Prosek’s Mark Kollar’s Letter from America
⇨ the Last 12 months ⇦
Letter from America
We are delighted to celebrate more than two years of collaboration with Prosek Partners’ Mark Kollar, who writes our Letter from America. Mark brings his unique perspective, shaped by decades of experience advising some of the most influential players in the private capital markets. His commentary consistently blends on-the-ground insights from the US, with a sharp understanding of the global forces shaping alternative investment, making the Letter an invaluable read for our audience across Europe, US and beyond.
What sets Mark apart is the depth of knowledge he draws from working closely with firms across private equity, credit, and hedge funds, as well as his long view of how the industry has evolved. He has a rare ability to distil complex developments into clear, actionable analysis, while connecting trends in policy, capital flows and investor sentiment. The result is a Letter that does more than report, it equips readers to navigate the opportunities and challenges of a fast-changing market.
Alastair Crabbe, Editor, Alternative Investor
Grid Unlocked: NFL Opens Franchises to Investments by PE Firms
Private equity firms will now be able to own a stake in NFL teams, just in time for the start of the season. This appears to be a win-win for private markets and sports franchises alike as General Partners look for more ways to participate in the growing asset class of sports investments and owners look for new sources of liquidity.
Quick Replay
The vote last month changed the National Football League rules so that owners can now sell up to 10 percent of their teams to PE firms as “silent” investors. The silent part means that PE firms will have only have a financial interest in a club and zero say in strategic business and team decisions.
The league selected a small group of potential GPs at the start, awarding those that have experience already in sports ownership. Those include Arctos Partners, Ares Management Corp., Sixth Street
Partners and a consortium that calls itself the “Avengers,” which includes Blackstone, Carlyle, CVC Capital Partners, Dynasty Equity and Ludis, a platform founded by investor and former NFL running back Curtis Martin.
Each of these four platforms can invest into up to six teams, helping to spread the wealth of the funds, a definite attraction for the NFL, which is the last of the major US sports leagues to allow PE investors into its clubs.
Post Game
So what’s the win for the owners? For a little history, it’s worth noting that NFL teams are family-owned businesses in a rich person’s game. Teams are typically passed down generation to generation and few individuals can buy a team with price tags staring at the several-billion-dollar mark. The new ruling, observers say, opens the
aperture for new money at a time when owners want to build new stadiums, expand into other areas or even reduce their tax bills as they look at success options while still retaining majority ownership.
And for the GPs. It’s a safe bet to say this is a good bet. Franchise valuations are the largest among the other professional sports. Options are limited with only 32 teams in the league, and the fan base keeps on growing, now spreading into overseas markets. Business expansion options are also huge with broadcasting, streaming and licensing deals, merchandise opportunities and real estate investments.
We can’t deny that this is a vanity play as well to have a trophy asset in your portfolio, with or without the Super Bowl ring, and be among an elite group of US business owners outside of the private-markets ecosystem.
Predictions
A few things are probably certain. With PE stakes set at 10 percent there is little to no
chance that private markets are taking over the league.
What’s more, the NFL’s business has shown no signs of slowing down. The average franchise valuation is larger than in other sports with reported media deals at $100 billion alone. If you’re an investor, all of this looks like a goldmine.
Now to make the world of NFL franchise ownership even more interesting, it’s worth noting that the storied Green Bay Packers has been a publicly owned, non-profit company since 1923, kept alive through league and economic cycles by supportive fans/owners, a lesson that there is always a play for creative financing and the introduction of PE investments is just the next chapter.
continued...
Asset-Based Financing Ready for Prime Time in Private Credit Markets
It’s no secret that private credit is taking center stage in private markets.
But muscling its way into a corner of the private credit stage is asset-based finance, or ABF for short, an asset class where borrowers put up a specific asset as collateral, whether physical or financial, for its financing needs.
Take equipment financing, for example, one of the biggest slices of the market. A company borrows money for new equipment and uses that equipment as collateral so if the company defaults, the lender owns the goods. Every aspect of that loan revolves around the equipment, whereas in asset-based lending the loan can be based on a variety of assets such as inventory or even receivables.
In its simplest form, that’s what ABF is all about. The borrower gets cash, the lender feels safe with its collateral and
investors receive predictable cash flows, diversification, a good chance for higher yields and participation in an emerging sliver of the private credit market.
