When the music finally stops, I hope some of these evergreen PE funds consider listing as exchange listed closed end funds (CEFs) to compete with VCX, DXYZ, RVI, PWRL, and CFND. Sure, many CEFs trade at discounts to NAV, so investors may not be thrilled about a conversion. But if the next market downturn ends up creating a healthy listed private equity market in the US, similar to the UK's ecosystem with Scottish Mortgage, HarbourVest Global Private Equity, Pantheon, and 3i group etc, I think that would be a win for retail investors.
Agree with you!! Listing publicly is the right solution for many such funds: provided daily liquidity to investors (and GPs don’t have to contort themselves to come up with the cash every quarter)
From a liquidity‑engineering standpoint, where would you place private real estate evergreen funds in your hierarchy? They generate NOI but not principal return, so I’m wondering whether you view them as structurally closer to PE or as a distinct middle‑liquidity asset class.
Great question -- and I'd place them just above PE, well below PC.
We should probably separate non-traded REITs (SREIT, for example) from RE secondaries (like Apollo's Diversified RE Fund). REITs hold actual properties, and secondaries hold stakes in funds that hold properties.
Neither structure has a high portfolio turnover (underlying assets are not really liquid), and neither generates really high investment income.
The workaround I've seen fund managers employ is keeping a sizable % of assets liquid (for example, publicly traded REITs or cash) -- that works, but comes with its own drawbacks.
I'm becoming an evangelist for traditional drawdown funds when one wants access to illiquid assets..
Perfect description of phase II of a long process that is still unfolding. PC does not matter much to institutions, as they are mainly in closed-end and structured products. PE is a different story, where the older closed end funds with aged positions are going to be forced to refinance into a more skittish PC marketplace. Institutions are, at the moment, mostly indifferent to the slow erosion of fundamental value in the whole ecosystem. Once the reported returns begin to follow the credit marks, trustees and other fiduciaries will be forced to notice. Consultants and auditors join in during the final, ugly phase.
Ryan, I’m so sorry. I accidentally deleted your comment.
For those who didn’t see it: Ryan mentioned that this conversation should have been happening a month ago. My reply below:
Two things:
1. Private credit is not out of the woods: my math above is for the 5% liquidity. If that runs higher for a number of quarters, the math changes drastically — there is regulatory leverage limits to keep in mind.
2. I did speak about it (on LinkedIn, it takes a while to research and write intelligent long-form newsletter posts, however)
Sure, but keep in mind that 5% can (and should be capped at stated 5%) even in interval funds. As you know, non-traded BDCs could even go lower if it was warranted to protect remaining investors (and prevent NAV decay). And as for the fund level leverage...you also know that is not mark to market for basically all the large players in the space. Those credit lines are fully committed and cannot be revoked...
IMO, the press went with a larger fear story bc of the obvious reasons without painting a fairer picture of the asset class. If articles are to be written in mass on the liquidity profile of the class or a specific fund, a lot of time and research (which you are great at) should be conducted on the liquidity management protocols of the fund(s). By in large, that has been greatly missing...
When the music finally stops, I hope some of these evergreen PE funds consider listing as exchange listed closed end funds (CEFs) to compete with VCX, DXYZ, RVI, PWRL, and CFND. Sure, many CEFs trade at discounts to NAV, so investors may not be thrilled about a conversion. But if the next market downturn ends up creating a healthy listed private equity market in the US, similar to the UK's ecosystem with Scottish Mortgage, HarbourVest Global Private Equity, Pantheon, and 3i group etc, I think that would be a win for retail investors.
Agree with you!! Listing publicly is the right solution for many such funds: provided daily liquidity to investors (and GPs don’t have to contort themselves to come up with the cash every quarter)
From a liquidity‑engineering standpoint, where would you place private real estate evergreen funds in your hierarchy? They generate NOI but not principal return, so I’m wondering whether you view them as structurally closer to PE or as a distinct middle‑liquidity asset class.
Great question -- and I'd place them just above PE, well below PC.
We should probably separate non-traded REITs (SREIT, for example) from RE secondaries (like Apollo's Diversified RE Fund). REITs hold actual properties, and secondaries hold stakes in funds that hold properties.
Neither structure has a high portfolio turnover (underlying assets are not really liquid), and neither generates really high investment income.
The workaround I've seen fund managers employ is keeping a sizable % of assets liquid (for example, publicly traded REITs or cash) -- that works, but comes with its own drawbacks.
I'm becoming an evangelist for traditional drawdown funds when one wants access to illiquid assets..
From what I could find. Pre GFC 20 to 25% of equity was returned per year.
GFC it dropped to 8 to 18% but within 2 year was getting back to normal averages.
Perfect description of phase II of a long process that is still unfolding. PC does not matter much to institutions, as they are mainly in closed-end and structured products. PE is a different story, where the older closed end funds with aged positions are going to be forced to refinance into a more skittish PC marketplace. Institutions are, at the moment, mostly indifferent to the slow erosion of fundamental value in the whole ecosystem. Once the reported returns begin to follow the credit marks, trustees and other fiduciaries will be forced to notice. Consultants and auditors join in during the final, ugly phase.
Ryan, I’m so sorry. I accidentally deleted your comment.
For those who didn’t see it: Ryan mentioned that this conversation should have been happening a month ago. My reply below:
Two things:
1. Private credit is not out of the woods: my math above is for the 5% liquidity. If that runs higher for a number of quarters, the math changes drastically — there is regulatory leverage limits to keep in mind.
2. I did speak about it (on LinkedIn, it takes a while to research and write intelligent long-form newsletter posts, however)
Sure, but keep in mind that 5% can (and should be capped at stated 5%) even in interval funds. As you know, non-traded BDCs could even go lower if it was warranted to protect remaining investors (and prevent NAV decay). And as for the fund level leverage...you also know that is not mark to market for basically all the large players in the space. Those credit lines are fully committed and cannot be revoked...
IMO, the press went with a larger fear story bc of the obvious reasons without painting a fairer picture of the asset class. If articles are to be written in mass on the liquidity profile of the class or a specific fund, a lot of time and research (which you are great at) should be conducted on the liquidity management protocols of the fund(s). By in large, that has been greatly missing...