In bfinance’s report Democratisation vs Retailisation, the firm said a growing number of fund managers that would typically target institutional clients are now actively targeting the wholesale and retail market. This includes via new fund structures such as semi-liquid or evergreen funds and dedicated wholesale distribution teams.
The benefits these types of funds offer for wealth managers include ongoing subscriptions, simplified reporting, and periodic redemption windows. Importantly, they can offer more frequent liquidity at quarterly or monthly intervals.
Some 64 per cent of multistrategy evergreen funds and 58 per cent of single-strategy ones offer quarterly liquidity, while 28 per cent and 31 per cent of each offer more frequent redemptions, although few offer daily redemptions.
“For wealth managers and their clients, this format brings welcome simplicity. It eliminates the j-curve, capital call mechanics – one of the more significant operational barriers in traditional closed-end models – and supports more seamless portfolio integration.”
But bfinance warned wealth managers risk trade-offs when seeking these products of liquidity mismatches, dilution of returns from the high cash buffers needed to maintain liquidity, limited performance track records, and structural complexity which may obscure true returns.
In some cases, the report stated, high levels of cash may reduce performance by as much as 70–100 basis points.
“Liquidity has become the most visible innovation in the retailisation of private markets – and evergreen structures are the flagship. Importantly, liquidity can affect product integrity and performance.
“In pursuit of broader distribution, liquidity terms risk exceeding what underlying investments can reliably support. This introduces potential friction between investor expectations and fund reality. Liquidity can be helpful – but in private markets, more is not always better.”
For fund managers, a failure to clearly outline these risks to this new audience could leave them facing backlash as advisers conduct their due diligence.
“The private markets opportunity has exploded, but with greater access comes greater responsibility. Firms that conflate product availability with product suitability risk undermining trust, performance outcomes, and long-term portfolio benefits.”
Earlier this year, a panel discussed how it is often unclear how liquid a fund is, especially if it lacks a long track record demonstrating how it performs in periods of volatility.
Daniel Stojanovski, chief investment officer at Centrepoint Alliance, said: “What we’ve heard from advisers, when you’re looking at less liquid types of investment such as alternatives, private equity, private debt, it’s very important to consider this from a portfolio construction perspective.
“It looks like these funds are dampening volatility. It’s a straight line-up from A to B, and the viewpoint I’ve always had is, ‘Are we happy to be lied to?’. Do these assets have volatility? Yes, they do, and you should be mapping that in your portfolio construction. Volatility exists whether it’s public or private markets.”
This was echoed by John Woods, head of multi-asset at Australian Ethical, who urged advisers to conduct their due diligence on differences as there can be huge variance between individual funds.
“You also have to trust they aren’t belittling the risk levels. I had someone come to me who said the risk of default is 1 in 10,000 years, and that’s clearly not the case. In recent history, that fund had had such stable returns that that’s what the numbers say, but that’s not the reality of the underlying investments.
“You have to look beyond the numbers and understand the businesses you are financing, and how they are impacted by the economy, rather than relying on the summary statistics.”
