Overview of Private Equity and the BMO Carlyle Alternatives Fund

Overview of Private Equity and the BMO Carlyle Alternatives Fund

Mark Schoeffel / 15 October 2025

Private equity represents a compelling opportunity for accredited investors (in BC accredited investors are those who meeting one of the following requirements - have annual income of $200,000 as an individual or $300,000 combined with a spouse for the last two years, have financial assets of $1 mm, and/or have net total assets of at least $5 mm) seeking diversification beyond traditional public markets. This summary provides an overview of private equity as an asset class and details on the BMO Carlyle Alternatives Fund (the "Fund"), an institutional-quality product designed for retail investors. The Fund offers access to private equity through an evergreen structure, making it more accessible than traditional drawdown funds. It is suitable for portfolios aiming for enhanced returns, income generation, and risk diversification, with a recommended allocation of 5-10%. All information is based on discussions and materials reviewed as of October 15, 2025.

Why Consider Private Equity?

Private equity involves investing in privately held companies, often through buyouts where investors acquire controlling stakes in established businesses to enhance value before exiting. Over 85% of U.S. companies with revenues exceeding $100 million are private, forming the backbone of the global economy. The number of public companies has halved since 1996, with firms staying private longer due to regulatory and market dynamics.

Key benefits include:

• Diversification: Private equity exhibits lower correlation to public markets (e.g., less than 40% to the S&P 500 in recent periods), reducing overall portfolio volatility. Public indices like the S&P 500 are increasingly concentrated (e.g., the "Magnificent Seven" tech stocks account for about 30%).
• Return Potential: Investments focus on value creation through operational improvements, rather than market sentiment. Returns are realized upon selling companies via IPOs, strategic buyers, or other funds.
• Outcome-Oriented: Private equity can enhance returns, generate income, or diversify risk, complementing stocks, bonds, and other assets.

Private equity is no longer limited to high-risk ventures; it includes stable, revenue-generating companies in mature industries.

Comparative Table: Private vs. Public Markets

Aspect	Private Equity	Public Markets (e.g., S&P 500)
Market Drivers	Valuations and company improvements	Sentiment, price fluctuations
Company Profile	Established firms with proven revenues	Often growth-oriented or speculative
Liquidity	Illiquid; exits via private sales	High liquidity via exchanges
Diversification	Access to >2,500 underlying companies	Concentrated in top stocks
Historical Trends	Companies stay private longer	Fewer listings; halved since 1996

Access Methods in Private Equity 

Private equity is accessed through three primary methods, each contributing to the Fund's strategy: 

• Primaries: Commitments to new funds where capital is called over time (typically 3 years) to acquire companies, with a 7-year hold for value creation and exits. Ideal for long-term diversification but involves delayed deployment.
• Secondaries: Purchasing existing fund positions at a discount (e.g., 5-10%), providing immediate exposure and potential write-ups. This arises from sellers needing liquidity (e.g., due to the "denominator effect," where private allocations exceed targets amid public market declines).
• Co-Investments: Direct investments alongside fund managers in specific deals, often at no additional fee, leveraging relationships for ground-floor entry.

The Fund combines these for balanced exposure: approximately 71% secondaries, 28% co-investments, and a sliver in primaries plus liquidity.

Fund Overview

The Fund partners with a global investment solutions group managing over $100 billion, originating from pension management expertise. With 25+ years of relationships across 350+ general partners, it secures high-quality deals, committing over $2 billion annually in primaries. This enables large-scale transactions (up to $1.5 billion) and fair allocation between retail and institutional investors—no "leftovers" for retail. 

• Portfolio Composition: Over 2,500 underlying companies; target returns of 14-16% net (one-year performance around 27%, expected to normalize as the Fund scales to ~$700 million in assets).
• Structure: Evergreen design allows monthly purchases and on-demand redemptions, unlike traditional drawdown funds. This suits retail investors by avoiding capital calls and providing liquidity.
• Liquidity Features: Redemption gate of 1.66% monthly, 5% quarterly, 20% annually. Supported by a liquidity sleeve, ~20% annual secondary turnover, and a credit line. As a feeder into a global fund with diverse regional investors, it mitigates local market risks (e.g., Canadian gating concerns).
• Currency Options: Available in CAD (hedged) or USD (unhedged); primarily non-Canadian holdings.
• Minimum Investment: $25,000; suitable for RRSPs and non-registered accounts; accredited investors only.

 

Comparative Table: Fund Features vs. Traditional Private Equity 

Feature	BMO Carlyle Fund (Evergreen)	Traditional Private Equity (Drawdown)
Investment Process	Monthly buys; immediate deployment	Capital calls over 3 years
Liquidity	On-demand redemptions with gate	Distributions only on exits
Fees	1.4% management (F-class); 10% incentive on profits above high-water mark	Typically 2% management + 20% carry
Valuation	6-week lag; monthly NAV	Quarterly or less frequent
Risk Management	Fair allocation; no cash drag	Denominator effect; illiquidity premium

 

Risks and Considerations 

While private equity offers advantages, it involves risks: 

• Illiquidity: Despite the evergreen structure, redemptions may be gated in high-demand scenarios.
• Valuation Delays: 6-week lag may cause initial frustration for investors accustomed to daily pricing.
• Market Risks: Private markets can lag public ones; target returns are not guaranteed.
• Early Redemption Fee: 2% in the first year.
• Accredited Investor Requirement: Limits accessibility; involves risk acknowledgments. 

Investors should consult a financial advisor to assess suitability within their overall portfolio. 

How to Invest 

• Eligibility: Accredited investors only; offering memorandum required.
• Process: Monthly purchases (e.g., next date: October 20, 2025, for October 31 NAV). Redemptions require 2 weeks' notice, with payout 6 weeks post-month-end.
• Availability: Approved on platforms like IIROC and MFDA; A-series and F-class options.
• U.S. Version: A similar product (Carlyle AlpInvest CAP) is available for U.S. residents.

 

This is not intended as an offer to invest or for solicitation purposes; for more details or to discuss integration into your portfolio, contact your advisor. This summary is for informational only and not investment advice. Performance data is historical and no guarantee of future results.