Evergreen fund valuations should be ‘as current as possible,’ says Partners Group

Evergreen funds are becoming an increasingly common sight in private equity. A raft of such products came to market last year as firms upped their efforts to access the private wealth channel.

Unlike closed-end funds, these vehicles typically offer regular buy-ins and redemptions to reflect the differing liquidity needs of individual investors. This structure can require more frequent valuations.

Speaking at an investment summit hosted by wealth platform Endowus in Hong Kong on Wednesday, Henry Chui, Partners Group’s head of APAC private wealth, said valuations of open-end funds should be “as current as possible.”

“Ultimately you are making a market to the investment community, whether its subscriptions or whether its redemptions,” said Chui. “Making sure those marks are current is absolutely critical. We usually take public market comparables, multiply by the EBITDA of the company, and that’s how you get the valuation of the company.”

More frequent valuations can risk undermining one of private equity’s key appeals: its lower volatility relative to publicly traded equities. “The dynamic of an evergreen fund is that, yes, it is going to be a little bit more volatile than a closed-end fund, but it’s because you are making the mark from a subscription and redemption perspective,” Chui added.

Partners Group’s open-end fund – the $8.25 billion Partners Group Global Value SICAV – provides monthly subscriptions and redemptions, and its NAV is calculated monthly, according to its website.

Hamilton Lane’s $4 billion Global Private Assets Fund also has a monthly redemption window. “You want that valuation to be really fair at the time of that investor’s subscription redemption, so that it can be fair to all the investors that are also in the fund,” Kerrine Koh, managing director for client solutions at Hamilton Lane, told affiliate title Private Equity International in October. “It needs to be done in a consistent way and it needs to be valued by a third-party valuation agent.”

Not all evergreens offer monthly valuations. Like their closed-end counterparts, many opt for quarterly assessments.

Speaking on the same panel as Chui, William Vettorato, EQT’s managing director and head of fund strategy, added that it’s possible to “get lost in this theoretical [valuation] exercise.” Vettorato was previously a senior portfolio manager of Partners Group’s Global Value SICAV before joining EQT last year.

Vettorato cited as an example SHL Medical, a Switzerland-headquartered manufacturer of advanced drug delivery systems that the firm acquired last year. The company, he noted, “has realized fantastic returns in the first half of the year… In this example, why should I now introduce too much market beta forcing a comparable adjustment that might not fit exactly the valuation [of the company]?”

Firms managing such products should ensure investors don’t try to act on fluctuating valuations, Vettorato added.

“You need to ensure that investors don’t have the advantage or don’t have the incentive to arbitrage on a valuation, which, as a matter of fact, will have to be a bit stickier,” he said. “This is key because otherwise you will get lost in trying to introduce public equity beta in a portfolio, which might actually be different from the index or where the comparables are.”