Until recently, direct lending was the more mature cousin that focused on the corporate market. But now, with the growth of ABF, we are seeing private credit extend into the consumer market using such collateral as residential and commercial real estate, car and boat fleets, credit cards, student loans or even intellectual property.
According to KKR, the private ABF market is growing at “impressive speeds,” with the asset class up some 67 percent at the end of 2022 than in 2006 and up 15 percent from 2020. At these rates, KKR predicts the market to grow to $7.7 trillion by 2027 from $5.2 trillion last year.
What’s driving this growth? A lot of the same factors we have seen that have led
...with the growth of ABF, we are seeing private credit extend into the consumer market using such collateral as residential and commercial real estate, car and boat fleets, credit cards, student loans...
to development of other areas of private credit such as signs of apparent economic uncertainty -- inflation and a higher rate environment -- and perhaps the catalyst for this all, the unease in the traditional banking system. But entry into this market does take some experience and specialization.
Enter Blue Owl Capital, which wasted no time in making a big play in the market. In July, it agreed to pay an initial $450 million for Atalaya Capital Management, a firm that focuses on private credit and assetbased lending. “The acquisition of Atalaya adds adjacent and scaled alternative credit capabilities that complement Blue Owl’s leading position in direct lending,” said Blue Owl Co-Chief Executive Officers Doug Ostrover and Marc Lipschultz when they announced the transaction in a statement.
“Atalaya was an early pioneer in private basset-based finance.”
In a recent report from Atalaya, the firm estimates that private ABF is “on track for 20-percent plus annual growth over the next several years as more and more
investors are “hungry for credit alpha and diversification.”
Industry observers claim the market will extend beyond the reach of direct lending in several ways. One example so far this year is with student loans. A strategic partnership of funds and accounts managed by Carlyle’s and KKR’s credit businesses purchased $10.1 billion of prime student loans from Discover Financial Services. The transaction shows how private lenders are adding value in markets where traditional lenders may be losing ground. And, no doubt, this evolution will see ABF become a more significant player in the private credit ecosystem in the months and years ahead.
October 2024 Asset Based Financing continued...
Not so Fragile: Private Credit Getting Some Credit for Reducing Systemic Risk
The size of the private credit market seems to know no bounds. Recent calculations estimate that non-bank financial institutions have lent more than $2.1 trillion to corporate borrowers just last year alone in assets and committed capital.
For borrowers, these loans provide an alternative to traditional financing with less stringent requirements. The benefit for investors is more attractive returns than they would get from other fixed-income products.
A vast majority of the volume is in the US, where a company’s financing needs may have been either too large or too small for commercial banks, so that in a Goldilocks turn of credit events, private debt became “just right.”
And as no surprise, this phenomenon is not always just right for everyone. In an April blog post, this year the IMF charged that
the private credit market “warrants closer watch” and the rapid growth could “heighten financial vulnerabilities given its limited oversight.”
The arguments from the IMF identify a number of other “fragilities” in a larger essay called “Global Financial Stability Report.” These include claims that private credit borrowers “tend to be smaller and carry more debt” and thus may be more vulnerable to rising rates, and that competition puts pressure on “private credit providers to deploy capital and thereby leads to weaker underwriting standards and looser loan covenants.”
All fair points to some extent and many of those so-called fragilities are echoed by other European counterparts, who call on stricter reporting requirements.
However, in recent weeks, and certainly in light of the US election results, it seems
as if a slight shift is taking place among regulators and academics that leans to a softer stance on regulation.
U.S. Securities and Exchange Commission
Chair Gary Gensler, at the Bloomberg Global Regulatory Forum in Washington, DC, last month in a speech called, “A Feature, Not a Bug: The Important Role of Capital Markets in the US,” called out the resiliency of these markets and the importance of private credit.
“The non-bank sector provides important alternatives and competition to the banking sector,” he said in prepared remarks. “This competition benefits investors, savers, borrowers and issuers, as well as the banks themselves.”
Gensler warned that when looking at risk and fragility in finance, “it’s important not to paint with a broad brush. Not every risk is the same. In fact, the financial sectois about allocating and pricing risk, not eliminating it.”
A more moderated stance it appears from a regulator than some may think. But Neel Kashkari, the president of the Federal
Reserve Bank of Minneapolis, also noted that private credit may in fact reduce systemic risk in the US financial system.
