Choosing an Alternative Investment Vehicle

Key takeaways

• 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.
• Unlike traditional stocks and bonds, alternative investments can be delivered through a range of structures each with distinct implications.
• Understanding these wrappers helps advisors align alternative allocations with client objectives, constraints and expectations.

Types of structures

Within alternatives, vehicle structures are often designed to balance access to less liquid assets with investor needs around liquidity, transparency and ease of use. No single structure is “best” as each represents a different set of trade offs.

Exhibit 1: Dispersion has been rising within and across markets

It’s important to understand these trade-offs, along with the eligibility requirements investors must meet to be considered an accredited investor, qualified client, or qualified purchaser, or to meet state eligibility requirements.

Liquid alternatives

Traditional liquid funds include mutual funds and publicly traded ETFs that invest primarily in long-only, publicly traded securities and typically offer daily liquidity to investors. Liquid alternative funds employ more sophisticated strategies, such as hedging, leverage, derivatives, or short selling, through daily‑liquid vehicles like mutual funds or ETFs. As a result, fees and expenses on liquid alternative funds may be higher than those on traditional fixed income and equity funds.

Evergreen funds and vehicles

Evergreen vehicles, such as hedge funds, interval funds, tender offer funds, non-traded BDCs and REITs, and certain privately held operating companies, offer shares that are not traded on an exchange. Unlike most private funds, evergreen vehicles are often available to accredited investors and certain retail investors. Shares of these vehicles are continuously offered, but this can be on a daily, monthly or quarterly basis, depending on the vehicle. Early repurchase fees are typical for evergreen vehicles across the industry.

Evergreen vehicles have become increasingly popular, and the industry has seen product proliferation in recent years. However, it’s important to understand how these vehicles can differ meaningfully across factors such as availability and liquidity – at both the vehicle and underlying portfolio levels. For example, availability can be considered in terms of investor eligibility requirements to access the vehicle, but also in terms of the exposure to underlying private markets investments investors are able to access through the vehicle.

Similarly, liquidity considerations can also be thought of as twofold – at the vehicle level, in terms of frequency of redemptions, but also at the underlying investment level. Moreover, there is often a trade-off between the amount of liquidity at the vehicle level and the illiquidity of the underlying investments, where the more illiquid investments a vehicle holds, the less liquidity there may be at the vehicle level.

Below are some of the most common types of evergreen vehicles.

1. Hedge Funds

Hedge funds are designed to deliver absolute or risk-adjusted returns, through sophisticated investment techniques.

Investor Eligibility: Hedge funds are typically only available to qualified or accredited investors.

Subscriptions & Redemptions: Subscriptions generally occur on a monthly or quarterly basis. They may offer monthly or quarterly liquidity, although this may be subject to gates, lock-ups, or side pockets depending on the strategy and market conditions.

Underlying Portfolio: Hedge funds are generally managed with less liquidity on underlying holdings than other forms of evergreen funds.

2. Interval funds

Interval funds are registered with the SEC and typically non-traded. Interval funds are often used by investors to access private markets in a simplified, evergreen structure.

Investor Eligibility: Interval funds do not typically have investor requirements, making them more accessible than other evergreen structures in terms of investor eligibility.

Subscriptions & Redemptions: Generally, interval funds are available for purchase more frequently than other evergreen vehicles (e.g., daily or weekly). An interval fund will offer to repurchase between 5-25% of its outstanding common shares on a periodic (e.g., quarterly) basis. If a repurchase is oversubscribed, shares will be repurchased on a pro rata basis.

Underlying Portfolio: Interval funds tend to have more liquid portfolios than other types of evergreen funds in order to be able to satisfy mandatory repurchase requirements, including certain portfolio liquidity requirements associated with periodic repurchase offers.

Exhibit 2: Sample quarterly repurchase timeline

3. Tender Offer Funds

Tender offer funds are registered with the SEC. While tender offer funds are similar to interval funds, typically interval funds have less stringent eligibility requirements than tender offer funds, which tend to be offered daily or weekly and do not require a subscription agreement.

Investor Eligibility: This is determined by manager discretion; certain tender offer funds are limited to accredited investors.

Subscriptions & Redemptions: Typically, tender offer funds offer subscriptions on a monthly or quarterly basis.

Unlike interval funds, tender offer funds are not required to conduct tender offers as a fundamental policy. Instead, the fund’s manager makes a recommendation to the Board prior to each tender offer, informed by factors such as the liquidity of the underlying holdings, valuation and tax considerations, and prevailing market conditions. The Board ultimately determines whether a tender offer will occur and the size of the offer. If a tender offer is oversubscribed, shares will be repurchased on a pro rata basis. While tender offer timing and size remain at the Board’s discretion, many funds adopt consistent practices to support marketability (e.g., quarterly tender offers for 5% of shares outstanding).

