Given the dispersion of returns in private equity between the best and worst performing managers, manager selection is critical. Top-performing managers have historically earned 14% higher returns than bottom quartile performers. However, evergreen strategies present additional layers of diligence and decision-making to work through before investing. With the advent of different types of evergreen private equity strategies in recent years, investors face the added complexity of understanding precisely what they are investing in, including the investment sourcing and portfolio construction approach an evergreen vehicle employs. Those interested in evergreen structures may want to consider two more important questions about the underlying investments as they do their diligence.
Question 1: How much actual private equity is in the vehicle?
Some evergreen vehicles contain only private equity investments, plus a relatively small set of liquid assets to manage liquidity. Some claim to provide pure private equity exposure but adopt what we believe is an overly broad definition of the asset class. Others are better described as multi-asset strategies that invest across private markets.
Question 2: How are the underlying investments in the vehicle sourced, managed, and valued, and who ultimately controls their outcomes?
This is where it becomes critical to understand the differences between single-manager and multi-manager strategies.