“It’s scary at some level, because it’s exploded to a trillion-dollar-plus market fairly quickly,” he was quoted at a Bloomberg story last month out of Buenos Aires. “But as I’ve examined it, a bank in the US today – a big bank – is levered 10 to one times as much assets for their equity. These private credit vehicles are typically levered one to one, so it’s much less leverage.”
In fact, Kashkari believes that private credit vehicles may be lower risk than banks because they typically lock in capital for longer periods of time.
It’s probably a safe market bet that it won’t be a longer period of time to see the rhetoric around regulation and reporting for private credit to become even more accommodating to evolve from fragility to bug to resilient feature in financing.
A Silent Green Seen Emerging on Climate and Energy Transition As New Administration Heads to White House
Silent green may become the guiding catchphrase under the Trump administration.
The upcoming changing of the guard in Washington in January has prompted lots of educated guesses on what shifts may take place with Donald Trump as president for the green economy and energy transition.
Several factors are at play.
On the energy front are several of President-elect Trump’s choice in his new administration, who lean more toward fossil fuels than toward renewables and do not see climate change as a top priority.
On the regulation front is the SEC, which will be under close watch by climate advocates amid predictions for
more restrictive policies for ESG-related initiatives.
For starters, it’s probably a safe bet that the SEC’s pending climate risk disclosures, which would require companies to report details on climaterelated activities, will not become mandatory requirements.
Even so, US companies will still need to follow reporting requirements for Europe and California, but a broader measure is not likely. The EU, as no surprise, has and will likely continue to mandate strict regulations impacting US multinationals. However, in recent months, there have been indications from EU regulators to revisit some of the overtly onerous reporting regulations.
In addition, experts say, the Trump
...changing of the guard in Washington in January has prompted lots of educated guesses on what shifts may take place... for the green economy and energy transition.
administration is expected to weaken ESG-related policies, including restricting shareholders from filing ESG-related proposals and revising a 2022 rule that allows retirement fund managers to consider ESG risks.
So what does this all mean?
Climate investing comes in many forms, from energy and energy companies to climate funds that invest in proven businesses providing decarbonization and energy efficiency-focused products and services.
The LP community will continue to look for opportunity in climate, turning its attention more and more to the energytransition sector. There is unabated momentum in the infrastructure and energy transition buildup.
“Energy transition remains one of the buoyant corners of the private markets, even in a tough fundraising environment.
Although policy uncertainties are weighing on capital deployment and it will be a while before clarity emerges on how various policy measures – from
tax credits to tariffs – play out and their precise impact on project economics,” said Sharadiya Dasgupta, founder of Blue Dot Capital, a sustainable finance and private markets consultancy.
From a communications standpoint, the activity will be focused on how investments in climate add value or help reduce costs, a more silent targeted approach that is less reliant on media relations and more reliant on direct conversations with investors/limited partners. Other expected activity will include more communications from private markets platforms focused on regularly sharing their outlooks on infrastructure, energy transition, and digitalization.
With regulatory requirements to decarbonize likely low in the coming months and years ahead, some climate businesses will face demand and price headwinds no doubt but will still be an important alternative in the private markets, searching beyond the silent green.
December 2024
The ‘Silent Green’ continued...
Private Market 2025 in Five Words: Infra, Credit, Sovereigns, Jocks and Wealth
It’s time to jump on the outlook bandwagon and make a handful of educated predictions on trends in private markets for 2025. These are based on some desk-side research, conversations with founders and fundraisers and from writing the headlines in recent months on behalf of clients for many of the stories placed throughout last year.
Ten is always a respectable number for lists, but I am sticking with a well-rounded five in a less-is-more start to the New Year and presented in alpha order to keep it simple, showing no favoritism.
A bit of table-setting first. The market has experienced headwinds with fundraising and then with deploying capital over the last 12 to 18 months, but has kept evolving nonetheless, innovating (think NAV financing, GP stakes, infrastructure secondaries and AI takeover of due
diligence) to keep the engine running for sponsors and investors alike.
As a former PE reporter and now communication specialist, the view is always interesting and will likely get more so with several diverse trends from 2024 continuing to steal the spotlight this year to make it dynamic for both the participants and spectators. Here goes:
Data Centers and Energy Transition:
Investment dollars from PE firms will continue to flow into the data centers that keep AI and disruptive technologies running and to renewables and the infrastructure that helps them operate. Funds are needed for the transition and returns for many investments improving.
