It used to be tough investing in private market assets. Typically, at least a couple of hundred thousand dollars was required, and you had to commit the money for up to 10 years or more. You had to be an accredited investor (sophisticated and experienced), and you had to be ready to fork over more capital in the future depending on the terms.
Not anymore. The development of open-ended, “evergreen” funds that allow investors to periodically redeem shares—typically, monthly or quarterly—and carry relatively low investment minimums have made private market investing accessible to just about everyone. The new funds’ investing strategies run the gamut. Some focus on specific sectors of the market while others are more diversified.
“Anyone can get exposure to private investments now,” says William Whitt, analyst with Datos Insights. “New fund structures are generating a lot of interest with retail investors.”
Evergreen funds are intended to attract investors further down the wealth spectrum from the traditional buyers of private equity and debt stakes. High-net-worth (HNW) investors, with more than $1 million in liquid assets, and the mass affluent, with less than $1 million, have virtually no holdings in private markets. En masse, they represent a huge new source of potential capital for private equity and debt managers to tap. A survey of alternative fund managers by Ernst & Young last year found that accessing private client capital was the top strategic priority for managers.
The number of funds being floated, largely by the biggest financial sponsors like Blackstone, KKR, and Apollo, is growing rapidly. According to FS Investments and Prequin data, more than 500 evergreen funds held over $400 billion in assets in 2023. Last October, KKR and mutual fund giant Capital Group filed to launch two hybrid fixed-income funds investing in public and private debt.
The filings underscore an effort to make private markets more accessible to a broader client base, the firms touted in a press release.
“The product structures are much more client-friendly and they’re bringing a lot more investors to the table,” says Mark Sutterlin, head of alternative investments at Bank of America and Merrill Lynch. “You need discipline to put together a diversified portfolio, but advisors can implement a plan in a more turnkey manner now.”
The development of the secondary market in private investments has also opened up opportunities for new buyers in the private space. Secondaries are existing stakes in private asset funds that are sold to other investors. The buyer gets into the fund later in the investment lifecycle but is still obligated to meet any further contracted capital calls from the general partner.
Some secondaries are simply the stakes of existing limited partners in the fund while others are transactions led by the general partner. The GP can use the money either to continue holding assets in the fund or to cash out existing investors. In some cases, investors can get discounts on secondary offerings, which will have a shorter time horizon than primary fund investments.
“Secondaries can be a good way to start an allocation,” says Trish Halper, CIO in the family office practice at Northern Trust. “They’re further along in the investment cycle and investors can get distributions quicker.”
Alternatives research firm Preqin is forecasting that secondaries will be the fastest growing segment of the alternatives market over the next five years.
The proliferation of new fund structures and the development of the secondaries market is bringing new investors to the private asset markets. Some close observers, however, are skeptical of this “democratization” of the market. “It feels like the latest fad,” Whitt says. “Everyone is running after it because everyone else is without really thinking about why.”
