Oct 07: Private equity fund managers are increasingly focusing on hybrid and evergreen structured funds for new launches as they target new distribution channels, new research* from Ocorian, a leading U.S. and global asset services provider, shows.
The study, carried out across the U.S. and Europe with private equity fund managers managing $3.511 trillion, found that 63% expect to see hybrid or perpetual structures with gates dominate new launches over the next two years, while 56% expect to see the most new launches in evergreen or open-ended funds.
Semi-liquid funds are likely to be less popular, with just 40% expecting to see the most new launches, while 25% point to bespoke mandates and just 10% to closed-ended drawdown vehicles.
The key reason driving changes to fund structures is access to new distribution channels, such as wealth managers, with nearly half (47%) citing that motivation, ahead of 41% pointing to regulatory or tax considerations, the research across all key U.S. markets and in the UK, Switzerland, Germany, Italy, Spain, Poland, Sweden and Bulgaria found.
All (100%) of the private equity fund managers surveyed said they are evolving fee structures across their product range. Over a third (37%) are now placing greater reliance on performance-based fee structures, and a similar number (35%) are charging tiered fees by commitment size. Around a quarter (24%) have evolved their fee structures to offer a more bespoke arrangement per investor. Just 4% cite that they’re lowering their headline management fees.
Around six out of 10 (58%) expect to increase capital raised from wealth managers and private banks over the next two years, while 63% expect a rise in capital raising from family offices.
However, the biggest source of new capital is likely to be pension funds, with 86% expecting an increase in capital raised from the sector, while 80% expect an increase from insurance companies and 84% from sovereign wealth funds.
Around 50% of private equity fund managers questioned reported that average investor commitments had increased in the past two years, with the rest saying commitments had remained broadly stable.
Almost all (92%) said the liquidity profile of their newer products had increased, albeit modestly, with just 4% saying products were significantly more liquid than five years ago. Increasing interest in tokenization of funds may have some influence with 70% of managers saying they were exploring the concept or actively pursuing it.
Eamon Burns, Global Head of Fund Accounting at Ocorian, said: “Private equity fund managers are adapting and evolving their product ranges in response to changes in demand as they seek to widen their distribution channels.
“There is increasing demand for, and interest in more liquidity, as well as a rise in average investor commitments. At the same time, fund managers are adapting fund structures to attract new investors, with the wealth management sector a key target. However, the main sources of investment remain institutional.
“Fund managers increasingly require support that can help them to quickly and efficiently adapt to changes across the market, while concentrating on their core business.”