In public markets, settlement is standardized — trades close in T+1 or T+2, with systems designed to make the process routine. Private markets are a different story. Settlement is slower, less uniform, and packed with variables across jurisdictions, fund structures, and counterparties. When it’s handled well, no one notices. When it goes wrong, it can quietly drain liquidity, damage trust, and even affect performance.
Settlement isn’t just a back-office detail. It’s a risk management issue — and one that says a lot about whether a manager is truly built to scale.
Why settlement in private markets is so tricky
Unlike public equities or bonds, private market trades don’t follow a single set of rules. Instead, managers have to navigate:
- Non-standard timelines — the “when” of settlement varies with each deal, counterparty, and geography
- Lots of players involved — fund entities, custodians, administrative agents, borrowers, lawyers, and counterparties all touch the process.
- Manual workarounds — too many steps still rely on spreadsheets, which means mistakes are easy to make.
Put simply: settlement can be the weakest link in otherwise sophisticated operations.
The risks of getting settlement wrong
1. Operational Breakdowns
When processes are manual or systems don’t talk to each other, errors creep in — mismatched instructions, trades that never get confirmed, or bookings that don’t match reality. In private markets, these errors don’t always show up right away, which makes them even more painful when they do.
2. Liquidity Strain
If a settlement drags, cash or securities can get tied up for longer than expected. Suddenly, capital calls have to be rushed, distributions delayed, and cash forecasts scrambled. LPs don’t like surprises like that.
3. Counterparty & Credit Risk
The longer a trade sits unsettled, the more exposed a manager is to the counterparty. In some cases, managers may have to over-collateralize or even put their own balance sheet at risk just to keep things moving.
4. Valuation Distortions
Unsettled trades that aren’t booked correctly can skew NAVs and portfolio values. That doesn’t just mess with performance reporting — it can spill into compliance problems if filings end up being wrong.
5. Reputational Damage
LPs now look closely at operations in their due diligence. If they see repeated settlement issues, it sends a signal: this manager isn’t operationally sound. That kind of impression spreads quickly in the investor community.
6. Regulatory & Compliance Exposure
Settlement problems often don’t stay contained. They ripple downstream into reporting, disclosures, and fund mandate compliance. With regulators watching private markets more closely than ever, the margin for error is shrinking.
7. Hidden Costs
Every mishandled or delayed trade comes with costs — from lost delayed compensation to dispute resolution to endless rework. Just as damaging, it eats up team bandwidth that should be focused on value-driving work.
Why this matters more than ever
Private markets are bigger and busier than ever, and expectations are higher too.
- LPs are raising the bar for operational maturity and transparency
- Regulators are watching more closely, with stricter requirements on reporting
- Technology is available that makes manual lapses feel less forgivable.
- In this context, settlement risk isn’t theoretical. It’s real, and it can undermine performance and credibility if ignored.
Turning settlement into a strength
The upside: settlement risk is highly manageable with the right approach. Leading managers are already tackling it by:
- Automating settlement workflows to cut out manual errors.
- Building strong data pipelines so front-, middle-, and back-office teams stay aligned.
- Leaning on specialist administrators who bring proven processes and oversight.
- Treating settlement as part of risk management instead of just a clean-up task after a deal closes.
Handled this way, settlement shifts from being a vulnerability to a proof point of resilience — and a way to strengthen investor trust.
Conclusion: from risk to resilience
In private markets, smooth settlement doesn’t usually make headlines. But when it fails, it causes immediate pain: delayed cash flows, misstated valuations, interest loss, and questions from investors.
Managers who get this right don’t just avoid mistakes. They show they’re operationally mature, ready to scale, and capable of meeting rising investor and regulatory expectations.
Settlement may be behind the scenes, but it’s foundational. And in a market where complexity keeps growing, mastering it is one of the clearest ways to reduce risk — and stand apart for the right reasons.