Why Altaroc doesn't do Evergreen

So another question we get asked is why don't you create an Evergreen Private Equity fund? It would be much simpler for everyone. And an Evergreen fund that's always open, into which new clients could enter by diluting old ones. That's not efficient at all. So we have an advantage over the others. At Altaroc, we have a lot of experience in this area. Maurice Maurice Tchenio has been managing a listed Evergreen fund called Altamir for almost 30 years. So he knows exactly how it works. There are two major disadvantages to an Evergreen fund. The first is that if it's permanently open to new subscriptions, the new subscribers will dilute the old ones in the net assets. So, while net assets don't reflect the full value of your assets because they haven't been worked on yet, and Private Equity funds value their assets very conservatively over the life of the fund, old subscribers are going to be diluted by new ones at a price that doesn't reflect the economic value of the assets, or at any rate is very conservative. So there's a huge dilution issue for old subscribers every time new subscribers arrive. The second problem is that when new subscribers arrive, they arrive with cash. It's going to take another five years to commit that cash.

So the second problem with an Evergreen open to permanent subscription is that it's permanently loaded with cash. And let me remind you that, in terms of multiple stakes, cash is the enemy of performance in the world of Private Equity. So this new dilution not only penalizes existing shareholders, but also adds a cash burden that will take another five years to deploy. And if you have a fund that's permanently open, well, you're constantly adding cash that will take another five years to deploy. This means that the performance of former investors will be affected in two ways: by the very heavy dilution, and by the addition of cash, which is the enemy of performance. As a result, when you look at publicly listed Evergreen funds, they hardly ever raise money. So I didn't say that an Evergreen fund wasn't performing. I said that an open-ended Evergreen fund couldn't perform. It's not the right way to manage your assets. On the other hand, it's perfectly possible to imagine a closed Evergreen Private Equity portfolio or fund. It would be a concept of vintage Evergreen somewhere. We could define that for investors in 2023, we would build them an Evergreen fund into which no new investor could enter in successive years, but which we would manage for them. That could be very effective. But an open Evergreen doesn't work.

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