Evergreen Fund, which has attracted funds from wealthy individual investors in the United States, is providing liquidity to the stagnated market by purchasing a large volume of private equity. Evergreen Fund is an open-ended private fund that allows investors to deposit and withdraw funds at any time without a fixed maturity.
The Financial Times reported on the 11th (local time) that Evergreen Fund, which has a regular open structure for deposits and withdrawals, bought shares that were sold for liquidity by institutional investors experiencing a decline in dividend yields at a high price.
As a result, transaction prices in the private equity secondary market are on the rise. The secondary market refers to a market where existing investors sell already established private equity stakes to other investors. It involves a structure where investors who deposited funds in the primary market sell their equity before maturity, and new investors purchase it.
Hamilton Lane, a large private equity management company in the United States, allocated about half of the $9 billion raised through two Evergreen Funds to secondary assets. Another firm, StepStone, is also managing 80% of a $4.3 billion retail-only fund in the same manner.
According to market research firm Campbell Lutyens, Evergreen Fund bought private equity stakes at an average price 4% higher than that of existing institutional investors last year. Investment bank Evercore analyzed that the influx of retail capital, focused on wealthy individuals, has driven up secondary market prices.
In response, some experts diagnosed that Evergreen Fund prioritizes securing high-quality assets, accepting the premium. Conversely, there are opinions that the ongoing influx of funds necessitates a rapid investment, leading to lower revenue.
Evergreen Fund is employing a method of purchasing private equity at slightly lower than market prices, then reassessing the value of these equities back to the original benchmark of net worth (NAV), to make the initial investment revenue appear high.
In this regard, StepStone explained that Evergreen Fund purchases secondary equities under the same conditions as other institutions and does not specifically buy them at a lower price. They also added that the revenue generated from the discounts applied at the time of purchase is not a large proportion of the fund's overall revenue.
Meanwhile, Evergreen Fund is also investing some funds in a 'Continuation Vehicle' to manage assets that private equity holds for the long term. Concerns have been raised that through such diverse structures, assets that have not been sold could be transferred to individual investor capital.
Yuan Finley, head of Partners Capital Europe, noted, 'Many private equity assets piled up in the market could eventually transfer to Evergreen Fund.'