Cliffwater's chief investment officer Blake Nesbitt is pushing for change in how secondaries funds mark up portfolio investments, citing distortions for evergreen investors. Speaking at an SEC panel on private markets accessibility, Nesbitt highlighted how instant NAV mark-ups create unfair returns for investors entering funds at slightly different times. The practice has drawn criticism from industry observers who call it 'NAV squeezing.'

Nesbitt, whose firm manages $45.4 billion across three interval funds, argues the current approach creates a 'weird time arbitrage' where investors can see vastly different returns based on timing. In a hypothetical example, he described how two investors entering a fund days apart could experience 40% returns versus zero due to NAV mark-up timing. This issue has become more pronounced as semi-liquid evergreen funds grow in popularity.

The proposed solution involves amortizing NAV discounts over time rather than marking up investments instantly. Nesbitt also warned about the dangers of combining instant mark-ups with incentive fees based on unrealized gains, which he says could lead to investors paying higher fees and sponsors collecting carry years earlier than under traditional models.