The Case for Integrating Private Market Alternatives via Evergreen Funds
The Case for Integrating Private Market Alternatives via Evergreen Funds
By Phil Davidson
Private market alternatives have evolved from niche investment vehicles used by institutions into a core component of diversified, resilient portfolios. High-net-worth individuals (HNWIs), family offices, and Registered Investment Advisors (RIAs) increasingly integrate these assets to align with and satisfy financial goals.
The size and depth of the private market are driving the high interest and rapid adoption of alternative investments. As the number of publicly listed companies has declined almost consistently for three decades, the value of the private markets has grown. Moreover, those companies that go public tend to do so later and at higher valuations.
The takeaway is this: high-growth innovation businesses have historically built significant value within the private market. Investors who limit their portfolios to publicly traded assets likely miss out on interesting opportunities for value creation and growth potential.
The number of companies growing value in the private market is currently over six times more than in the public sector. Using a general metric of company maturity as a framework, the number of public companies with annual revenues exceeding $100M in the U.S. is 2,800. Comparatively, the number of private companies of that size is 19,000.[1] Many of those private businesses are in disruptive sectors (e.g., healthcare technology, cybersecurity, etc.), making them valuable to longevity-minded investors seeking involvement in the innovation economy.
As a whole, the private market can deliver stronger risk-adjusted returns and lower volatility than traditional stocks and bonds. Within the asset class, there is an impressive 20,000+ types of investment vehicles. Each provides a specific potential for access, diversification, risk, liquidity, return potential, and flexibility. That scale, scope, and variety give investors and their advisors almost unlimited potential to build a diversified portfolio that meets their goals.[2]
The argument for integrating alternatives is simple, and most advisors are increasing private market allocations within their client portfolios (or plan to soon).[3] Moreover, the client base exists – thanks to innovative vehicles like Evergreen funds, which are open to unlimited numbers of accredited investors, the private market is open to approximately 4.3M Americans.[4] Alternatives offer advisors ways to capture this large pool of potential clients and build their business and competitive advantage through bespoke strategies and care.
While it's simple to explain why integrating alternatives is valuable, many investors and advisors have questions about how. How do private alternatives perform? How do they reward illiquidity? And how should investors integrate the assets into an existing portfolio – particularly one that still employs a traditional 60/40 stock/bond mix?
Answering these questions is key to unlocking the strategic value of the private market.[5]
Balancing Performance and Risk
Historically, the private markets have helped to deliver strong, stable performance relative to risk. Many public market asset classes are impacted by value swings due to factors like algorithmic trading practices, shortsighted shareholder behavior, and macroeconomic factors. Because private market portfolio managers typically take a longer-term, active approach to monitoring their companies, the integration of private market assets can elevate their resilience and long-term value creation.
Because private market alternatives reduce portfolio correlation to public markets, they can help diversify portfolios while seeking to reduce risk. Private assets often maintain stability during public market downturns as company valuations aren’t moving on a minute-by-minute basis, providing a hedge against broader economic uncertainty. Diversification that includes a mix of private equity and private credit can be a reliable way to drive capital appreciation through value creation in portfolio companies (equity) while generating reliable cash flow through interest income (credit).
Besides being more stable, private equity, private credit, and real estate investments typically generate better risk-adjusted returns than public stocks and bonds over time because of their (estimated) rates of return. For example, private equity funds had a median annualized return of 15.2% over the past decade, outperforming global public equity portfolios, which returned about 7.0% annually.[6] In large part, this benefit can be attributed to the active value creation and board representation of private equity managers in their portfolio companies, the ability to execute their strategy without the wild fluctuations in the share price, and the illiquidity premium.
The long-term nature of private market investments reiterates the value of capable, involved fund managers. Alternatives require rigorous underwriting processes to ensure high-quality deal flow and lower downside risks. Ongoing monitoring is equally critical. Fund managers actively oversee portfolio companies, adjusting strategies to preserve capital and maximize returns over a decade or more.
