As General Partners (GPs) venture into developing evergreen funds for private wealth, distribution strategies must prioritise adaptability and precision.
Evergreen funds, with their semi-liquid structures, offer a compelling alternative to traditional closed-end funds, but their success hinges on meeting the unique demands of high-net-worth (HNW) and mass affluent investors. Identifying who best to partner with to build meaningful long-term relationships will likely become a top-line priority for GPs as they seize the private wealth opportunity in the coming years.
Tailored investment solutions, seamless onboarding processes, and robust liquidity management are critical for attracting private wealth clients. Moreover, forging strong distribution partnerships with platforms like iCapital and Moonfare can help GPs scale effectively while ensuring their offerings resonate with discerning investors. By aligning fund design with specific investment objectives and leveraging technology for streamlined operations, GPs can unlock the vast potential of private wealth channels and redefine access to private markets.
As with any new business proposition, GPs should take a pragmatic approach and appreciate that overnight results are not going to be likely. Patience (building key relationships), preparation (team building, product design) and prowess (in respect to operational capabilities) will need to form part of an integrated strategy.
Back in 2020, Meridiam, a transformational infrastructure specialist, partnered with Allianz to allow retail investors to invest in projects including the Port of Calais extension. Michel-André Volle, Head of Investor Relations at Meridiam, told the IPEM community at IPEM Cannes Wealth that the first thing for GPs to consider is not to underestimate the work involved adapting one’s pitch.
“It’s important to speak the right language. You need to be tailored in the way you approach your clients. It requires working with distribution partners - private banks, wealth advisors - to make sure they understand what we are proposing. It takes a lot of effort. We are doing training, webinars, sometimes site visits to key assets to show our partners what we do,” said Volle. He was speaking on the panel discussion “Winning Distribution Strategies To Unlock The Private Wealth Market”.
Choosing the right distribution model
There are various distribution models for GPs to consider.
The most common, in past decades, has been via closed-ended feeder funds for UHNW and HNW investors within private banks. Building direct relationships with private banks has many advantages for GPs…the cache of partnering with a global wealth manager such as UBS or JP Morgan Private Bank creates a halo effect by introducing the GP to a wide pool of global investors, thus ensuring their evergreen has the best chance to scale.
Fund managers such as Tikehau Capital, which have been active in the UCITS space for more than a decade, have been able to build a significant network of European distributors.
Another option is to partner with financial institutions to support their internal evergreen ambitions.
Last year, for example, Pemberton Asset Management partnered with Zurich Investment Group’s unit-linked business to manage its private credit ELTIF. In 2023, New York-based Clipway, a global secondaries firm, received a minority stake investment from French asset manager, Carmignac. This led to Carmignac launching its first private assets product, Carmignac Private Evergreen, last year.
Other distribution model options include:
Tech-driven Fund Platforms:
Direct-to-Consumer Channels:
Strategic Partnerships with Financial Advisors:
The following are some of the more popular tech-driven fund platforms to have emerged in recent years:
i) Moonfareiii) Titanbay
vii) PoolIt
Technology will play a role in ensuring aspects such as client onboarding, fund reporting and education communication are clear and simple for the mass affluent market. Platforms like iCapital, Moonfare and Titanbay have become leading platforms for GPs including the likes of KKR, Blue Owl and Carlyle to scale their fundraising.
Framing the challenge
Any potential wealth partner is going to appreciate that the GP has prepared properly and done their homework, before reaching out. This might include, for example, demonstrating an understanding of the framework that a distribution partner invests within, including the tax and regulatory framework. In Europe, these vary greatly from country to country. As a result, it requires localised knowledge. Does the GP have the capacity to build on-the-ground expertise? If not, it is already going to hinder the efficacy of a private wealth distribution strategy.
Gaetan Aversano is Deputy Head, Private Markets Group at Union Bancaire Privee in Geneva. He told IPEM delegates: “Some GPs are reaching out to us, willing to tackle the wealth channel, but fail to realise this is not a low hanging fruit. It requires significant investment, bringing in-house a lot of expertise and functions if you want to deliver a best-in-class client experience.
“To be successful in the long run, GPs need to fully understand the inner workings of private banks; knowing the constraints we face, how to effectively pitch to and engage with private bankers…those GPs who grasp this will stand out and have an edge in the long term.”
Due diligence considerations
Some of the more common due diligence considerations include:
It is imperative that any new product proposition represents the same quality as the GP’s flagship fund: the same underlying assets, the same access to deals etc. Private banks do not expect to see any deviation from this, making it arguably the most significant red flag.