Private Credit: Continued growth seen across a diverse landscape to fuel opportunities, including asset-based lending, especially investment grade, as
well opportunistic capital and real-estate financing. A still favorable interest rate environment will keep the M&A machine humming to keep borrowing needs on high and no doubt more consolidation ahead while the big get even bigger.
Sovereign Wealth Funds: Foreign capital will continue to look toward private markets to diversify investments for higher returns. By some accounts, SWFs have $18 trillion in assets that could be deployed into PE funds or as co-investments or direct investments in prized assets. State-backed funds led many of the big deals recently and that trend will continue
Sports: By most counts, institutional investors are owners in 24 teams among the five leagues, a number that is likely to climb. But interest will not stop with professional teams. College teams are the next likely target, spurred on by the lucrative media rights. With the spotlight on sports and investors, will the next stop l be a professional athlete running for politics? Probably yes.
Wealth Channel: Dollar signs are driving the democratization of the private markets with wealth managers sitting on more than $50 trillion of AUM so just a percent or so is a big bang. Education and marketing are keys to success so look for more firms following Blackstone lead as building their brands for consumer audience. (Remember the goldfish bowl on CNBC, bigger fish to catch now.)
This all leads to prospect for a strong year. Outlook reports from Wall Street predicted that private markets will growth to more than $20 trillion by 2030, or just five years away, from around $13 trillion today. With a look at the five trends, we may see that prediction a bit sooner.
The Pomp and Paradox of DeepSeek
As the world seemed to be getting used to FOMO-type investing of artificial intelligence models and the data centers that power them, along comes DeepSeek-RI -- from a start-up out of China that developed a low-cost, efficient AI application, sending investors and technologists into DeepShock.
No surprise that DeepSeek dominated headlines, with dire predictions of the fate of US models, competition and pricing. But for private markets, the bigger question seemed to focus on whether projections for the vast amount of energy needed to power AI was bloated or still valid as this slimmed-down version was now available on the market for free.
In recent years, private-market investors have been buying or building data centers, the actual warehouses where tech companies run AI systems. And at a
fast and impressive pace.
By my back-of-the-napkin calculations (how old school!), I count some 53 allocations or fund formations in the data-center ecosystem from private markets in the last seven months, with at least a dozen in January alone including Blackstone’s recent acquisition of Potomac Energy Center in Loudoun County, Virginia; Apollo Global Management’s agreement to acquire Argo Infrastructure Partners; and South Korean investment firm DeepGreenX agreement with Sente Ventures to create a new fiveyear $25 billion investment program.
Add to the mix the Trump administration’s announcement for Stargate, a new company with a goal of investing as much as $500 billion in AI infrastructure, with the financial help of OpenAI, Softbank and Oracle and you got a funding bonanza.
... I count some 53 allocations or fund formations in the datacenter ecosystem from private markets in the last seven months, with at least a dozen in January alone...
So with DeepSix, is a pause or pivot now in order?
Lots of debate at the end of the month but the majority opinion is a pretty clear “no.” Despite the pomp and confusion around DeepSeek early days, it appears investors may now have more options to consider even while questions remain on how the real costs to develop the Chinese application, whether it is really “better” and most important, what’s next. Now enter the Jevon’s paradox, a theory that has been referenced a bit in the media (Business Insider, others) in relation to DeepSeek. Simply put, as tech gets cheaper (DeepSeek) and more efficient, then demand increases at a faster clip. That means as competition heats up for less expensive/more efficient models, the more usage increases and energy demand stays high. So it seems full (ish) steam ahead.
As Jonathan Gray, Blackstone’s president and chief operating office, said during a fourth-quarter earnings call with investors
in January, “We still think there’s a vital need for physical infrastructure, data centers and power. The form of that use may change.”
So much has been called into question as a result of the upstart but one thing remains clear: the actual technology -- no matter the sources -- has staying power beyond the pomp and paradox.
February 2025
DeepSix continued...
Private Equity and Defined Contributions: A ‘Quasi Inevitability’
At a time in the US when the White House is changing some of the rules of the game on Wall Street and suggesting new schemes on tax rates, it’s probably worthwhile to take a look at the swirl around Americans taxdeferred defined contributions plans such as 401(k)s and the push from private-equity firms to grab a piece of a highly valuable prize.
