Evergreen funds are rapidly gaining momentum in Private Markets by offering a flexible, diversified alternative to traditional closed-ended vehicles. Evergreens provide immediate access to a fully-paid-in portfolio of Private Markets investments, while continuously reinvesting the proceeds over time. As a result, they represent a simple yet highly effective approach for private individuals and institutional investors to access Private Markets.
What are evergreen funds exactly?
Evergreen funds work as perpetual (open-ended) funds, where investors can invest (“subscribe”) and sell (“redeem”) their investments over time. Subscriptions are typically possible on a monthly basis, redemptions quarterly. Funds automatically recycle exit proceeds into new deals, creating compounding returns for investors from day one. Similar to public-market ETFs, evergreens can be distributing or accumulating (cash income or no cash income for investors).
Differences between evergreens and closed-ended funds
Why are evergreen funds attractive for investors?
Evergreen funds can substantially reduce complexity for Private Markets investors. In particular, evergreens exhibit 3 key advantages for investors:
Simple yet effective processes during investment and exit
Diversified investment allocation to Private Markets
Accumulating, compounding returns of Private Markets investments
1. Simple yet effective processes during investment and exit
Evergreens reduce complexity of investors by eliminating capital calls, enabling flexible investment and exit windows, simplifying transaction processes, and streamlining the required documentation to complete transactions.
Consequently, investors in evergreen funds are fully invested from day one and can avoid the typical administrative burdens arising when investing in traditional closed-ended funds.
2. Diversified investment allocation to Private Markets
Evergreen funds typically invest in the complete portfolio/platform of one or several Private Markets managers – resulting in a significantly higher number of investments per fund.
The approach allows evergreens to gain exposure across geographies, vintages, industries, and more. By capitalizing on a manager’s ongoing deal flow and reinvesting returns, evergreen funds maintain dynamic diversification overtime, reduce concentration risk, and enhance portfolio resilience.
3. Accumulating, compounding returns of Private Markets investments
Traditional closed-ended funds (which draw capital over several years and return proceeds to investors after selling assets), typically require ongoing cash management by investors and often result in larger parts of the committed capital not being at work in Private Markets.
The structure of evergreen funds (fully paid-in portfolios; continuous reinvestment of returns) is set up to maximize time in the market, avoid cash drag, and enhance the long-term compounding effect for investors. As a result, evergreens have the potential to generate higher performance vs. closed-ended funds over the investment horizon when net returns are equal.
In short: The value proposition of evergreen funds
Core allocation in Private Markets
Evergreen funds are a simple, effective, and efficient way for investors to gain a core holding in Private Markets.
Reduced complexity of investments
Evergreens simplify the process for investors to access Private Markets, building the basis for an effective integration in existing portfolios.
Increased diversification through a single investment
Investing in a broad portfolio of assets, evergreens allow for enhanced diversification in Private Markets – via one investment vehicle.
Robust performance due to compounding returns
Since evergreens are fully funded (no capital calls) and continuously reinvest their proceeds, they offer competitive return opportunities.
Want to know more about evergreens or iAccess Partners?
1) Closed-ended fund assumes that capital is deployed in equal increments over a 5-year investment period and that investments are held for 5 years before their sale and distribution of capital. Undrawn capital is assumed to be held in a 60/40 portfolio of public equities and bonds generating a 6.8% return assuming a 5% return for bonds and 8% return for equities, which is the long-run historical returns of the MSCI World Index and Bloomberg Global Agg Index since 1990.
Newsletter Review | October 2024: How Private Equity Firms Use Add-on Acquisitions To Create Excess Returns
In our newsletter review for October 2024, we dive into the value of add-on acquisitions for Private Equity firms to generate excess returns for their investors.
How Private Equity Firms Use Add-on Acquisitions To Create Excess Returns
Newsletter Review | October 2024
Add-on acquisitions represent 70% of total Private Equity deal count
The strategy of add-on acquisitions has become increasingly prevalent for driving significant growth in portfolio companies. These acquisitions provide a flexible approach for funds to achieve higher valuations for investors at exit:
Main objectives of add-on acquisitions
Capture synergies
A portfolio company can achieve revenue growth through add-on acquisitions by cross-selling compatible products to customers and expanding into new markets, while also realizing cost reductions through economies of scale, which lower production costs at higher volumes.
Achieve higher valuations
Since add-on acquisitions can significantly enhance a company's future organic growth potential, a well-executed add-on strategy can lead to operational improvements and ultimately to increased EBITDA and a higher valuation for investors at exit.
60% of modern value creation in Private Equity is linked to operational improvements
Research from UBS and EY shows that 60%of modern value creation in Private Markets is linked to operational improvements. Fund managers who actively focus on developing portfolio companies to their fullest potential throughout the investment life cycle create the greatest value.
