Gautam Nadella: The Future of Private Markets is Evergreen
Gautam Nadella, CEO of EQT’s US private equity operating company, explains how evergreen vehicles are expanding access to private markets
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.
There have been 200 such vehicles launched since 2019 and these now manage more than $400bn, according to Pitchbook data. The private market data specialist estimates the total pool of evergreen funds at $1tn, though calculates total global private wealth at around $450tn. Moreover, the portfolio allocation for this market to alternative products such as private equity is a low single-digit percentage compared to low double digits for pensions, endowments and other large institutions. This creates a significant opportunity for firms offering the right product mix.
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.
“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.
EQT’s evergreen vehicles will invest alongside our core private market strategies. This means clients will be in similar deal opportunities as EQT’s institutional investor base, giving them access to some of the most exciting privately held companies around. Last year alone, EQT invested €22bn across sectors as wide-ranging as digitalization, energy transition, education, and waste management.
Moreover, EQT was the most active private markets manager in the equity capital markets last year, with $8.6bn worth of public market share sales by portfolio companies. This was notable given the challenging period for PE deal exits, and reflects EQT approach to future-proofing outstanding businesses so they remain attractive to buyers.
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.
ThinQ is the must-bookmark publication for the thinking investor.
