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Private markets in your portfolio: Access

Institutions have long benefitted from access to private markets, as private investments have proven to enhance diversification, reduce volatility, and consistently outperform their public equivalents over time.

For decades, private markets were just that — private.  They were primarily reserved for the largest institutional investors, who had the resources to clear steep barriers to entry, including:

High investment minimums

often as much as $10 million

Low transparency

due to infrequent performance reporting

Total illiquidity

resulting from long lock-up periods 

The narrative is changing though. As demand from individual investors to allocate to private market strategies has increased, so too has the level of access. The evolution of fund structures, updates to regulation, and a proliferation of managers entering the private wealth space have collectively lowered these barriers for individual investors. 

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Change is inevitable: Why private markets are now more accessible

Structural changes 

Private asset managers have made innovations to fund structures, developing and launching a far more investor-friendly vehicle for private markets — the evergreen fund. With lower minimums, greater transparency, and evolved liquidity features, evergreen funds (sometimes referred to as perpetual funds or open-end funds) create a new access point for individual investors. 

Unlike the closed-end structure of traditional private market funds, which typically locks up investor capital for a set number of years, evergreen funds don’t have fixed terms. Instead, this structure enables managers to continuously raise and deploy capital, allowing for ongoing investment and redemption cycles that can align better with the liquidity needs of individual investors.

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The importance of manager selection

Recent years have seen a great number of alternative asset managers create products designed for individual investors, creating even more access points. For investors evaluating allocation to the private markets, selecting the right manager is of critical importance. The role of the manager extends beyond investment diligence and selection. Unlike passive investments in public markets, private managers have direct influence over their investments – they actively oversee diverse portfolios of companies and assets, execute sophisticated investment strategies, navigate complex regulatory environments, and facilitate seamless investor experiences.  

Institutions and private wealth advisors agree, the experience and track record of the fund manager are the most important things to consider while conducting due diligence on a private market investment. The dispersion between performance of top and bottom quartile managers is far greater in private markets vs. public markets – manager selection can lead to significant differences in performance. In turn, investors should evaluate an asset manager’s historical performance, investment philosophy, and operational capabilities to determine their ability to identify and capitalize on investment opportunities.  

 

77% of institutional investors view experience and track record across many strategies and sectors as the most valued characteristic in a private capital manager. 1

Asked to select their top three factors when conducting due diligence on alternative investment strategies, 74% of advisors said performance and track record. 2

While a manager’s track record of performance is, of course, an extremely important piece of the puzzle, their track record of client service cannot be overlooked either. An asset manager is expected to guide investors through their journey, providing educational resources, assisting with onboarding experience, and offering continued service from operations and administration to transparency in performance reporting. Consequently, investors should also vet managers based on their commitment to broadening access and improving the investor experience.  

Investing in private markets is not cumbersome as it once was. With the right manager, individuals can tap into the same sophisticated strategies that institutional investors have long leveraged in pursuit of greater returns, diversification, and stability.  

The bridge has been built, it’s now up to individual investors to cross it.  

Endnotes

  1. Preqin Investor Survey, June 2023
  2. Cerulli Associates, “Adapting to Growing Private Markets: A Playbook for Practice Success,” September 2023

Important information

Unless otherwise indicated, the information referenced herein is as of September 2023.

Past performance is not a guide to future results.

This material contains proprietary information regarding Blue Owl Capital Inc. (“Blue Owl”), its affiliates and investment program, and may not be reproduced or distributed without express permission from Blue Owl.

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