[Week 9 of 2026] Contracts, Carry, and Contrarians

Welcome back to Price and Prejudice with a few musings from Week 9 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.

Following the Crypto Cookbook

This articles discusses how three ETF issuers have filed to list prediction market ETFs that would let you buy exposure to outcomes like "Democrat wins the 2028 presidential election" through your regular brokerage account. The prospectus cheerfully notes that "in the event that a member of the Democratic Party is not the winner of the 2028 Presidential Election, the Fund will suffer a catastrophic loss in value." Unlike stocks or bonds, the risk factor is much simpler to understand and internalize.

The playbook here follows the crypto ETF template almost exactly, where the initial product approval led to a flood of leveraged, inverse, and options-enabled versions. The more interesting question is what this does to prediction markets themselves. Vitalik Buterin has previously touted prediction markets as producing valuable publicly visible signals that everyone else can read as a probability. But this only works if the price reflects genuine beliefs. The classic worry is "noise traders" – people betting for entertainment rather than information, which degrades the signal – and introducing ETF wrappers likely steepens this worry.

NAV Squeezing

This FT article talks about Hamilton Lane's $5.4 billion fund called the Private Assets Fund that invests in co-investments and secondary fund stakes. When PAF buys a secondary stake at a discount, US accounting standards require it to mark the position to the underlying fund's net asset value, producing an instant paper gain (which the article calls "NAV Squeezing"). What makes the story interesting is what happened next: Hamilton Lane got shareholders to vote for a new fee structure that, on the surface, looked like a fee cut, while the real change was buried deeper in the proxy. Under the old structure, performance fees were only payable on realized gains, deal by deal. Since PAF mostly buys and holds, it had collected just $1.6 million in performance fees since 2020. The new structure applies to unrealized gains too, retroactively. According to the article, Hamilton Lane pocketed $58 million after the vote went through.

Zooming out, when a fund cuts its headline fees, the natural question is why. In the mutual fund and ETF world, fee compression is usually a competitive story: Vanguard pushes everyone's expense ratios down, and managers comply or lose assets. But Hamilton Lane isn't competing with Vanguard, and as the FT notes, the fee change happened alongside a shift that made the fund much more profitable for the manager. Perhaps this is a good reminder that when fee cuts arrive without obvious competitive pressure, it's worth asking what else changed in the fine print.

Short Selling's Second Act

The short selling industry has been shrinking for years. Jim Chanos, probably the most famous short seller of his generation, closed his fund, and activist short campaigns have declined sharply since their 2015 peak. Part of what makes shorting so painful is that investor sentiment is persistent i.e. when investors are bullish, they tend to stay bullish for a long time. If you short a stock that's rising on enthusiasm rather than fundamentals, you might be right about the valuation but wrong for months or years while the trend continues.

This article discusses how short sellers are becoming a tad more optimistic, and the timing of this article is not surprising. The Mag 7 are down nearly 6% year to date, and the Citrini Research "2028 Global Intelligence Crisis" scenario rattled markets on Monday. Whether this is a real regime change is uncertain, but for the first time in years, the short sellers sound like they're having fun and probably for a good reason.

(h/t to Frankie Reitmeyer from class for the article)