Can umbrella funds keep evergreens dry?
Faced with elevated redemptions, Partners Group is using an umbrella structure to try to solve its evergreen fund’s liquidity challenges. Key questions remain before it’s likely to have any followers.
Partners Group is attempting to resolve liquidity challenges faced by its Luxembourg-domiciled evergreen private equity fund, Global Value SICAV, by restructuring it into an umbrella structure. This new approach involves creating two sub-funds: a compounding fund and a distributing fund. The compounds fund will receive one quarter of assets, which are younger and more profitable, and will focus on making new investments.
The remaining three quarters of assets, which are older and less profitable, will go to the distributing fund, seeking to return capital to investors.
The move aims to address a cycle of liquidity demands that has put pressure on the fund's performance. By separating the funds, assets in the compounding fund will be protected from being sold to meet liquidity needs of investors in the distributing fund, preventing a potential fire sale of top assets. This structure is designed to preserve value and maintain fairness for both existing and new investors.
However, the proposal is not without its challenges. Critics argue that the umbrella fund could be seen as a blueprint, raising doubts among potential investors about the long-term prospects of evergreen funds. Partners Group has received positive feedback on its approach, but it must now communicate the changes to a retail audience, which could present additional difficulties due to the involvement of multiple intermediaries.
Additionally, if the book is mis-marked, a valuation correction may be necessary, further complicating the situation.
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