[Week 16 of 2026] Rules, Rulers, and Runs

Welcome back to Price and Prejudice with a few musings from Week 16 of 2026. Now that the Capital Markets & Investments class at Columbia is in progress, the blog will also reference to some contents from class as well.

The Market That Went Missing

This Morningstar article walks through how index providers rewrite their rulebook to prepare for upcoming mega IPOs like SpaceX and OpenAI. Nasdaq already approved a "fast entry" rule that admits any IPO big enough to land in the top 40 of the Nasdaq-100. FTSE Russell is also considering its own version, and S&P is also reportedly reconsidering its profitability requirements.

These decisions illustrate how the U.S. stock market has drifted so far from the U.S. economy in the first place. SpaceX and OpenAI are arguably two of the most important American firms of the past decade, and neither has traded publicly. This means that the "market-cap-weighted index of U.S. public equities" has quietly excluded some of the largest and most consequential companies because they chose to stay private.

People are especially wary because Tesla traded for more than ten years before the S&P500 let it in, which meant that the holders of S&P500 were kept out from years of appreciation that direct holders enjoyed. This is the "quiet" cost of taking too long to be admitted, although one would presume that smart investors would anticipate this late addition and instead choose to hold the assets directly.

Grading Your Own Paper

This WSJ piece discusses a paper that documents how more than a third of funds in their sample changed their benchmark at least once over a 12-year window, usually in a way that benefits the performance. The authors of the paper also find that the tweak was most common among high-fee funds and broker-sold funds, which pulled in more investor flows.

In class, I've talked a lot about the importance of benchmarks: a portfolio's return only tells you something once you subtract what you could have earned by passively loading on the same risks, and the whole apparatus of CAPM and multi-factor models is designed to pin that counterfactual down. An important detail in this logic is that this performance evaluation is meaningful only when the benchmark is fixed ex ante. If a manager can wait until the end of the year to choose the yardstick against which to be measured, then the "alpha" stops being an informative statistic.

What might be some alternatives? One option is that regulators require funds to commit to a primary benchmark at inception and treat any change as a material event, which allows investors to recalibrate their expectations. Another option could be to allow funds change benchmarks but require them to continue reporting performance against their original index so investors can see the old scoreboard and the new one. This would probably preserve the flexibility while removing the incentive to switch for cosmetic reasons, and it shifts the burden of proof onto the manager to explain why the new yardstick is more honest than the old one.

The Private Credit Gate Test

This piece documents how private credit stress over the past six months has played out almost entirely on the retail side. After news broke about huge redemption requests at one of Blue Owl's non-traded BDCs last fall, redemptions jumped to 41% at another Blue Owl fund and 22% at a third, with similar pressure at BDCs managed by Apollo, Ares, Blackstone, BlackRock, Morgan Stanley, and Cliffwater. Institutions, by contrast, have barely budged.

An important question is how institutional investors are doing while retail is pulling out, and the answer matters for financial stability reasons beyond any single fund. Runs on retail vehicles can force managers to sell assets, lean on credit lines, or mark down holdings, and those marks eventually migrate to the same credits sitting in institutional funds. The mechanism looks familiar from corporate bond mutual funds, where illiquid assets combined with stale NAVs generate a first-mover advantage: early redeemers get par while stayers absorb the liquidation costs, which turns redemption decisions into a coordination problem.

That logic was on full display in March 2020, when outflows concentrated in the most liquidity-mismatched funds. Private credit BDCs sit on the more extreme end of that spectrum: manager-produced NAVs rather than market prices, quarterly gates written into the contract, and an asset side that is harder to liquidate than corporate bonds. The liability side is safer because the gates bind, but the asset side is worse, which means the adjustment has to happen slowly and via marks rather than quickly via fire sales. The discipline of the gate is exactly what prevents a bond-fund-style run, but it also means that stress shows up as frozen capital rather than as a visible price.