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Twelve years of continuous central bank interventions (2010 to 2022) helped to sustain near-zero interest rates, which increasingly starved capital of conventional investment income/yield—the long-standing engine of compound returns.

The finance sector capitalized on the yield void by offering high-fee products that touted elevated returns and on-demand liquidity. Many retail and institutional capital allocators took the bait. Now, some are stuck as a cash crunch spreads. See Pensions piled into private equity. Now they can’t get out:

U.S. companies and states handed over control of some worker retirement savings. In exchange, they got a promise of high returns after a decade—and often received healthy cash payouts in the years before that.

Now the honeymoon is over. The payouts have dried up, creating an expensive problem for investment managers overseeing the savings of workers retired from big corporations and state and city governments.

…It is the latest cash crunch to befall retirement funds that have piled into hard-to-sell investments in search of high returns, and spotlights the risks as Wall Street is trying to sell those investments to wealthy households.

Nearly half of the private-equity investors surveyed by the investment firm Coller Capital earlier this year said they had money tied up in so-called zombie funds—private-equity funds that didn’t pay out on the expected timetable, leaving investors in limbo.

Some funds and pensions are selling assets cheaply or taking out loans to raise cash needed for distributions. Firesales tend to be contagious when excess leverage is forcibly unwound.

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