In this article
A version of this article appeared in CNBC’s Inside Alts newsletter, a guide to the fast-growing world of alternative investments, from private equity and private credit to hedge funds and venture capital. Sign up to receive future editions, straight to your inbox.
Wealthy individuals have been pouring into alternative assets in recent years, thanks in part to the explosion of evergreen funds, a certain type of fund specifically structured to allow for more liquidity. The catch is, the capital that goes into these funds often has to be spent right away, and that may be creating distortions in the markets.
Think of this deployment structure as a gift card with $100 on it. In the traditional, illiquid model (typically sold to institutional investors) a fund manager can take that gift card and spend it whenever he or she wants – perhaps when assets go “on sale.” But that’s not how it works with evergreen funds. Their hypothetical $100 starts to lose its value each day the money isn’t spent. Therefore, they’re incentivized to buy assets as soon as they can snap them up.
That may be palatable if evergreen funds represent a small proportion of the overall marketplace, but with their rapid ascension, some experts are raising concerns that too many managers are spending too much money all at the same time.
