Hg Capital launched its first evergreen fund, Hg Fusion, last year. The fund, Katie Forbes, principal of the wealth team at London-based private equity firm Hg, says, was initially set up “to offer investors more flexibility and continuous investment opportunities”.
“Evergreen funds,” Forbes explains, “unlike traditional closed-ended funds, allow for ongoing capital raising and periodic liquidity, which can be particularly appealing to private investors looking for long term solutions.”
As well as private investors, Forbes highlights family offices and private banks as groups which evergreen funds have proven particularly attractive to, “especially in regions like Europe where there is a strong demand for alternative investment options.” These investor types, Forbes tells us, were showing a growing interest for “more flexible and continuous investment opportunities”, making evergreen an ideal solution.
Since its launch, Hg Fusion has proven popular, so much so, in fact, that Hg have had to cap subscriptions to the fund due to the high interest from clients. “It has exceeded our expectations”, Forbes elaborates “and we are delighted about that!”
Hg expect this popularity to further increase over the coming years “evergreen funds offer flexibility, continuous investment opportunities, and periodic liquidity, making them increasingly attractive to investors. We believe that the demand for such funds will continue to rise as investors seek more adaptable and long-term investment solutions”, she explains.
Asked for predictions on the future of evergreen relative to that of close-ended funds, Forbes says, “it is likely that a substantial portion of future capital will come from evergreen funds as an addition to closed-ended.”
And what about the future of Hg’s evergreen fund? “Our long-term vision for our Hg Wealth offering,” Forbes tells us, “is to continue to thoughtfully and sustainably grow the fund, with investment diversification and our annual return target in mind.”
The benefits of evergreen, she states, can broadly be split into four main areas: liquidity, flexibility, diversification, and a more stable capital base.
Firstly, they “provide liquidity, allowing investors to buy and sell units in quarterly subscription windows, subject to relevant conditions,” which is not often found in traditional private equity funds. This continuous investment opportunity means investors can add to their investment whenever they choose, which can be particularly beneficial in a rising market.”
Because evergreen funds don’t have a specified maturity date, Forbes describes how they allow investors the flexibility to enter or exit the market based on their individual goals and market conditions.
“Additionally,” she adds, “evergreen funds reinvest profits back into the fund, benefiting from compounding and enhancing long-term returns.”
“Evergreen funds typically invest in a wide range of assets, providing a diversified portfolio that can help mitigate risk.”
Setting up an evergreen fund, however, does not come without its drawbacks and complexities. “The operational complexity of managing an evergreen fund is higher compared to traditional closed-ended funds,” we are told, although, as Hg make clear, the benefits of such a fund make any difficulties or barriers they encounter worth tackling.
Forbes then details some of these operational challenges that Hg encountered when setting up it’s evergreen fund for Hg Wealth, stating that difficulties included ongoing management and operational support to handle continuous capital raising and redemptions,” while there is also a challenge around investor knowledge with regards to evergreen.
“Since evergreen funds are relatively new concepts, it is essential to educate investors about their benefits and risks to ensure they make informed investment decisions.”
Given the new, complex and innovative nature of these products, Hg’s wealth offering, aims to make the process as convenient and easy to follow as possible for investors.
“Our wealth investment vehicle reduces administrative hassle by allowing 100% upfront investment with distributions automatically rolled over”. It also “simplifies the investment process. It offers diversification through co-investment opportunities and secondaries in early vintages of Hg funds as well as enabling access to our software portfolio.”
This interview by Luke Beacon was first published as part of a major Evergreen Funds Industry Survey, produced as a collaboration between Funds Europe and Citco. The full report may be viewed here.