Evergreen private markets funds give individual investors a route to take advantage of the illiquidity premium available in private markets while still offering flexible liquidity. These structures provide periodic subscriptions and redemption windows, but they are ultimately perpetual capital vehicles, and in order to best reap the benefits offered by these funds, investors need to utilize them as a long-term strategy rather than a tactical, short-term tool.
These funds are designed to maintain continuous private markets exposure over time to grant investors access to the benefits of private markets such as diversification, exposure to a wide opportunity set, and strong performance boosts from the compounding effect of recycling, allowing their returns to snowball over time. It also means that managers have the stability in a fund to continue investing in the strongest opportunities that emerge over time, meaning that vintage diversification is built in, and allows for a simplified operational experience.
Individual investors may feel under pressure to try to ‘time the markets’ – investing in markets at just the right moment to take advantage of price movements. But over the long-term, time in the markets – staying invested throughout any wider market noise – is usually a far more efficient and effective approach.
Here comes the science
Partly this is because timing the markets to perfection is rarely feasible. Investors’ decisions are more likely to be impacted by fear- or excitement-fueling headlines than fundamentals and data, and decades of research across public markets has shown that individual investors are more liable to these behavioral biases than institutional money managers.¹
A study of 66,000 individual investors in 2000 found that those who traded most frequently – attempting to time the market – earned the lowest returns.² Other research has shown that ‘timers’ must be correct at least 74% of the time just to break even with a portfolio that is managed passively,³ while even if an investor is able to perfectly predict bear markets if they are only able to forecast 50% off bull markets they will underperform a buy-and-hold strategy.⁴
These findings are also relevant to private markets investing, and investing through the noise is a powerful approach to maintaining momentum in potential returns. Additionally, when you overlay the friction of notice periods and settlements in ‘trading’ these vehicles the reality of market timing becomes even more challenging.
Secondaries in focus
Certain strategies within private assets do have the ability to benefit in times of market dislocation, and committing to time in the market enables managers to maximize the available investment opportunities at times of uncertainty. Specifically, these periods of market turmoil can prove to be attractive entry points for secondaries, which can be an exceptionally diversified tool to take advantage of market when others are fearful, such as when there are wider market stresses focusing on liquidity of a structure rather than the quality of the underlying assets.
By investing in seasoned portfolios, secondary buyers gain enhanced visibility into the actual performance of the assets under the GP’s management, often acquiring assets at discounts driven by liquidity needs or fear rather than impairment. This can provide an additional margin of safety and potential upside convexity. Secondaries allow investors to reposition exposure across vintages and managers, reduce blind-pool risk, and increase probabilities of achieving targeted rates of return through various forms of risk mitigation that can counterbalance cycle-specific risks.
Evergreen funds are designed to match individual investors’ continuing goals with liquidity features that help those investors stay invested through the noise of wider market turmoil. This enables fund managers focus on the strongest investment opportunities available for the overall, long-term health of fund, and for the benefit of all investors. It’s all just a matter of time, not timing.
More from our Decoding Private Markets series
Are you getting real access — or just buying the hype?
Why access to everything is not access to alpha
Beyond IRR: Where to look for real performance in private markets
Recycling over raising: The compounding edge in evergreen and secondary funds
Understanding structures in private markets: Blending open- and closed-ended funds
