For the everyday investor, private equity (PE) has been out of reach. Investing in this asset class has historically been limited to large institutional investors or ultra-high-networth (UHNW) clients. But many people don’t realize they might have already done some form of private equity investing in their own community or social circle.

Has an uncle, sister or old high school friend ever asked you to invest $10,000 in their latest business venture? That is private equity in its simplest form. By investing, you hope to get your initial investment back someday and maybe a share of the profits – or at least free food, services or merchandise from that business. But the only diligence you can do on that business venture is what you personally know about the person and the business they are pursuing.

Thanks to regulatory changes and innovation from the financial services industry, a new space is emerging between sophisticated institutions/UHNW and your Uncle Mark asking for 10 grand for his food truck. This space is the evergreen alternative investment product market.

Over the past 10 to 15 years, evergreen products have gained significant traction. They come in all shapes, sizes and features, but at their core, they pool investors’ money to invest directly in a portfolio of private companies or across multiple PE products. The result? More options, more flexibility, and new opportunities for advisors to help clients diversify portfolios between the public (i.e., stocks or bonds) and private markets.

Think of it this way: remember when the cereal aisle offered just a handful of options like cornflakes and sugary puffs? Now, supermarket shelves are lined with choices catering to every taste and dietary need, from organic granola to high-protein cinnamon crunch. The private equity space has also grown, offering products that differ in minimum investments, strategies, liquidity options, and investment philosophies. This diversity allows advisors to tailor PE investments to their clients’ unique goals and values.

Let’s explore how evergreen PE products can unlock new possibilities.

1. Significantly Lower Minimums – Single Serve Choices

As a kid, I loved visiting my Grandmother Marshall. She always had single-serve packs of my favorite cereals. One morning, I could have frosted cornflakes; the next, raisin bran with bananas she cut up that morning. Meanwhile, my grandparents preferred toast for breakfast. So why buy family-size boxes of cereal for my brother and me visiting for the week when she could choose the single-serve multi-pack? She was a smart lady. And those little boxes were just my size at six years old!

The same principle applies to evergreen products and their lower minimums, which provide entry for as low as $10,000 to accredited investors – those with a net worth of $1m (excluding the value of their primary residence) or an annual income exceeding $250,000 for individuals.

By lowering the investment threshold, evergreen products enable advisors to introduce private equity to a broader range of clients. Not only can the accredited investor gain access, but the High Net Worth (HNW) Qualified Purchaser (QP) – those with a net worth of $5m or more, excluding their primary residence – who may be new to alternative investments can dip their toe in with smaller minimums. In both cases, evergreen products enhance portfolio diversification and open access to a segment of the private market that was previously inaccessible or daunting due to higher minimums.

2. Predictable Cash Requirements – Knowing What You Have to Invest and When

Traditional PE investments often involve an upfront commitment and subsequent capital calls, which are ad hoc requests for cash to fulfill your committed investment into the drawdown product. These periodic investments occur as the product’s manager identifies new investment opportunities and incurs expenses, typically over a 3 to 5-year horizon. While the amount and timing of these capital calls are unpredictable, an investor in a drawdown product must commit to meeting those capital calls. For clients, these capital calls can disrupt cash flow and make budgeting a challenge.

Evergreen products change the game. Now, you can make one investment with no surprise capital calls or need to set aside and manage your cash over a multi-year period.

3. Enhanced Liquidity Options – The Comfort of More Redemption Options

Humans are inherently emotional beings and often make decisions based on feelings rather than facts or logic, especially in a volatile market. We sell when we should buy and buy when we should sell.

Drawdown PE products do not typically have a buy/sell option like a public stock or bond. You are investing your money for the next 10 to 15 years, planning for future generations. Locking up your investment for that long can be intimidating, particularly if it represents up to 20 percent of your portfolio. What if you need funds for a major life event like an unexpectedly higher tuition bill one semester because your kid decides to study abroad? I did that – sorry, Mom and Pop – but England was fun, and I learned A LOT. That said, locked-up capital can prevent us from making some very emotional mistakes, like selling when we should buy or vice versa.

Evergreen products offer a solution with periodic liquidity windows, such as quarterly or semi-annual redemption periods, subject to terms and conditions. This feature enables clients to invest confidently, knowing they can access their investment if necessary.

This flexibility is a powerful tool for advisors. It allows clients to pursue the potential returns of private equity while maintaining access to their capital for life's important milestones – like when those hefty tuition bills come due.

4. Simplified Tax Reporting – Buckle Up Buttercup, We’re Going on a Trip

Tax season can be stressful, especially with the complex reporting required by traditional PE investments. Drawdown products can issue complicated Schedule K-1s often late in the year, requiring tax extensions and potentially multi-state filings that lead to increased accounting costs and headaches for both advisors and clients.

Consider the difference between navigating a multi-leg journey and taking a direct flight. Dealing with K-1 forms is like coordinating multiple connecting flights with layovers in unfamiliar airports – you have to keep track of multiple tickets, adjust to different time zones, and could miss your connection. It's time-consuming and exhausting when all you want is to sip a pina colada on the beach.

Evergreen products can simplify the “travel itinerary” by providing a Form 1099 or a simplified Schedule K-1 summarizing dividends, interest, and capital gains. It’s like booking a direct flight that gets you to the beach efficiently and without hassle. You can enjoy a smooth journey through tax season with minimal stress.

With a more streamlined tax reporting process, financial advisors can focus more on strategic planning and less on administrative tasks.

5. Alignment on Clients’ Values – the Farm-to-Table Movement

With the greatest wealth transfer in history happening as $84 trillion in assets changes hands over the next 20 years, younger investors are more interested in alternative investments and sustainable strategies. These investors are more informed than ever, and advisors must address their specific preferences to effectively meet their clients’ evolving needs.

Take for example the trend of locally-sourced produce. People are increasingly conscious of where their food comes from, how it’s produced, and its environmental impact. Farmers’ markets are packed and grocers like Whole Foods or restaurants like Sweetgreen list nearby farms supplying their stores. Beyond personal health, consumers are making choices that align with their broader values, contributing to positive change.

Similarly, many investors are looking to “feed” their portfolios with investments that reflect their personal values. They are no longer satisfied with generic investment options that prioritize only returns. Instead, they want their money to have a meaningful impact, supporting businesses that contribute positively to their communities and the planet.

Financial advisors are recognizing this shift in priorities, and the expanded options in the PE space allow them to select evergreen products that align with their clients’ values and investment philosophies. It is important to have transparency into what the evergreen product (and even the drawdown fund) is invested in, how it’s valued and what the product manager’s mission, values and investment pipeline look like.

At EQT, we focus on partnering with good companies and making them great. For the past 30 years, we’ve been committed to long-term value creation. This approach resonates with clients interested in responsible investment and supporting businesses that contribute positively to society.

The advent of evergreen products in private equity represents a significant shift in the investment landscape. It provides financial advisors and their clients with new ways to diversify portfolios and pursue potential growth opportunities previously out of reach.

By incorporating evergreen PE products into portfolios, financial advisors can offer an investment experience that is potentially both personally meaningful and financially rewarding. It is not just about potential returns – it is about making investments that clients can feel proud of and that reflect their personal convictions.