The story has been around for a while, especially during President Trump’s first term, in what we may call an introductory move by the Department of Labor in June 2020 when it issued an information letter that allowed private equity investments to be a part of retirement-oriented holdings such as target date and balanced funds.
But momentum is now building at the start of Trump’s second term – or the
very least from lobbyists – that the time has arrived for the massive retirement industry to invest in PE funds through these plans from a massive pool by some estimates as large as $15 trillion.
“It’s a quasi-inevitability,” said one industry executive about prospects for this happening sooner rather than later.
A little more background. The Employment Retirement Income Security Act has blocked retirement savers from accessing these plans because they are often viewed as highly leveraged, less transparent and carry higher fees than publicmarket investments. What’s more, plan administrators are not all gung-ho either because of fiduciary concerns as well as potential legal liability. But the proponent voice is growing louder.
...momentum is now building... the time has arrived for the massive retirement industry to invest in PE funds through these plans from a massive pool by some estimates as large as $15 trillion.
In an oft-quoted quote on the subject, Marc Rowan, chief executive officer of Apollo Global Management, at a firm conference, said, “I jokingly say sometimes, we levered the entire retirement of America to Nvidia’s performance. It just doesn’t seem smart. We’re going to fix this, and we are in the process of fixing it.”
Retirement accounts are not strangers to private markets. Pension funds have been investing in PE firms for some time, attracted by the higher returns and diversification. And in a recent poll from the Kent A. Center for Global Markets, 41 percent said that a properly diversified 401k account should include private equity and private credit assets, suggesting the pendulum is swinging in favor of inclusion.
Add to that sentiment, firms such as Apollo and Partners Group are already growing AUD in the DC channel so to some extent the move has already started.
So no matter the temperature in Washington or Wall Street, a key constituent will be the plan administrator who shoulders much of the responsibility. No doubt they will look for more guidance from the Department of Labor on the issue. Opportunities for higher returns and diversification are a big plus. But protection is paramount.
Demographics, however, are on the side of participation. An aging population that will need a bigger pile of cash no doubt will trump some decisions. Perhaps the big question becomes: Do the issues of transparency and liquidity outweigh opportunities to invest in a massive asset class with traction and track record, moving this whole issue from quasi to full inevitability.
March 2025
PE & DC continued...
SEC Provides Fresh Guidance on PrivateMarket Funds to Ease Path on Investor Accreditation
and General
Solicitation
Are TV ads the future for Alt Managers?
It’s a toss-up figuring out what has been the most used or overused word this past week. Within the mix, “uncertainty” is likely at the top of the list. The alts markets, however, tend to find opportunity in times like this when there is little to no clear picture on inflation, interest rates or the longterm direction of the global economy. For sure, the watch word today is caution, and it may be private-markets family holdback for the time being.
So to move away from the market action, let’s examine a seemingly niche SEC discussion in recent weeks that may clear the air a bit and ease some burden on how issuers can verify accredited investors (it’s a lot easier) and solicitation around fundraising (it’s a little more relaxed).
In short, the SEC issued a no-action letter that provides guidance on rule 506(c) of the Regulation D private securities offerings last month on a few matters. (The response from the SEC was prompted by a request from law firm Latham & Watkins LLP on its interpretation on the matter.)
First and foremost, according to the guidance in agreement with Latham & Watkins, issuers may rely on just a minimum investment amount or as in the words of the SEC to be a “relevant factor” in whether a potential buyer is an accredited investor. These minimum amounts are reportedly set at $200,000 for individual and $1 million for corporate entities.
This greatly simplifies the verification process, eliminating past practices of
reviewing tax returns, bank statements and third-party certifications. Easier, peasier. But just as important, issuers now have much more confidence and a clearer path to verify investors. This also plays out in another way and this is where I put on my communications-advisor hat. With easier verification in place, issuers now have fewer restrictions on how to market or advertise their privateinvestment funds to US investors (underscore US.).
As someone who has spent years advising clients not to talk in any way shape or form about their fund while fundraising unless they want to suffer the wrath of the SEC, the new guidance suggests those hardball lectures are now a little too hardball.
Issuers may now consider broader marketing channels to reach a wider audience and even discuss funds to the media during the raise. That’s a significant difference that will no doubt take time for issuers to fully
understand and be comfortable with before we see more general solicitation in the form of advertising and direct conversations with the media.