How to Capture Liquidity Benefits in the Private Market
Liquidity is a primary concern because alternatives typically require investors to lock up capital for an extended period. Innovative structures like Evergreen funds are solving these challenges with a perpetual capital structure that gives high-potential companies sufficient time to build value and allows investors to balance long-term growth with scheduled liquidity windows. These features allow investors to benefit from compounding returns while managing liquidity needs (e.g., 40 Act Funds, Interval Funds, and BDCs).[7]
In some cases, investors can request redemptions, helping to align with specific goals instead of the fund manager dictating liquidity. The allowance benefits the fund manager, as they can execute their strategy and provide liquidity without disrupting underlying investments. And it empowers RIAs to partner with their clients over many years, helping them to generate income and grow the value of their portfolio in ways that meet their evolving goals.
Private Market Asset Highlight: Evergreen Funds
Across the broader private market, the value of alternatives has gained momentum over the past decade. The rate of growth for Evergreen funds has outpaced this impressive progress. Assets under management (AUM) for this asset class more than quadrupled to $430B in the past 10 years (representing a CAGR of approximately 15.6%).[8] The adoption of the Evergreen class has been driven by assets like 40 Act Funds, Interval Funds, and BDCs, all of which improve ease of access for private market investors and reduce frictions common to more traditional private market investment vehicles. These funds are distinctly able to deliver on the best features of alternatives – greater potential to capture the benefits of a diversified portfolio, structured liquidity options, capital preservation.
Evergreen funds are some of the most widely used private market investment vehicles. Regulated under the Investment Company Act of 1940, they provide a high level of transparency, including regular reporting, governance oversight, and detailed disclosures. These protections make these funds an accessible and trusted choice for investors entering private markets.
Evergreen funds offer several distinct advantages, depending on whether they are equity or credit strategies. Building both types into a portfolio mix enables investors and their advisors to capture the benefits of both structures.
Evergreen Equity funds generate long-term growth and opportunities to capture the benefits of compounding by focusing on building and improving high-impact innovation companies in promising sectors.
Evergreen Credit funds seek to provide private senior-secured loans to middle-market companies and above, generating public equity-like returns at the top of the capital stack.
Because Evergreen funds have a perpetual capital structure and tend to be long-term, they tend to add new portfolio companies while exiting other positions. Rather than capital calls, they often offer monthly or quarterly admittance with full funding at close and liquidity features (e.g., quarterly, semi-annual, or annual opportunities to redeem capital). The structure balances growth, capital generation, and access to a diversified portfolio. For the fund managers, the necessary oversight supports lasting relationships and business growth.
Evergreen Funds Widen Access to the Private Market
One of the most notable benefits of Evergreen funds is how they are designed to widen access for individuals and households that qualify as accredited and above. Traditional private funds typically have prohibitively high barriers to entry ($250k minimum and often exceed $10M). Evergreen funds change this dynamic by providing accredited investors with structured access to the private market at substantially lower minimums (typically $25k-$250k).
Accredited investors are those who meet specific financial criteria, such as earning an annual income of $200,000 (or $300,000 jointly with a spouse) in the last two years with the expectation of maintaining it, or having a net worth exceeding $1 million, excluding the primary residence.
For accredited investors, family offices, and other HNWIs, Evergreen funds offer a strategic pathway to capture historical outperformance and consistent yield generation. SEC oversight ensures robust reporting, governance, and investor protections, helping to mitigate risk. The perpetual nature of the funds tends to appeal to more mature businesses, which helps to reduce the J-curve for investors because many of the companies have already gained traction and scale. Rather than allocating a large amount of capital to one manager, many Evergreen fund investors gain access to multiple managers (e.g., direct, fund-of-fund, multi-strategy funds), which adds another level of diversification to dampen volatility and reduce risk.
