Choosing an Alternative Investment Vehicle

Key takeaways

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

• As alternatives become a more common component of diversified portfolios, the ways investors access these strategies have become just as important as the strategies themselves.
• Alternatives and private markets investments can be delivered through a range of structures each with distinct features and use cases
• Understanding these wrappers helps investors align alternative allocations with their objectives, constraints and expectations.

Fund structures

Before looking at specific fund wrappers and regulatory structures, it’s important to understand the different ways a private markets or alternatives fund can be structured. There are capital call and fully funded models, and also closed-ended or open-ended models; when the fund has no closing date, it is referred to as “evergreen”.

Closed-ended:

Essentially, investors commit capital to a fund, from which the GP (GP refers to a general partner, who manages the private markets fund) draws over time and invests for a fixed number of years before finally returning capital and returns to investors. The process of a GP drawing this committed capital from investors is known as a “capital call”. Once the initial fundraising period is over, the fund is said to be “closed” – meaning no new investors may subscribe to the fund.

Benefits:

• Potentially higher return potential due to no cash/liquidity sleeve – this is because without a portion of the portfolio allocated to cash, more of the portfolio can be invested in higher returning private markets assets
• Potentially better alignment to longer term investment strategies which could lead to greater returns
• Clear structure with defined timelines for capital calls and distributions of returns to investors

Drawbacks:

• Lack of liquidity
• J-curve effect on returns. This means that the funds returns will initially be negative while the GP is calling capital and making investments, before returns then become positive (this effect is known as the J-curve)
• Irregular and less predictable distributions
• Potential for high fees that can affect net returns, particularly in the early years due to the “J-curve” effect where fees are charged before capital is fully invested

Open-ended:

Investors can subscribe and redeem (purchase and sell shares) intermittently based on NAV* – but often with limitations (sometimes referred to as “gating” provisions) to accommodate for the illiquidity of the underlying assets. These funds have an “infinite” life.

*NAV refers to net asset value, which is essentially a fund’s assets minus its liabilities.

Benefits:

• Periodic liquidity for investors
• NAV based pricing for simplicity
• Less pronounced J-curve return profile

Drawbacks:

• Despite better liquidity than closed ended funds, there are still likely to be limitations and gating on redemptions
• Cadence of NAV calculations can sometimes be slower or less frequent than mutual funds (e.g. quarterly)
• Potential cash drag*
• Ongoing fees that may be charged on NAV can erode returns over time, and the need for continuous valuation of assets can add complexity.

* "Cash drag" refers to the negative impact on investment returns caused by holding cash or cash equivalents instead of being fully invested in higher-yielding assets.

Fully funded

‘Fully funded’ means that investors pay in 100% of the capital upfront when they subscribe. This means the fund has 100% of its capital within it, ready to be invested from day one. Therefore, there are no capital calls, and the GP draws on the cash gradually to deploy into investments.

Consequently, the fund will inevitably hold cash for certain periods of time, leading to ‘cash drag’. Fully funded funds often maintain a liquid sleeve/portion of the portfolio to ensure they can provide liquidity to the investors. Some managers try to mitigate the cash drag by actively managing this sleeve – this is an important factor for investors to consider.

Benefits:

• Simple funding
• Immediate investable capital for faster deployment, leading to potentially quicker exposure to private markets assets
• Appeals to wealth investors seeking simplicity, faster deployment, and earlier potential return generation.

Drawbacks:

• Potential cash drag
• Illiquidity issues can still exist

Capital call

This is the more traditional approach for private markets funds and involves investors committing a given amount of capital (say $10,000,000) up front, but only investing this money as and when it is called up by the GP – hypothetically $2,000,000 in year 1, another $3,000,000 in year 2, and so on. This can be more appropriate for long-term strategies, and it can reduce cash sitting idle in the fund.

Benefits:

• Minimized cash drag

Drawbacks:

• Unpredictable timing for investors
• Lends itself to a J-curve return profile

Regulatory wrappers

In addition to the different fund structures that alternatives funds can use detailed above, there are also various regulatory structures/wrappers which can be used, each one lending itself to a set of unique use cases.

Below we cover some of the most common structures and their unique characteristics.

Source: BlackRock, as at 30 April 2026. For illustrative purposes only.

ELTIF deep dive

Introduced in 2015, ELTIFs are regulated investment wrappers aimed at promoting long-term investments in the European economy. More recently, the ELTIF regulations has been updated (‘ELTIF 2.0’) with the objective of broadening access to private market investments for both professional and non-professional investors in Europe, providing flexible liquidity terms with open-ended and evergreen strategies, and expanding the opportunity set available to wealth managers through several new distribution channels.

Why the ELTIF?

• The only wrapper that allows scaled adoption of institutional-quality private market investments to be accessible to both professional and non-professional investors in Europe and the EEA.
• As part of ELTIF 2.0, ELTIFs can now be managed as evergreen, open-ended strategies, allowing for more dynamic portfolio construction and flexible liquidity terms.
• Expands the investment opportunity set available to wealth managers across several distribution channels including advisory services, digital investing platforms, and discretionary portfolio management.
• Allows for more flexible dealing terms and greater liquidity for investors, with a lower entry point into the asset class. 

Use cases of ELTIFs:

In addition to offering direct private markets deals to wealth clients, large asset managers typically use ELTIFs to deliver exposure to private markets using various investment types spanning fund-of-funds allocations (investments into other private markets funds), secondaries (purchasing an existing investors share of another private markets fund), co-investments (where a GP makes an investment into a private markets deal as a minority alongside another private markets investor), or multi-asset exposure within a single portfolio.

Some ELTIFs also include a small liquidity sleeve of public assets and cash to help manage subscriptions, redemptions and capital calls. This allows investors to benefit from the long-term return potential of private markets through a diversified, professionally constructed vehicle that is more accessible and flexible than traditional closed-end funds.

Source: 1. ELTIF 2.0 (Regulation (EU) 2023/606) amending the initial ELTIF (Regulation (EU) 2015/760).