“Top of mind is having a clear view of the underlying assets. We want to know what we are buying,” says Jessica Sellam, Managing Director, Rothschild & Co. Wealth & Asset Management. “The second point is whether there is any connection with the institutional fund. We’re not interested in products only designed for retail investors. Third, is the fee model and one final important consideration is the size of the product. If the GP is not raising enough money, you could be in a situation where the portfolio is riskier than expected, and less diversified.”
Given the open-ended nature of an evergreen fund, any distribution partner will want to ensure the valuation policies that have been put in place accurately reflect the underlying value of the portfolio.
Linked to this will be to understand the GP’s risk management process, specifically as it relates to liquidity management. Are the built-in mechanisms sufficiently robust to ensure liquidity is available on a quarterly basis and can be delivered without solely relying on inflows?
A lot of thought will therefore need to go in to designing the liquidity management framework, and being able to clearly articulate this, when entering in to new partnership agreements.
Clear Communication
Good communication and ongoing education is important in one’s distribution strategy given that there are still a lot of misconceptions around private markets among investors.
As Veronique Fournier, Head of EMEA Wealth Distribution at Apollo pointed out to IPEM delegates: “We’re having to tackle some of those misconceptions. The idea that illiquid is seen as risky and liquid is seen as safe is a big piece we’ve had to work on. Both public and private can be safe and risky.” Veronique was speaking on the panel “What Wealth Clients Really Want: Surprising Lessons Learned From The Field.”
On the same panel, Mark Serocold, Head of EMEA Wealth Management Solutions at Ares said the more the firm can bring local deal expertise, local language, to build trust amongst people in European countries the more it will help.
“When we’re doing a pitch to a client in Paris, and we do it in French, it goes down much better,” said Serocold.
He pointed out that the majority of sales made at Ares and other leading private markets firms have been via advisory channels in private banks. But banks will often question whether or not to introduce private markets opportunities and risk looking silly in front of a client.
“The upside needs to be explained to the banker or the wealth manager in a particular way, which is where education comes in,” added Serocold.
This view was echoed by Astorg’s Schrieber, who remarked: “We need to get this right as an industry. This is a new asset class for the broader private wealth space. It’s essential to understand what you’re investing in.”
It was noted during IPEM Cannes Wealth that in European countries such as Italy, there could be north of $300 billion flowing into private markets over the near term. Evergreens will be an important stream through which this capital is deployed, “the second would be through insurance, and the third would be through SMAs. My advice to GPs is to prepare locally by setting up office locations,” explained Theo Delia Russell, Deputy Head Private Banking, Mediobanca.
Responding to questions and having local teams in place to liaise directly with distributors could potentially present a cost/resource barrier to some GPs. However, the ability to put a face to a name - from a distribution partner’s perspective - cannot be underestimated. Those who get it right, strategically, could find a pot of gold awaiting them at the end of the rainbow.
Critical Success Factors to Building Strong Partnerships
Live polling at IPEM found that the ability to provide tailored investment solutions was regarded as the most important factor to developing a successful distribution partnership: see figure 1.
Figure 1
Commenting on the polling results, Corinne Schreiber, Managing Director, Investor Relations at Astorg said:
“There are a lot of advantages of private markets to private wealth clients, however the way we distributed them in the past doesn’t work…lack of liquidity, continuous capital calls, which leads to complex cash management. Finding the right vehicle first to meet private wealth clients’ criteria is going to be essential.” Schreiber was speaking on the panel session “Winning Distribution Strategies To Unlock The Private Wealth Market.”
The following elements of this chapter present a range of practical considerations for GPs to consider, based on discussions with private wealth executives.
i) Stay true to your institutional offeringWith interest building in hybrid and evergreen semi-liquid funds, the first point to make is that distributors are generally familiar with the liquidity aspect and do not expect it to be a significant aspect, or the first topic of interest, during the initial discussion. Rather, they are looking for the same thing as institutional investors: quality of track record, strength of the team, deal flow, origination, transparency, quality of service, management fees.
Wealth managers want a clear view of the underlying assets and its connection with the institutional fund. Ideally, an evergreen fund will have some interest from institutional investors and UHNW investors.
ii) Size mattersGPs have to be confident in their ability to scale any new product offering if they are to catch the interest of, and build a meaningful relationship with, private banks. Having a realistic target AUM and an ability to demonstrate that they are in active discussions with other distribution partners will be necessary to assuage any risk fears a private bank or wealth manager might have. This will require the GP to carefully plan their fundraising strategy from the outset. Failure to raise enough capital could lead to a situation where the fund portfolio ends up being different, i.e. smaller and less diversified, than what was originally proposed.
This is also why quality of deal flow is so important when launching an evergreen fund.
Private banks will want to see evidence that the GP is sufficiently committed to private wealth in order to scale effectively. Ultimately, this is a scale game: one that is arguably even more challenging than the institutional fundraising arena. Any future distribution partner needs to trust that the GP will do whatever is necessary to get their product onboarded to multiple platforms.