A few caveats: The funds must be registered as a 506(c) versus 506(b) and must consider state securities regulations, which can vary. We may also see funds re-register as 506(c) from 506(b). And this is all to say, that we may one day see a convergence in how traditional asset managers and GPs market themselves and communicate to stakeholders with even the most advanced leveraging tactics such as TV advertising or sports sponsorship.
SEC’s Fresh Guidance continued...
Tokenization Set to Take Stage for Alts in Effort to Expand Depth, Breadth of Market
Fresh off the Milken Institute Global Conference in Beverly Hills, it’s safe to say that focus from the main stage hardly strayed from the direction of tariffs, taxes and deregulation as well as speculation on what’s next from the White House.
No doubt the uncertainty has kept dealmaking less active than expected this year for this audience of mostly private equity and alts executives.
And that is perhaps the rub. Hopeful (repeat “hopeful”) optimism defined the surface tone. But discussions among the conference attendees were more than cautious below the surface.
In fact, a more-of-the-same outlook on fundraising and transactions turned focus on how to raise new sources of capital and some oft-repeated themes: wealth channels, democratization
of the asset class and disruptive technology that can make markets more efficient and appeal to a wider audience.
That’s exactly the backdrop that has made the concept of tokenization not so much center stage but a talking point among alts circles. (Curiously, it was not a big panel topic at Milken even though it combines the above themes, which made me even more curious about it.)
So a little tutorial.
In its simplest form, tokenization makes private equity and alts more accessible to a wider audience by turning investments into tokens on a block chain that can be easily traded around the clock and globe. For PE, real estate and infrastructure
...bets are on for big potential growth with some estimates projecting tokenized asset market to reach as much as $5 trillion by 2028.
investments, tokenization converts ownership in those assets, whether real assets, shares in funds, or the portfolio companies themselves within those funds. So illiquid assets become fractional shares that are tradeable assets.
True acceptance is a ways away. But the growing number of proponents claim that tokenization allows the high and not-so-high net worths to participate in private-market investing at a much smaller price than the more typical $1 million entry fee. Smaller minimum thresholds mean more diverse pools of investors can participate, which perhaps lead to more liquidity.
Before we get into real benefits and risks, however, it’s worth pointing out a few real deals of note.
BlackRock, where CEO Larry Fink has reportedly said that every asset can be tokenized, has filed with the SEC to tokenize shares of its $150
billion Treasury Trust Fund that would create a new class of digital shares on a blockchain ledger, reportedly distributed by BNY Mellon. Over at Franklin Templeton, the asset manager has launched something called the Franklin OnChain U.S. Government Money Fund, which gives investors exposure through digital tokens.
And Hamilton Lane, one of the world’s largest private markets investment firms, recently launched HLPIF on the global investment platform Republic, the first private infrastructure offering available to retail investors in the U.S. with a minimum as low as $500, which will be made available in a tokenized format.
The exciting part is to see how technology is helping make PE and alts more accessible to a wider audience at a time when greater distribution is needed. But now for hurdles and risks.
One challenge at the start is verification. How do you trust the other side of the trade on a block chain? Folks are now working on a trusted unified verification system to address this issue. That will take time to build consensus, but technology does exist -- just need to figure out the best approach. Until then, regulations need to be made clearer, especially across jurisdictions, and pricing will still be an issue and subject to volatility until the platforms mature.
Far cry from open outcry, private placements and portfolio construction with the LP in mind, the rise of tokenization will likely be the next evolution of making investment opportunities bigger, broader and maybe bolder. No matter the chatter, bets are on for big potential growth
with some estimates projecting tokenized asset market to reach as much as $5 trillion by 2028. That’s a lot of tokens, so talk is expected to become more center stage no doubt faster than we may expect.
Evergreens Gain Spotlight as Perpetuity Funds Seen Building for Wealth Channel
In perpetuity is a term not often considered part of the private-equity lexicon, but a certain type of fund that has been around for 20 years by some counts (much longer for the REIT market) is making headlines lately and gaining the attention of investment managers looking to attract the retail investor.
Enter the evergreen fund, not quite a “forever fund,” but an open-ended structure that provides GPs and LPs alike with flexibility and liquidity at a time when both are needed pretty badly.
This column is often focused on the transformation of the PE industry and evergreen funds are perfect illustrations of innovative structures that are being leveraged to broaden the make-up of the investor base.
That may be all good, but what’s the real attraction and how are these funds really different?
