Historically, institutional investors have pursued several different avenues to access the private markets, including direct investments into companies, commingled funds that invest in a mix of private companies, multi-manager funds that invest in a group of investment managers’ funds, and separately managed accounts.
These vehicles often have high investment minimums (e.g., $5 million to $10 million), long lock-up periods (e.g., 10-12 years) or require clients to be qualified purchasers, such as institutions, endowments or ultra-high-net-worth individuals (typically with a net worth of at least $5 million). These features tend to present barriers for many advisors and their high-net-worth and mass affluent clients. In recent years, however, some of the large institutional private market managers have launched funds in structures that have made the private markets more accessible to these investor groups.
Often referred to as evergreen funds because of their perpetual fund life, investors have the ability to enter and exit these open-ended vehicles. With some evergreen funds, the investor’s capital is immediately deployed into an already existing pipeline of investments. This is quite different from traditional private investment structures, where the investor commits capital for a multi-year period and the fund’s general partner calls that capital at various times to make investments once targets have been identified.
Thoughtfully constructing a diversified and fully-invested portfolio is crucial to the success of these funds. For individual investors, certain evergreen fund structures may present potential advantages. Those that are able to deploy capital quicker can eliminate cash drag. This gives an investor access to the private markets sooner, a critical detail for individual investors who have never had exposure, and do not have longer-term investment horizons the way a pension fund or endowment might. Below are some additional differences between evergreen funds and other investment vehicles:
Diversification
A potential benefit of evergreen funds is that they often invest in more than one type of private market strategy. A fund may hold private credit, private equity and secondary investments, for example. This helps manage liquidity and gives the end investor broad exposure to private markets in one vehicle, instead of having to find different managers for each investment type.
Governance
Evergreen funds are subject to country regulations and are governed by a fund board. These measures provide an extra level of oversight that traditional investment structures do not possess.
Investment Minimums
Evergreen funds offer a lower entry point, typically from $50,000 to $100,000, depending on the fund and share class.
Liquidity
Evergreen funds, may offer monthly or quarterly redemptions. Redemptions may be limited, and, typically, the fund will allow only a set percentage of total assets to be redeemed in a quarter. (Investors should approach the asset class with a multi-year, long-term approach.) However, a vehicle that allows greater liquidity should nevertheless provide more flexibility than traditional partnerships and remove a hurdle for some individuals.
Asset Allocation
Diversification
Liquidity
Administration
Capital Deployment
Investor Eligibility
Structure
Static and difficult to maintain target allocation
Either dynamic or tied to benchmark depending on strategy
Potential for diversified exposure through single allocation, but strategy specific
Strategy specific
Multiple manager selection requiring resources or Fund
of Funds
Diversified exposure through single allocation
Ability to redeem daily
10-12 year lock-up period
Limited liquidity; typically, quarterly
- Lower minimum investment
(e.g., 50-100k)
- Often greater than $5M USD minimum commitment
- Involves processing capital calls and distributions
Daily liquidity requires strict liquidity regulation and can
lead to increased volatility
due to market action
- No capital calls
Multi-year commitment period
Fully deployed upon investment
Potentially fully deployed upon investment
Generally open to all investors
Usually qualified clients or accredited investors sometimes open to all investors
Qualified purchasers
Typically open-ended structure; priced daily
Open-ended fund structures
with no termination date;
typically priced monthly
Typically closed-end limited partnerships
Disclosures
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Disclosures
Diversification
A potential benefit of evergreen funds is that they often invest in more than one type of private market strategy. A fund may hold private credit, private equity and secondary investments, for example. This helps manage liquidity and gives the end investor broad exposure to private markets in one vehicle, instead of having to find different managers for each investment type.
Governance
Evergreen funds are subject to country regulations and are governed by a fund board. These measures provide an extra level of oversight that traditional investment structures do not possess.
Taxes (U.S.)
In the U.S., evergreen fund investors report the investment using a 1099. This is a simpler process than the K-1, a multipage document that is required for illiquid private partnerships.
Investment Minimums
Evergreen funds offer a lower entry point, typically from $50,000 to $100,000, depending on the fund and share class.
Liquidity
Evergreen funds, may offer monthly or quarterly redemptions. Redemptions may be limited, and, typically, the fund will allow only a set percentage of total assets to be redeemed in a quarter. (Investors should approach the asset class with a multi-year, long-term approach.) However, a vehicle that allows greater liquidity should nevertheless provide more flexibility than traditional partnerships and remove a hurdle for some individuals.
Thoughtfully constructing a diversified and fully-invested portfolio is crucial to the success of these funds. For individual investors, certain evergreen fund structures may present potential advantages. Those that are able to deploy capital quicker can eliminate cash drag. This gives an investor access to the private markets sooner, a critical detail for individual investors who have never had exposure, and do not have longer-term investment horizons the way a pension fund or endowment might. Below are some additional differences between evergreen funds and other investment vehicles:
Often referred to as evergreen funds because of their perpetual fund life, investors have the ability to enter and exit these open-ended vehicles. With some evergreen funds, the investor’s capital is immediately deployed into an already existing pipeline of investments. This is quite different from traditional private investment structures, where the investor commits capital for a multi-year period and the fund’s general partner calls that capital at various times to make investments once targets have been identified.
These vehicles often have high investment minimums (e.g., $5 million to $10 million), long lock-up periods (e.g., 10-12 years) or require clients to be qualified purchasers, such as institutions, endowments or ultra-high-net-worth individuals (typically with a net worth of at least $5 million). These features tend to present barriers for many advisors and their high-net-worth and mass affluent clients. In recent years, however, some of the large institutional private market managers have launched funds in structures that have made the private markets more accessible to these investor groups.
Historically, institutional investors have pursued several different avenues to access the private markets, including direct investments into companies, commingled funds that invest in a mix of private companies, multi-manager funds that invest in a group of investment managers’ funds, and separately managed accounts.
5
How do private market portfolio managers add value? >>