Public-Private Convergence: What Investors Need to Know

For decades, the public and private markets were distinct arenas. Public markets were all about liquidity, transparency, and daily pricing. Private markets offered access to longer-term, illiquid opportunities in exchange for potentially outsized returns—if you had the patience (and the lockup tolerance).

But lately, those two worlds are blending in ways that are changing how capital flows, how fund managers operate, and even how performance is measured.

This convergence isn’t just a buzzword. It’s happening—and it’s reshaping investment playbooks across the board.

So, what is public-private market convergence?

At its core, it’s about the blurring of the line between how companies raise money and how investors deploy capital. On one side, companies are staying private far longer than they used to, raising massive late-stage rounds without ever tapping the public markets. On the other side, public market investors—especially hedge funds—are increasingly backing these late-stage private deals. The result is a landscape where the capital, the strategies, and even the players are crossing what was once a very defined line.

It used to be simple: private markets were for buyouts and venture capital; public markets were for trading and listed stocks. Now? Many of the largest hedge funds are loading up on private shares. And private equity funds are borrowing liquidity mechanisms from hedge funds. Everyone is borrowing from everyone—and reinventing fund structures along the way.

Who’s driving this shift?

1. Hedge Funds Go Private

Many hedge funds have become what you might call “crossover” investors. Firms like Tiger Global, Coatue, and D1 Capital are piling into late-stage VC deals and pre-IPO rounds. Why? Because the most exciting growth stories are happening before companies go public—if they ever do. Hedge funds are moving upstream to get a piece of that upside early.

To make that possible, they’re tweaking their structures—using side pockets for private holdings, gating redemptions, or launching dedicated vehicles. Essentially, they’re turning into mini private equity firms, just with faster reflexes.

2. Private Equity Gets Flexible

On the flip side, private equity firms are breaking free from the 10-year closed-end mold. Evergreen funds, continuation vehicles, and semi-liquid structures are all gaining traction. These setups let them hold assets longer, recycle capital, and keep investor relationships going beyond the life of a single fund.

It’s a win-win—at least in theory. Investors get more optionality. Managers get more time. And companies get stable, long-term partners who aren’t forced to sell just because the clock is ticking.

Flexible fund structures: the new norm?

The move to flexible fund structures isn’t just a trend—it’s a response to real market needs. Investors want access to private markets but don’t always want to wait 7–10 years to get their money back. Managers want to retain their best assets, especially when exit markets are volatile or closed.

Enter the new wave of structures:

• Evergreen Funds that can live indefinitely.
• Rollover Vehicles that continue holding select assets beyond the life of a fund.
• Gating Provisions that manage liquidity risk in semi-liquid portfolios.

It’s not one-size-fits-all anymore. Funds are evolving—blending the best (and sometimes the most complex) of both private and public market practices.

IRR vs. TWR: When Metrics Collide

One of the more overlooked consequences of this convergence is what it’s doing to performance reporting. In private markets, IRR has always been king. It’s the headline number on every pitch deck. But in open-ended or evergreen structures, IRR just doesn’t work as well. That’s where TWR—Time-Weighted Rate of Return—comes in.

TWR is the standard in public markets. It strips out the impact of cash flow timing and focuses purely on how the manager performed over time. It’s perfect for funds with rolling subscriptions and redemptions. But here’s the kicker: TWR usually looks less flattering than IRR—especially when IRR is inflated by quick early wins or strategic distributions.

As evergreen and hybrid funds rise, the industry may be forced to shift toward TWR-based reporting. That could be painful for some private managers whose IRRs have historically benefited from “financial engineering” or favorable timing. But it would be a fairer and more consistent way to compare performance across fund types.

What are the longer-term consequences?

The obvious:

• Fewer IPOs. If companies can raise $1 billion privately, why go public and deal with quarterly earnings calls?
• Liquidity mismatches. Semi-liquid funds holding illiquid assets can create problems when markets turn, and investors want out.
  

The not-so-obvious:

• Inflated valuations. More capital chasing fewer private deals means higher entry prices, and potentially lower returns down the line.
• Diminished price discovery. If the best companies never go public, the market has less data to value entire sectors.
• Blurring of regulatory oversight. As hybrid structures proliferate, regulators will have to grapple with which rules apply—and to whom.
• Unexpected correlations. If public and private valuations start moving in sync, that supposed diversification benefit? It might evaporate right when investors need it most.

Final thoughts

The convergence of public and private markets is more than just a structural shift—it’s a philosophical one. It’s challenging the way we think about access, liquidity, time horizons, and even how we define performance.

For investors, it opens up exciting opportunities. For fund managers, it demands innovation and operational agility. But it also calls for caution. With flexibility comes complexity. With innovation comes risk.

The big question is: Can we build the next generation of investment structures without losing the discipline that made the old ones work?

Only time—and perhaps a few cycles—will tell.