Evergreen's funds now account for $350 billion in global assets, representing a small but growing portion of the overall private investment landscape. according to the latest estimates from Preqinia research firm specializing in private investments.
Domestically, evergreen vehicles include mutual funds, business development companies (BDCs), tender offer funds and non-traded REITs. Internationally, they are joined by European long-term investment funds (ELTIFs) and long-term asset funds (LTAFs) in the UK Overall, Preqini counts 520 such funds globally, double the number five years ago.
“The six structures we initially targeted are not an exhaustive list, but they are some of the most prevalent in the market for US-based ones,” according to a Preqin spokesperson. “For LTAF, it's a very new structure within the UK, so we wanted to make sure we were following it from the start. ELTIFs are in the process of an updated regulatory framework being pushed with ESMA, which will further increase the availability of the structure to private wealth and retail clients. There are additional structures that we will be looking to incorporate in the future, primarily in Europe initially.
Some of the factors driving the use of these structures include lower investment sizes compared to traditional private funds, immediate deployment of capital, lack of capital calls, limited liquidity, and 1099 instead of K-1 tax reporting. Evergreen funds are also open to accredited investors, and some are open to retail investors as opposed to other private structures that are only accessible to qualified buyers and institutions.
“I think more and more advisers are coming to use these products,” said Luke Schmidt, a senior financial analyst with Blue Vault Partners, a firm that focuses on hedging evergreen funds. “A few years ago, when the focus was on non-traded REITs, some advisors got burned. So they have been reluctant to return. But their structures have changed. Fees have dropped dramatically. NAVs are more frequent. Distributions are strong. So we're seeing more advisers dipping their toes back into this.”
Schmidt noted that BDCs and range funds are particularly popular because many focus on private loansa segment that is delivering healthy profits.
“America's retirees are at a disadvantage,” said Kim Flynn, managing director of alternative investments at XA Investments LLC. “They had the benefit of actively managed institutional quality portfolios overseen by the best pension managers in the world. It has now shifted to each individual pensioner. If this is my burden and access to a diversified investment mix is not just a matter of taking more risk. It's a matter of building a portfolio equal to what I would have had before.”