Well, It’s back to perpetual. Because it is not a closed end or a drawdown like with typical buyout funds, the flexible structure gives managers the ability to focus on long-term growth versus short-term performance. They can hold onto investments in good times and bad, when more time within a portfolio allows for even more growth or the time to emerge from sluggish growth.
What’s more, with an evergreen structure, GPs can raise money on an ongoing basis so in theory capital is available to deploy for investments, not set to a schedule. Think of it as fundraising on a rolling basis. Another plus: Investment managers can collect
fees on a more regular cycle because the fundraising is continuous.
The flexibility goes beyond managers. For the investor, evergreen funds carry lower investment requirements making them more attractive to the retail audience and offer liquidity options more frequently, often on a set quarterly basis. This provides redemptions on a more regular basis and addresses concerns about lack of liquidity for LPs we hear about so much in recent months. The lower entry requirements, however, can mean higher regulatory hurdles or administrative challenges, and time is still needed on how to structure products for the big prize: the mass affluent
Industry experts say that evergreen funds are one of the fastest-growing segments of the private markets with AUMs of approximately $427 billion at the end of last year (Pitchbook). These experts also say they expect wealthfocused evergreen funds to grow at an
annual rate of 20 percent, hitting over $1 trillion dollars in four years.
Amid these positive projections, challenges do exist. An open-ended structure means redemptions are not predictable (when will investors want their money?) so valuations can be complex and constant. Administrative duties are more time consuming, and fee structures can also be complicated.
In perpetuity is by definition a very long time but clearly not as long as when these structures will become more common and part of the PE lexicon.
June 2025
Evergreen Funds continued...
Private Markets on Portfolio Play Offensive with Defense Investments
The private markets have their investment sights set on defense companies and the technology firms that support that industry as countries, especially in North America and Europe, increase their focus on border control and national security interests.
Recent defense spending estimates back this up. Last month, for example, the countries within NATO agreed to allocate at least 5% of their GDP on defense over the next 10 years. In addition, the Trump administration budget has earmarked some $960 billion toward defense in its recent budget, which includes plans for a Golden Dome shield estimated to take a big chunk at around $175 billion.
The big numbers come with big opportunities for private markets. Governments need to close the
investment gap as they rush to modernize their weapons with more emphasis on technology and less on “soldiering.” Simply put: Boots on the ground are slowly being overshadowed by drones in the skies. And it is happening pretty quickly. According to S&P Global Market Intelligence, the announced value of PE- and VC-backed investments in aerospace and defense between Jan 1 and March 16 this year has already totaled some $4.27 billion globally, compared with approximately $4.31 billion for all of 2024.
It’s no surprise that North America accounts for most of the investments with 83% of all PE- and VC-backed deals in aerospace and defense since 2020, followed by 12% from Europe, according to the S&P data. One of
... the defense sector is gaining more acceptance as an attractive investment, an area that was once ignored because of its cyclical nature and simply on moral grounds.
the behemoths? Berkshire Partners
LLC and Warburg Pincus LLC’s $2.9 billion investment to take Triumph Global Group, the aircraft systems and components business private in February. But no doubt there are more big deals to come.
For the PE industry, investors remained focus on companies with “high barriers to entry, defensible intellectual property and supplier differentiation on technical capabilities,” according to a Bain & Co. report called “Rethinking Defense: The Role of Private Capital.” That means investments that support cash flow and growth and offer more opportunity to “build share and develop economies of scale” are high on the list.
And how does that translate? Think companies focused on the new age of electronic warfare: defense electronics, cybersecurity, space technology and aerospace repairs and products, industry experts say.
Firms such as AE Industrials, Arcline Investment Management and Arlington Capital Partners are a few that have been dominating this space for some time. Others such as the Caryle Group, CVC Capital and Tikehau Capital are increasing their participation.
What’s becoming clear is that the defense sector is gaining more acceptance as an attractive investment, an area that was once ignored because of its cyclical nature and simply on moral grounds. That thinking has changed and defense may in fact be an area not tied to a downturn. Keep sights set on what may become a boom.
July 2025 Defense Investments continued...
Alastair Crabbe acrabbe@brodiecg.com
Darryl Noik dnoik@capricornfundmanagers.com
Jonty Campion jcampion@capricornfundmanagers.com
Lynda Stoelker lstoelker@capricornfundmanagers.com
Visit www.alternativeinvestorportal.com
