Accessing Private Equity through perpetual funds

Historically, access to private equity was defined by the closed-end drawdown fund, where barriers and complexities, such as long lock-up periods and limited liquidity, meant participation was largely confined to large institutional investors.

As a result, individual investors have historically allocated less than 3% of their portfolios to private equity, despite approximately 86% of companies with more than US$250 million in revenue being privately held.(1,2) This disparity is largely a function of structural design within the asset class, rather than a lack of demand from investors.

Perpetual private equity funds are helping bridge this access gap by offering a structure designed for a broader range of investors. Rather than replacing traditional drawdown funds, they complement them by allowing investors to deploy capital into an existing diversified portfolio, remain continuously invested, with the potential for quarterly liquidity, subject to limits.

The perpetual structure can help simplify the investor experience while preserving private equity's core purpose: owning businesses over the long term and actively working to increase their value.

Interest in the structure is growing rapidly. Perpetual private equity assets under management currently total approximately US$250 billion and are projected to increase by roughly 20% annually over the next five years.(3) That growth reflects rising demand for private equity exposure, but it also makes it more important for investors to understand that not all perpetual funds are constructed or managed alike.

Simplifying the Private Equity investing experience

Traditional private equity investing can require commitments across multiple funds, strategies and vintage years. Investors must manage capital calls, intermittent distributions and recurring decisions about when to recommit capital. Building a diversified allocation may take years, during which portions of capital may remain uninvested.

Perpetual funds seek to simplify this experience. Rather than waiting for episodic capital calls tied to a drawdown structure, investors can subscribe on a periodic basis and gain immediate exposure to an established portfolio, putting capital to work right away. As investments are realized, proceeds can be recycled into new opportunities rather than automatically distributed. This continuous investment model can reduce interruptions to compounding and make it easier to maintain a strategic private equity allocation over time.

The structure does not, however, make private equity fully liquid. Private companies are generally owned for extended periods, and creating value can take time. Perpetual funds must therefore balance investment in less liquid private assets with the responsibility of providing periodic liquidity to investors.

Managers may maintain liquid investments, use credit facilities and implement liquidity management tools such as notice periods, lock-ups, early withdrawal fees or redemption limits. Appropriately designed limits can help preserve performance and reduce the risk that private assets must be sold at an inopportune time to meet redemption requests.

Not all strategies are the same

The investment approach inside a private equity perpetual fund is as important as the vehicle itself. Three broad models have emerged, each offering different potential benefits and trade-offs.

Single-manager, multi-strategy funds combine centralized decision making with platform-level diversification.(4) One team, one valuation framework, and one fee structure provide a repeatable process with full control over sourcing and portfolio management. Capital is deployed dynamically across strategies, sectors, geographies, themes, and capital structures, creating a wide funnel advantage and allowing allocation based on relative value rather than mandate constraints.

Single-manager, single-strategy funds offer focused exposure, unified decision-making and one layer of fees. Their narrower mandate, however, can create greater sensitivity to deployment cycles and investment flows affecting that strategy.

Multi-manager funds allocate across third-party managers using fund commitments, secondary purchases and co-investments. They can provide broad diversification, and secondaries may benefit from purchase price discounts, but they typically introduce an additional layer of fees. Outcomes may vary meaningfully by the underlying sponsor; strong sourcing, value creation, and realization capabilities can help offset these trade-offs.

Range of perpetual PE strategies

There is no universally appropriate model; the right approach depends on an investor's objectives, risk tolerance and existing portfolio.

Portfolio Management

A successful perpetual fund requires more than access to attractive investments. Portfolio management is the engine supporting the structure.

Managers must continuously coordinate subscriptions, new investments, realizations and redemption requests, while maintaining disciplined position sizing, diversifying risk and regularly assessing how each investment affects the portfolio's balance and liquidity. Frequent, robust valuation processes are especially important since investors generally enter and exit based on net asset value, which should reflect fair value.

Dedicated oversight, thoughtful governance and stress testing help managers prepare for changing conditions. Sourcing across a broad opportunity set may also support selectivity and more consistent deployment when individual strategies or sectors become less attractive.

Ultimately, we believe advisors and their clients should ask three questions when evaluating a perpetual private equity fund:

1. Can the manager deploy capital prudently across market environments?
2. Can it manage the portfolio with sufficient visibility and control?
3. And can it meet liquidity obligations during periods of stress without compromising the underlying investments?

Conclusion

Perpetual funds do not change the long-term, less-liquid nature of private equity. Instead, they provide a new access model that can reduce administrative complexity, support continuous investment and make private equity easier to maintain as part of a diversified portfolio. Delivering on that potential depends on disciplined implementation, institutional portfolio-management capabilities and careful manager selection.

Read the full article to learn more.

Important Disclaimers

The information in this material is general information only and is intended solely for licensed financial advisers or authorised representatives of licensed financial advisers and wholesale client investors. It is not intended to constitute financial product advice or an offer, invitation, solicitation or recommendation to invest. This information must not be distributed, delivered, disclosed or otherwise disseminated to any investor. It has been prepared without taking into account any person’s investment objectives, financial situation or needs. Investors should consider whether the information is suitable to their circumstances.

Considerations Before Allocating

Private market investing means active ownership of less liquid assets, as value creation takes time. Liquidity needs at the total portfolio level are one important consideration before allocating to private equity can enhance performance and improve diversification4. Blackstone’s Private Markets Allocator Tool allows you to see how private market allocations may improve portfolio performance and help manage investment risk. Try the tool here.