The stakes are even higher for smaller GPs. If their fundraising targets for an evergreen are modest – perhaps because it is a niche strategy – it may be necessary to provide fairly strong economic incentives to seed investors as they will be taking on additional risk. The more novel the investment angle is in such an evergreen (in terms of sector focus, or geographic focus) the more chance the GP will attract potential distribution interest.
This issue of size is not limited to evergreens. It applies equally to closed-ended feeder funds. Typically, a bank that introduces a new feeder to its clients cannot exceed a certain threshold. This is usually 20% of the feeder fund’s total size.
And here is where the rubber meets the road.
Onboarding a EUR250 million fund would limit the size of the feeder to EUR50 million. With all of the associated costs associated with due diligence, ongoing operations, a private bank will ultimately ask, ‘Is this fund going to be big enough to make economic sense?’ The last thing they will want to do is kill the fund’s performance by applying a heavy fee load.
This is why private banks have tends to favour larger funds, of EUR500 million plus, that offer more capacity as they are more mutually beneficial.
Open-ended evergreens are, operationally speaking, easier to manage. But the issue of fund size is always going to be critical in any new relationship, including fund platforms.
iii) Industrialise the sales & education process
The scope and diversity of investors within private wealth is enormous and can be overwhelming compared to the relative simplicity of the institutional marketplace of pension funds and sovereign wealth funds. Investors cover the gamut of risk/return appetite, they have different taxation considerations, different levels of sophistication and interest in private markets, and so on.
In order to reach the right HNW and/or mass affluent investors, the GP is going to need to deal with intermediaries: be they private banks, asset/wealth managers, RIAs, fund platforms.
Platforms like Moonfare and iCapital provide direct access to HNW investors where, in a similar model to the closed-ended feeder, their capital is pooled together into a single asset allocation in to a respective fund.
The job of these intermediaries is to solve the puzzle for the fund managers, namely: ‘How do I assemble a group of fairly homogeneous and coherent investors who can invest in my new evergreen fund?’
Therefore, before any fund is onboarded, they are going to have a lot of questions and will, in effect, require the GP to industrialise their sales and education process. Having a clear understanding of the fund’s objectives will ensure the distribution partner is targeting the right profile of investors.
iv) Exclusivity of distributionFund managers developing their distribution strategy should bear in mind that private banks will typically look to secure a window of exclusivity. This affords them the strategic advantage of being first to market with the fund. Managers who understand this prior to making first contact with private banks give themselves a better chance of ensuring the first meeting moves in a positive direction.
“If a competitor of us offers the same fund at the same time, there is a problem, because clients are multi-banked and they don't see the difference between us and the competition,” says Cyril Demaria-Bengochea, Head of Private Markets Strategy at Julius Baer. “Usually, we have a window of exclusivity. We know that for that amount of time, usually a quarter, sometimes a little bit more, we are the only ones who can present the fund to our clients.”
v) Proper planning and preparationAvoid trying to run before you can walk. GPs might be keen to get out and build their distribution network at the first availability opportunity, before they’ve even thought about product design. This is not advisable. Any potential distribution partner will want to see that the GP has the right team in place, and also has a concrete product that they can present in detail. This needn’t be finalised but equally a wealth manager will not want their time wasted if the GP is talking in the abstract. They will want assurances that the fund will be ready to market imminently, not in 12 months’ time. And that the internal sales and marketing resources are sufficient to support the distribution partner when positioning the fund to their clients.
vi) Take a long-term viewAnother important consideration for GPs is to understand that distribution to private wealth is a long-term exercise. From a P&L standpoint, this might mean operating at a loss for the first two to three years. This is due to the fact that, on average, it typically takes at least 12 to 18 months between the initial contact with a distributor and the first inflows coming in. That’s assuming the right distribution partner has already identified. Private wealth platforms are necessarily highly discerning when establishing new partnerships. Therefore, it is best to over-estimate the amount of time the team will need to place the fund. Mobilising internal resources, and potentially making additional hires, are critical in this respect.
In addition, there needs to be a strategic commitment from the top of the firm that truly believes private wealth – including the retail market - is the right arena to diversify its investor base. Without a unified house view, the GP risks failing at the first hurdle.
Private banks will want to see clear evidence that this long-term mindset is reflected organisationally. The will expect a comprehensive package. From designing the right product, developing quality education materials, supporting road shows, having sufficient internal legal resources that can draft distribution agreements that meet the banks’ requirements, to providing the right type of reporting. The opportunity set is significant. Yet private wealth is not a case of going after low hanging fruit. It relies upon a well-orchestrated long-term strategy to build a successful distribution programme.