Private markets are flourishing, with private equity increasingly replacing IPOs in financing businesses to achieve long-term growth. Many UHNWs are looking to broaden their exposure to this asset class, with more than half of second-generation or above families planning to increase asset allocations to private equity this year, according to UBS’s Billionaire Ambitions Report.
Yet it is difficult for private investors to invest in traditional closed-end PE funds. These typically require high minimum investments and involve long lock-up periods, which are more suited to institutional investors. It can also be challenging to stay ‘fully invested’ when using these structures, as investors need to redeploy the distributions they receive in new ventures. As a result, private investors still make up only around 15-16 per cent of global asset allocations towards alternatives, with institutional investors still dominant.
In 2001, Partners Group launched the industry’s first ‘evergreen’ fund, which quickly evolved into a product category that allowed non-institutional investors a new, simpler entry route into PE investing. Meanwhile, the rest of the industry has only entered this market in the last few years.
These evergreen funds provide private investors with the opportunity to more easily build PE into their portfolios, with much lower minimum investment amounts and limited withdrawals at intervals. This means more private investors can access the diversification benefits the asset class provides, across investment opportunities, geographies and industries.
‘You don’t receive distributions that you need to reinvest. You stay invested, and the returns are compounding,’ explains Christian Wicklein, Partners Group’s global co-head of private wealth, leading its teams for EMEA and APAC.
In recent years, the number of providers of evergreen funds that are rapidly fundraising has skyrocketed. Meanwhile, Partners Group has continued to prudently build up its evergreen offering, says Wicklein. ‘We are not maximising asset raising – we want to give ourselves time to build these portfolios in a diversified manner, position the product correctly, and educate our investors.’
Proven track record
Unlike many private equity players, Partners Group has accumulated years of ‘live data’ on how investors in such structures behave in different economic circumstances, says Wicklein, who is based in Zug, Switzerland. ‘We have the longest track record, having been in the evergreen market since 2001, and have navigated through several market dislocations including the global financial crisis and COVID without restricting liquidity, known as gating events, on our flagship evergreen funds. This gives investors a lot of comfort and confidence.’ A third of Partners Group’s $44 billion in AuM across its evergreen funds comes from institutional investors, which can also reassure private investors.
Partners Group has hundreds of private equity investment professionals that typically spend 18-24 months researching each opportunity. The team searches for companies that are benefitting from thematic growth trends, which they believe can be transformed into companies that consistently achieve 15 per cent earnings growth each year,
Wicklein says. Experts from different industries are brought in to help with decision-making and to steer company boards. ‘We grow companies with a very hands-on, entrepreneurial focus,’ he adds.
A diversified investment approach, meanwhile, prevents portfolios from becoming too niche or over-concentrated. ‘If you only have a handful of assets with similar investment horizons, your portfolio can become concentrated. This can cause problems when you need to serve redemptions,’ he says. ‘It’s very important to manage the cash flows on both the investment side and the investor side in a careful manner, and ensure your portfolio is diversified across vintages.’
Alongside the quality of its investment content, Wicklein says Partners Group has also spent years refining its ‘portfolio management’ practices, including ‘how we design our liquidity features’.
Educating an investor base
Unlike with institutional investors, many private investors have ‘limited understanding’ of the asset class, let alone evergreen funds at the outset, Wicklein says. ‘The challenge is to find the right level of education, and it starts with the adviser. However, it is a multi-layered process – we educate the advisers but also the end client.’
As part of its regular engagement with its distribution partners, Partners Group runs ‘in-house academies’, in various locations, to ensure advisers are well- educated on the asset class and the products their clients are investing in. Alongside creating product-specific videos and seminars for clients, Partners Group has a network of educators ‘on the ground’ who can work with clients in different regions and in local languages.
A main element across all of Partners Group’s products is its pro-rata allocation policies, which the firm considers key for increasing access to the asset class. These policies mean private investors benefit from accessing the ‘same quality content’ as the firm’s big institutional investors. Wicklein says the funds for private wealth ‘would not work if you have an allocation policy where you provide big mandate clients and flagship funds priority access when you strike a transaction’ at the expense of wealth investors. It’s therefore ‘critical’ that each investor gets their equal allocation on a pro-rata basis. ‘It’s a very fair treatment for all, allowing private clients to invest as equals alongside the big pension and sovereign wealth funds.’
Long-term planning
Evergreen funds make up around 30 per cent of Partners Group’s total AuM, but their private wealth offering also includes other vehicles, such as European Long-Term Investment Funds (ELTIFs) – ‘which can be very attractive for addressing cross-border challenges in Europe’. The firm’s platform, which include mandates and closed-end fundsin addition to evergreens, spans private equity, infrastructure, real estate and private credit investments.
Wicklein says ‘looking ahead, a lot of growth will be captured in the non-listed market’, and evergreen funds will play a key role in facilitating future access to private markets. ‘Closed-end funds will still be a valuable solution for many clients, but for those individual investors looking to build a diversified portfolio that includes private markets, evergreen funds are a great option.’
