Direct Exposure to Alternative Investments: Fund structures vs. deal-by-deal strategies
Alternative investments are booming - but direct investments in private equity, infrastructure and property development projects require more than just capital. Between the flexibility of deal-by-deal approaches and the efficiency of fund vehicles, the fund structure is increasingly establishing itself as the preferred model - with advantages in terms of stability, reliable governance thanks to a robust regulatory framework and economies of scale.
(Author: Martin Müller, Associate Director; Business Development & CRM)
The Challenge of Direct Investments
According to Preqin, the global volume of alternative investments is expected to exceed USD 29 trillion by 2029, an annual growth rate of 9.7%.[1] In the DACH region, family offices, private banks, and asset managers are also increasingly seeking direct exposure to alternative asset classes such as private equity, private debt, infrastructure, and real estate.
These asset classes offer an optimized risk-return profile compared to traditional investments but come with considerable operational and regulatory complexity. Efficient operational structures are just as vital for long-term performance as deal sourcing, value creation, and exit strategies.
When structuring direct investments, two main approaches emerge: classic deal-by-deal strategies and fund structures that consolidate multiple investments.
Deal-by-Deal Strategies: Flexibility with Trade-Offs
Under the deal-by-deal model, a separate vehicle (SPV) is established for each investment. This structure provides investors, typically family offices, private banks, and asset managers, with maximum transparency and control. It has gained popularity, especially during periods of economic uncertainty. In 2023, USD 31 billion was raised globally through deal-by-deal investments, over five times the volume of 2019, with more than 700 companies acquired.[2]
However, this flexibility comes at a cost: deal-by-deal strategies entail increased operational complexity and administrative burden, which can hinder scalability and efficiency.
Fund Structures: Stability and Efficiency
By contrast, traditional, as well as modern, fund structures (also known as blind pool funds) offer a consolidated investment platform before individual deals are executed. These structures support more efficient capital deployment, reduce transaction costs, and facilitate diversification and ensures efficient portfolio and asset-liability management. They also enable standardized governance and easier compliance with regulatory requirements, while giving investors a clearer overview of their overall exposure.
Continuation Funds: A Hybrid Approach
Continuation funds represent a hybrid model, combining features of blind pool funds and deal-by-deal strategies. As regulated fund vehicles, they offer investment-level transparency along with institutional-grade governance and scalability.
Typically, continuation funds are used to transfer mature assets from a fund nearing the end of its life into a new vehicle, allowing value creation to continue without forced exits. Existing investors are offered a structured liquidity option or the opportunity to re-invest, while new investors gain access to seasoned, high-quality assets.
Key benefits of continuation funds include: i) optimized exit timing, ii) granular transparency, and iii) capital re-allocation without requiring full liquidation—supporting performance stability and track record continuity.
For fund managers, family offices, and private markets platforms, continuation funds are becoming an essential tool for managing liquidity, investor access, and governance.
Why Fund Structures Offer a Compelling Solution
For professional and institutional investors, the club deal model offers appealing features: maximum control, tailored selection, and selective capital deployment. Yet as portfolio complexity increases, structural drawbacks become apparent—high administrative overheads, concentration risks, and unpredictable cash flows.
Fund structures address these challenges effectively: they consolidate capital, facilitate diversification across sectors, regions, and vintages, and reduce both regulatory and tax burdens. Investors also benefit from professional portfolio and risk management, institutional governance, and more predictable distribution flows—critical for asset-liability management. Furthermore, economies of scale help improve cost efficiency. Funds also simplify access to top-tier managers, especially for smaller investors.
The Path to an Optimal Fund Structure: Ensuring Long-Term Success
For those seeking to build stable, scalable, and operationally lean private market portfolios over the long term, fund structures offer a significantly stronger foundation than ad hoc individual deals.
In today’s increasingly complex investment landscape, selecting the right fund structure is critical to the success of direct investments in alternative assets. Fund vehicles are a strategic lever for enhancing professionalism, mitigating risk, and driving operational efficiency—especially for recurring investments.
[1] Preqin (2024)
[2] Triago (2024)