On the same £10 million, an index equity ETF carrying an expense ratio measured in basis points rather than percentage points would generate an annual fee cost several multiples smaller than the private fund equivalent, with entry and exit costs limited largely to the bid-ask spread and any market impact on execution (ICI, 2025; SEC, 2021). However, the investor may not gain access to the same early-stage growth opportunities available in private markets. The position is also exposed to daily market volatility, public sentiment, earnings cycles and market-wide sell-offs. If the investor exits during stress, the shares may be liquid, but the sale price may still be unfavourable (ESRB, 2016; CFA Institute, 2026). In this scenario, public markets provide strong liquidity and transparency, but the investor sacrifices some private-market access and accepts greater visible volatility.

In an on-chain tokenised structure, the investor may gain exposure through a tokenised fund interest, tokenised private asset, real-world asset token or blockchain-based investment vehicle. The potential advantage is that ownership could be represented digitally, settlement could occur faster, and transfers could be automated through smart contracts (BIS, 2024c; OECD, 2021). Tokenisation may also allow fractional ownership, transparent transaction records and potentially more efficient secondary transferability. However, this structure introduces different risks. The investor must assess the legal rights attached to the token, the reliability of the valuation process, the depth of secondary liquidity, custody arrangements, smart-contract security and regulatory compliance (BIS, 2023; IOSCO, 2025b; OECD, 2025). For the £10 million allocation, the direct settlement cost of the transfer itself may be negligible relative to either alternative, but the effective cost of exit is set by the depth of the available liquidity venue rather than by any published fee schedule. An order of this size executed against a shallow automated market maker pool can incur slippage that materially exceeds the round-trip trading cost of the public equity route, and the cost is not observable in advance (BIS, 2021; BIS, 2024a). If there are few buyers or limited market makers, the token may be technically transferable but still economically illiquid (IOSCO, 2025b; OECD, 2025). In this scenario, on-chain markets improve the mechanics of ownership and settlement but only deliver meaningful liquidity if supported by credible infrastructure.

The scenario highlights that each market structure performs differently when assessed against the same investor objective. The private route carries the highest visible and embedded cost but the broadest access; the public route carries the lowest cost and the highest certainty of exit; and the on-chain route carries the lowest settlement cost but the least certain exit price. Critically, the three cost profiles are not directly substitutable: the private route's costs are largely contractual and known in advance, whereas the on-chain route's costs are structural and revealed only at the point of exit (ILPA, 2019; BIS, 2024a).

This scenario therefore supports the wider argument that liquidity cannot be judged only by whether an asset can technically be sold or transferred. True liquidity depends on the interaction between access, cost, valuation reliability, buyer demand, legal enforceability and settlement certainty (ESRB, 2016; IOSCO, 2025b). From this perspective, tokenised on-chain markets may offer the strongest long-term development path because they have the potential to reduce some of the frictions found in private markets while borrowing elements of transparency and transferability from public markets (BIS, 2024c; OECD, 2025). This potential remains conditional on the infrastructure that surrounds the token rather than on the token itself.

Conclusion

Private markets offer differentiated exposure and potential return premia, but they carry high acquisition costs, ongoing fees, valuation uncertainty and long exit timelines. Public equities provide stronger liquidity and price transparency, but they remain vulnerable to volatility, market impact and stressed-market liquidity declines.

On-chain markets offer a developing alternative through tokenised ownership, faster settlement and programmable transfer. Tokenisation does not remove all risks, especially around valuation, regulation and secondary-market depth. However, if supported by credible legal, custody and liquidity infrastructure, tokenised assets could reduce total cost of ownership and make traditionally illiquid assets more transferable and transparent.

Overall, the future of market structure is unlikely to depend on one market replacing another. Private markets, public equities and on-chain assets each serve different investor needs. However, tokenised on-chain assets may become increasingly important because they can combine elements of all three: the differentiated exposure of private markets, the transparency expectations of public markets and the operational efficiency of blockchain settlement. This makes tokenisation a credible long-term development, provided its risks are managed carefully rather than overlooked. The measure of success for tokenised market infrastructure is therefore not settlement speed, but whether it lowers the total cost of ownership and improves the quality of exit for the assets it represents.

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This paper was produced by the team at EquiTrack Ltd for the purpose of analysing the topics discussed. All rights reserved.