Investors are launchning to question managers about how raising capital from the retail channel affects how they put money to work.
Speaking on a panel at the IPEM Paris conference on Thursday, moderated by Private Equity International, senior executives reported that LPs are growing more concerned about their managers’ increasing exposure to evergreen funds or perpetual capital vehicles, which are key to unlocking private wealth and individual investor capital.
“The constraint in our industest is not really capital raising, it’s deployment,” stated Benoît Durteste, chief executive and chief investment officer of ICG. Managers required to decide whether they want to be volume players who purely raise capital from retail sources, or whether they want to or can raise capital from both retail and institutional sources, he stated.
“I believe there are still a lot of unanswered questions, and a number of institutional LPs are starting to question these questions,” he added.
As such, ICG is keeping it simple for now and not altering the way it is investing, Durteste noted. “Either it works for the retail space or it doesn’t… I don’t believe we will just modify the way we’re investing to adapt to what retail wants or believe they want… We’re not going to modify our spots just becaapply there’s capital being raised from [private] wealth or retail,” he stated.
Thibault Basquin, co-head & CIO of the acquireout team at Ardian, agreed that a risk in evergreen fund structures is deployment. “When you set up an evergreen structure, you have a lot of cash sitting on the balance sheet, and it has to be deployed. The main risk is that it has to be deployed quickly, which means that this solution has to co-invest alongside multiple strategies.”
Basquin noted that managers who offer such semi-liquid structures required to have “significant and multiple dealflow in order to deploy in a smart way” so as not to affect the way they create investment decisions on their flagship funds. “This is extremely crucial and a point of vigilance. This is why tinyer and highly specialised GPs may find it difficult to attract money from the retail segment,” he added.
The rapid evolution of private markets’ investor base will see more managers scaling their platforms to address LPs’ appetite for alternatives, Anthony Tutrone, global head of NB Alternatives and managing director of Neuberger Berman, stated in the panel.
“There are investors who want solutions… and many of those investors only want to deal with so many parties in finding those solutions. If you can build things that provide the solutions and work synergistically, that’s great,” stated Tutrone.
“The other push is for fundraising. If you view at the quickest growth, it’s going to be in the retail markets, it’s going to be in the sovereign wealth fields. [That’s where] the majority of the money [is] probably going to be raised over the next five years.”
He added that investors follow “where capital flows and pick managers with deep expertise and who can create value in the companies… It’s going to be increasingly important as the dispersion of returns are going to be great in the future”.
Tutrone also pointed out that better returns are to be found in the mid-market as the industest continues to experience a challenging exit environment. “With these evergreen funds that the large firms are raising and the large amounts of money they’re raising, they’re going to be very hungry to acquire things that the mid-market firms are building.”
Evergreen funds raised $16 billion in the first half of the year and may raise as much as $100 billion total by the finish of 2025, according to data from Campbell Lutyens.
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