How to Integrate Evergreen Funds
Integrating Evergreen funds requires a disciplined approach that considers how the alternatives complement a client's broader portfolio strategy and support their goals, growth and allocation needs, and risk tolerance.[9]
Assess Client Objectives: Begin with a clear prioritization of growth, income generation, and capital preservation, then identify the vehicles that align with those goals.
Determine Allocation Size: As advisors evolve the asset allocation of their investment portfolios from traditional 60/40 mixes to 50/30/20 (public stocks, public fixed assets, and alternatives), the actual percentage breakout should reflect the client's specific goals.[10]
Emphasize Liquidity Planning: Evergreen funds have varying liquidity characteristics that allow managers to meet their clients' needs. Those redemption features can help determine the types of Evergreen fund(s) to integrate and the exact portfolio construction of fund managers to ladder their private market liquidity.
Leverage Tax Efficiency: Evergreen fund distributions can be tax-advantaged, which allows RIAs to determine which custodians and account type (qualified or non-qualified) to use to help their clients maximize after-tax returns.
Support Portfolio Reporting and Client Engagement: SEC regulations have injected high levels of transparency into Evergreen fund monitoring and reporting. This consistency and clarity support client trust and alignment over a long-term partnership.[11]
With the benefits that the private market, alternatives, and assets like Evergreen funds offer over what is available to investors through the public market, it's no surprise that 90% of RIAs say they will increase the allocation of alternatives within their clients' portfolios by 10-15% over the next five to ten years.[12] For advisors, this asset class offers critical levers to pull to grow their businesses and compete in a rapidly consolidating marketplace. For investors, they are essential to resilient, bespoke, growth-focused portfolios that can support their long-term goals.
For more information about BIP Ventures Evergreen BDC, including features and associated risks, visit BIP Evergreen Funds.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should consult their advisors and review all relevant materials before making investment decisions.
1 Private Market Investing: Staying Private Longer Leads to Opportunity, Hamilton Lane, April 2022. Performance of private markets varies, and past performance does not guarantee future results.
2 How to Invest in Alternative Assets, JP Morgan, April 2024
3 Podcast Episode 10: Democratizing Alternative Investments with Guest Matt Brown of CAIS, Alternatives by Franklin Templeton, May 7, 2024
4 Special Study: 2023 Report on the Review of the Definition of “Accredited Investor,” Securities and Exchange Commission, 2023
5 Special Study: 2023 Report on the Review of the Definition of “Accredited Investor,” Securities and Exchange Commission, 2023
6 Historical Performance of Private Equity, Private Equity List, November 2024
These figures are estimates and subject to market fluctuations and individual fund performance.
7 Regulated under the Investment Company Act of 1940, Evergreen funds offer transparency, governance, and regular reporting. These features make them accessible and trusted options for entering private markets. Evergreen funds’ structures can involve limited liquidity and require disciplined planning to align with investor goals.
8 The Future is Evergreen: The Next Generation of Private Market Funds, iCapital, January 2024
9 Integration strategies must account for market-specific risks and align with regulatory compliance.
10 CAIS - Mercer Survey Finds Advisor Demand Accelerating for Alternative Investments, CAIS, 2023
11 The Case for Integrating Private Market Alternatives, BIP Capital, 2024
12 Podcast Episode 10: Democratizing Alternative Investments with Guest Matt Brown of CAIS, Alternatives by Franklin Templeton, May 7, 2024
Phil Davidson
Managing Director of Institutional Sales
BIP Capital
BIP Capital is the most active private market investment firm in the Southeast. Our singular platform integrates traditional venture anchor funds through BIP Ventures, a groundbreaking Evergreen equity BDC, and private credit offerings to meet the needs of investors and their wealth advisors. Since 2007, our multi-stage, multi-sector investment approach and broad capital offerings have generated consistent above-benchmark returns. Learn more and connect with us on LinkedIn at @ bipcapital.
