Accessing private markets: Evergreen and drawdown funds

CONTRIBUTORS

Tony Davidow, CIMA®

Senior Alternatives Investment Strategist
Franklin Templeton Institute

Priya Thakur, CFA

Analyst
Franklin Templeton Institute

Jake Williams

Global Co-Head of Alternatives Wealth Management Product
Global Wealth Management

Arthur Thomson

Alternatives Product Strategy Specialist
Global Wealth Management

Peter Blue

Head of Alternative Solutions
Franklin Templeton Investment Solutions

Today, institutional investors remain as important as ever, representing large pools of long-term capital that are used to fund pension schemes, support academic institutions, and even play a role in monetary and fiscal policies in some of the most developed economies. However, the role of the individual investor’s relationship with capital markets has grown in significance, coming to the table with US$150 trillion household net worth that now equates to institutions globally.”

~Aaron Filbeck, Managing Director, Head of UniFi by CAIA, “Crossing the Threshold”, June 2024

Preview

While the institutional and individual markets are of similar size, access to private markets had been largely limited to institutions and family offices. Now, through product innovation and willingness of institutional managers to bring products to the wealth channel, individual investors can access these versatile and valuable tools.

With the emergence of evergreen funds, investors have a wide range of options when building portfolios with private markets. When considering how best to access private markets, one of the first considerations is what vehicle type is the most efficient and appropriate for an investor to meet its desired goals: evergreen, drawdown or both?

Accessing private markets through an allocation to both evergreen and drawdown funds can provide an optimal outcome from both an operational and investment perspective. High-net-worth families may use both structures, with children and trusts opting for evergreen funds due to accreditation, and larger pools leveraging drawdown funds.

From a practice perspective, advisors may find it more efficient to allocate capital using evergreen funds, due to their evergreen nature, lower minimums, and the cumbersome nature of managing capital calls and distributions. These funds also provide more flexibility in getting investors comfortable with these newer investments, rather than the compressed timeframe of drawdown funds, subscription period.

In conclusion, we believe that a combined allocation to evergreen and drawdown funds represent an efficient way for an investor to gain exposure to private markets. How an advisor allocates capital is dependent on several factors including wealth levels, minimums, liquidity needs, and time horizon among others.

To learn more about accessing private markets, please visit the Insights Library.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Equity securities are subject to price fluctuation and possible loss of principal.

Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. Diversification does not guarantee a profit or protect against a loss.

An investment in private securities (such as private equity or private credit) or vehicles which invest in them, should be viewed as illiquid and may require a long-term commitment with no certainty of return. The value of and return on such investments will vary due to, among other things, changes in market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets and the financial condition of the issuers of the investments. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor’s ability to dispose of them at a favorable time or price. Past performance does not guarantee future results.

This document is intended to be of general interest only. This document should not be construed as individual investment advice or offer or solicitation to buy, sell or hold any shares of fund. The information provided for any individual security mentioned is not a sufficient basis upon which to make an investment decision. Investments involves risks. Value of investments may go up as well as down and past performance is not an indicator or a guarantee of future performance. The investment returns are calculated on NAV to NAV basis, taking into account of reinvestments and capital gain or loss. The investment returns are denominated in stated currency, which may be a foreign currency other than USD and HKD (“other foreign currency”). US/HK dollar-based investors are therefore exposed to fluctuations in the US/HK dollar / other foreign currency exchange rate. Please refer to the offering documents for further details, including the risk factors.

The data, comments, opinions, estimates and other information contained herein may be subject to change without notice. There is no guarantee that an investment product will meet its objective and any forecasts expressed will be realized. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where an investment product invests in emerging markets, the risks can be greater than in developed markets. Where an investment product invests in derivative instruments, this entails specific risks that may increase the risk profile of the investment product. Where an investment product invests in a specific sector or geographical area, the returns may be more volatile than a more diversified investment product. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from use of this document or any comment, opinion or estimate herein. This document may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

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Please contact your financial advisor if you are in doubt of any information contained herein.

For UCITS funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the UCITS Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 93a of the UCITS Directive.

For AIFMD funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the AIFMD Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 32a of the AIFMD Directive.

For the avoidance of doubt, if you make a decision to invest, you will be buying units/shares in the fund(s)/ sub-fund(s) and will not be investing directly in the underlying assets of the fund(s)/ sub-fund(s).

This document is issued by Franklin Templeton Investments (Asia) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

Unless stated otherwise, all information is as of the date stated above. Source: Franklin Templeton.

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