Large private equity investors are taking advantage of the wealthy’s capital flooding, and despite the industry’s years of economic downturn, they cashed in on their acquisition fund holdings at higher prices.
Some of the largest evergreen cars, allowing retail investors to deposit and withdraw cash regularly, have purchased large amounts of private equity fund shares from institutional investors who are seeking liquidity after a lack of distribution.
Even if some institutional investors have cooled down new funds for investment, this additional demand has helped support the share price of private equity funds as the difficulty of acquiring the company has exited the investment and returned cash to supporters.
"There is a lot of money going to these (evergreen) vehicles," said a leading consultant. This is under pressure to deploy quickly, they said.
Shares of existing funds (so-called minors) are more likely to be bought and sold than direct investments in the company, making them attractive to evergreen fund managers, as their investors deposit cash in advance and can be withdrawn regularly.
Hamilton Lane invested half of the more than $9 billion it raised in two evergreen private equity vehicles to secondary. Stepstone provides US investors with $4.3 billion in cars, mainly concentrated in private equity and some real assets and debt and 80% of its capital allocated to middle schools.
“A lot of money is raised every month and the funds are looking to invest immediately,” the consultant said.
Retail funds offer secondary stock prices higher than other stocks on the market. This helps the acquisition sector to cash out holdings by making it easier for institutional investors to cash out holdings, and in cases where traders are reluctant or unable to sell basic assets.
Last year’s evergreen vehicles paid an average of 4% of last year’s fund bets, while investment bank Evercore said the influx of retail capital “has a little valued”.
“Fundraising on evergreen vehicles is unpredictable,” said Immanuel Rubin, co-head of Campbell Lutyens. “Unless you deploy (cash), it can hinder your return.”
Purchasing minors also allow evergreen fund managers to show instant returns. They tend to price at discounts on their net worth (NAV), but buyers can mark it as a previous NAV immediately after purchase.
Euan Finlay, head of European private equity investor Partners Capital, said signs of evergreen cars paying more for secondary cars could mean that these vehicles are buying "higher quality portfolios." But he said that could mean they tolerate slightly lower returns.
"The incentive structure that requires money to be invested quickly to feed wild animals and get attractive early returns may lead them to bidding with lower long-term goals," Finlay said.
However, he added that evergreen vehicles can still end up returning similar cash, as they can invest the cash all over for longer.
Bob Long, Stepstone’s private wealth CEO, said the company’s evergreen funding is typically invested in middle schools with institutional investors, meaning they get “the same deal, the same price.” He added that only a small portion of the returns from Stepstone’s wider middle school business comes from initial purchase discounts.
Some evergreen vehicles also deploy cash to ongoing funding – private equity firms increasingly build specially made vehicles to buy companies from themselves.
Continuous vehicles can be used to enable acquisition companies to stick to their best companies. However, they can also be deployed to create cash from the assets for the original backers of the fund, and traders cannot sell at the required valuation.
With the backlog of unsold assets, more and more challenging holdings may eventually fall into continuation funds, eventually with retail investors through Evergreen Auto.
Partners Capital's Finlay said the acquisition manager's recent efforts to exit the "huge asset value" of the "huge asset value" of the "huge asset value" of the company.
"Where is everything?" he said. “I think a lot of … will go into continuation vehicles and over time it can go into evergreen racing.”