Alternative Allocations: Navigating the evergreen fund boom—market insights with guest Kim Flynn

In the latest episode of the Alternative Allocations podcast series, I had the opportunity to sit down with Kim Flynn, president of XA Investments. Kim and I discussed the growth and evolution of evergreen funds (i.e., interval and tender-offer funds). Kim has been one of the leading voices as her firm has been tracking the evolution and adoption of evergreen funds.

We began our discussion by addressing the size of the market and the challenges for advisors. “We're at the point where there are over 300 funds. So, I think a lot of financial advisors are grappling with, on one hand, a lot of options, a lot of good choices, but you're trying to decide the best firms and the best strategies to diversify your portfolio.” Kim noted that the market has grown by roughly 25% over the last 10 years.

Kim noted that private credit represents roughly half of the interval fund universe. “I think that private credit is always going to be a dominant part of this market. I think for many fund sponsors, private credit is the first foray into the interval fund marketplace, partly because it's easier to get to a daily NAV [net asset value] on private credit. There's a wide liquidity spectrum when you're talking about credit instruments.”

Kim went on to say that there are a growing number of private equity, real estate and infrastructure funds in the market—and she is beginning to see more interest in hedge funds after having been out of favor. She anticipates more niche and differentiated strategies in the future like technology, artificial intelligence, health care and energy funds.   

“I think we’re in the end of the third inning, probably in terms of where there is white space left. Most new fund sponsors don't realize how many competitors they have, either direct or indirect competitors.” While the industry has grown, there is still white space and areas for improvement.

Kim and I discussed the challenge for advisors in conducting due diligence. We both agreed that it is beneficial to leverage due diligence conducted by headquarters and/or third-party providers when available. We also encouraged advisors to ask the salespeople who call on them: Who are your competitors? How does your fund compare? What is your unique edge?

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