White Paper
Intermittent Liquidity Products Expand Investment Opportunities for Smaller Institutions
Amid a challenging fundraising environment, asset managers explore previously untapped segments, including small institutions
Summary
In late 2022 and early 2023, alternative asset managers found their ability to fundraise from the traditional institutional channels challenging. Fundraising levels declined significantly as large institutional investors were hampered by the ‘denominator effect.’ As institutions are set to rebalance their portfolios, alternative asset managers must expand their offerings and explore new client segments. This includes the development of intermittent liquidity products such as nontraded real estate investment trusts, interval funds, and business development companies. These products can help alternative asset managers access a previously untapped segment of institutional investors.
Key Points
Fundraising Falls
According to Pitchbook data, fundraising for private capital funds fell 21.5% between 2021 and 2022, largely due to an overallocation to private markets after a large performance dispersion between public and private markets in 2022.
High Demand
Intermittent liquidity products have experienced substantial demand in recent years. While they are tailored to the needs of retail investors, intermittent liquidity products can help smaller institutions shape their portfolios to look like their larger counterparts.
Unique Risks
It is essential to recognize that there are unique risks for investing in this type of vehicle that all investors should consider when building their portfolios. While they provide some liquidity, there still is a limit, and significant price swings can result in the activation of ‘liquidity gates’ from time to time.
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