Private investors prioritize fund structure over managers in volatile markets
Private market investors are increasingly focusing on how funds are structured rather than just who manages them, according to industry experts speaking at the CFA Society Australia event in Melbourne.
The shift reflects growing concerns about mismatches between investor behavior and fund designs, particularly in evergreen products. These funds—unlike traditional closed-end funds—allow investors to withdraw capital at any time, but their underlying assets often lack liquidity. When large groups demand redemptions simultaneously, funds may struggle to meet requests, as seen in recent cases in Australia and the U.S.
Tim Murphy, co-CEO and head of research at Genium Investment Partners, highlighted how redemption problems have exposed structural weaknesses. He noted that regulators are scrutinizing private credit more closely, with several funds facing stop orders. “That mismatch is something that’s really important to understand when considering an investment in this area,” he said.
Genium’s due diligence now examines co-investors more closely, as many Australian funds channel money into offshore vehicles with their own terms. This layering can obscure risks, Murphy said, making it harder for investors to assess true exposure.
Why evergreen funds are riskier than they seem
Darragh Kennelly, senior investment analyst at LGT Wealth Management, confirmed that evergreen funds dominate the firm’s private market allocations, about 70% of its roughly 27% alternatives exposure. Most evergreen funds include redemption gates, limits on how much capital can be withdrawn each period, often around 5%.
Marina Pasika, general manager of private markets at Rest, echoed concerns about evergreen structures. Her fund avoids them, preferring direct investments, closed-end funds, and co-investments. “I do think we’ll continue to see more and more bifurcation as we go,” she said, suggesting the market will split further between flexible and rigid structures.
Rest’s young membership, with an average age of 30, gives the fund a long investment horizon, allowing it to tolerate illiquidity for higher returns. Older members also benefit as the fund’s strategy matures. But Pasika acknowledged that not all investors share this patience, and redemption pressure remains a persistent risk.
Kennelly’s firm hasn’t altered its approach despite recent volatility. Earlier this year, credit market turbulence pushed some investors out, creating opportunities for managers with dry powder.
Valuation disputes and structural blind spots
Pasika said Rest’s independent valuation team reviews assets quarterly, separating the process from investment decisions. Murphy, however, criticized broader market practices. “There’s still a lot of funny business that goes on around valuation of assets in some of these funds,” he said, noting that first-year returns in evergreen funds are often inflated.
The blurring lines between asset classes complicate decisions. Data centers, for example, now span compute infrastructure and semiconductor supply chains alongside traditional real estate. Rest’s private markets team, about 25 professionals, cross-pollinates skills to assess deals, reflecting how sectors increasingly overlap.
Where the money is, and where it’s not
Pasika pointed to three megatrends driving demand: AI and automation, the energy transition, and supply chain deglobalization. Industrial sectors, buoyed by U.S. reindustrialization, and venture capital, where companies stay private longer, are also drawing heavy capital.
Heavy investor inflows may reduce these yields, particularly in private debt, where direct lending’s extra returns over high-yield credit are increasingly uncertain.
