We are fast approaching a new era for private market funds and private wealth.
The rapid adoption of evergreen funds by wealthy individual investors is driving innovation in the marketplace as many major private markets firms looks to this underserved pool of potential clients. EQT is among them, with a range of evergreen products serving the global private wealth market.
One key to unlocking this market will be semi-liquid, evergreen funds. The name comes from the fact that they are more liquid than the traditional closed-ended model and perpetual, combining key elements that make them attractive for individual investors. This year, we expect to launch three evergreen vehicles investing across the U.S, Europe and Asia.
Importantly, evergreen funds enable investors to move money in and out with a much higher degree of flexibility than a standard private markets fund.
For comparison, the typical private equity fund model requires investors to lock in their money for a decade or more. That’s fine for institutional investors, such as pension funds and sovereign wealth funds, as they have long-term investment horizons and enough cash flow from other investments to meet their financing commitments.
Individual investors, however, are different, as unpredictable events such as an unexpected home repair bill, a divorce, or sudden death, can require an immediate need to liquidate investment holdings. EQT evergreens will permit investors to withdraw their money after they have invested for a minimum of two years.
An evergreen is also designed to put investors’ money to work more immediately.
Again, this differs from the traditional fund model, which uses a system of capital calls. In those instances, each time a PE fund buys a new business, the fund’s institutional investors receive a request to send over their requisite portion of capital to finance the purchase. This means it can take several years for investor capital to be properly deployed, which invokes plenty of paperwork and cash management headaches.
Access to strong deal flow will be crucial to the success of an evergreen product. Knowing that the fund’s manager can tap deep pools of liquidity through regular deal flow will be an important confidence-builder for investors wanting reassurance they can redeem their holdings when needed.
As the number of publicly listed companies declines, evergreen vehicles are expanding access to private markets assets for individual investors, offering them exposure to strategies backed by global institutions.