Underlying Portfolio: Tender offer funds can generally hold a greater concentration of illiquid exposure than interval funds, as interval funds are subject to certain additional liquidity requirements when making periodic repurchase offers (which tender offer funds are not subject to).

Exhibit 3: Sample quarterly tender offer timeline

4. Publicly registered Non-Traded Business Development Company (“BDC”)

BDCs are typically structured to provide access to direct lending opportunities. Non‑traded BDCs are unlisted and regulated by the SEC and registered with the states. 

Investor Eligibility: Investors are required to meet certain income and/or net worth thresholds, and investors in certain states may be subject to additional liquid net worth and income requirements.

Subscriptions & Redemptions: Shares are continuously offered, typically on a monthly or quarterly subscription schedule.

Non-traded BDCs are typically structured as tender offer funds. Liquidity is generally provided through periodic (e.g. quarterly) tender offers, the timing and size of which is subject to Board approval. If a tender offer is oversubscribed, shares will be repurchased on a pro rata basis. While tender offer timing and size remain at the Board’s discretion, many non-traded BDCs adopt consistent practices to support marketability (e.g., quarterly tender offers for 5% of shares outstanding).

Underlying Portfolio: At least 70% of total assets must be invested in “qualifying assets,” which is generally defined as privately offered debt or equity securities of U.S. private companies or U.S. publicly traded companies with market capitalizations of less than $250 million.

5. Publicly registered Non-Traded Real Estate Investment Trust (“REIT”)

REITs are designed to provide access to real estate and real estate related investments. Non‑traded REITs are unlisted and regulated by the SEC and registered with the states.

Investor Eligibility: Investors are required to meet certain income and/or net worth thresholds, and investors in certain states may be subject to additional liquid net worth and income requirements

Subscriptions & Redemptions: Shares are continuously offered, typically on a monthly or quarterly subscription schedule.

Liquidity is generally provided through share repurchase programs, typically allowing for repurchases of up to 2% of shares outstanding per month and/or 5% per quarter, although the REIT’s Board retains the discretion to amend or suspend repurchases if it determines such action is in the best interest of shareholders.

Underlying Portfolio: At least 75% of total assets must be invested in real estate and at least 95% of income must be derived from qualifying sources.

6. Operating Company (Conglomerate)

An operating company conglomerate is a large corporation that conducts its own operating business and, at the same time, holds controlling ownership positions in several smaller companies across a range of unrelated industries.

Investor Eligibility: Shares can be offered publicly (with effective SEC registration statement and state registrations) or privately (limited to accredited investors).

Subscriptions & Redemptions: Continuously offered, typically on a monthly or quarterly subscription schedule.

Liquidity, where offered, is generally provided through discretionary share repurchase programs following an initial ramp‑up period and is typically capped (for example, at 5% of shares outstanding per quarter).

Underlying Portfolio: At least 60% of the portfolio must be controlled by the operating company or held through subsidiaries that finance specific projects.

7. Private Funds

Private funds are also not listed on an exchange. Private funds pool assets to invest in non-publicly traded assets with long-term capital commitments typically.

Investor Eligibility: Private funds require investors to be Qualified Purchasers (that access directly or via a feeder) or accredited investors. Moreover, they usually have high investment minimums (typically $1-10mm). The management fee is usually charged on committed and/or invested capital; typically tiered based on size of commitment. In terms of performance fees, the majority of private funds charge carried interest as defined by the fund’s distribution waterfall.

Subscriptions & Redemptions: Private funds are most commonly closed-ended in nature, with finite fundraising periods, investment periods, and fund terms. However, certain private funds (typically core Real Estate funds) may be open-ended. Open-ended private funds typically offer quarterly, semi-annual, or annual liquidity (usually on a best-efforts or inflow-matching basis), while closed-ended do not.

Underlying Portfolio: Private funds are able to hold a greater concentration of illiquid securities than evergreen funds.

Choosing the right wrapper

Eligibility considerations sit at the center of vehicle structure selection. While alternative strategies may be compelling, the structures through which they are delivered can meaningfully influence liquidity, cash‑flow expectations, tax outcomes, and client experience.

Advisors should evaluate not only the underlying investment exposure, but also eligibility requirements, redemption mechanics, valuation practices, and the degree of complexity each wrapper introduces. Aligning these structural features with a client’s time horizon, risk tolerance, and financial objectives is critical to setting appropriate expectations and ensuring alternatives are implemented thoughtfully and responsibly within the broader portfolio.

As access to alternatives continues to expand, fund and vehicle structures are evolving to help bridge the gap between private markets and wealth portfolios. For advisors, understanding these structures is a critical step toward using alternatives thoughtfully and effectively within client portfolios.