Private Equity isn’t feeling very private anymore

Australian wealth investors now have unprecedented access to private equity, increasingly via ‘evergreen’ funds offering limited quarterly liquidity. But with a very large pool of products chasing a finite pool of capital, a multi-year distribution drought, redemption gates being tested and ASIC’s growing scrutiny, we believe the sector faces a period of consolidation. Our message to asset managers: don’t overcook the golden goose.

For Australian wealth investors, access to investing in Private Equity (PE) has exploded over the last 3-5 years. This sector was previously the domain of mostly institutional investors due to long product lock ups, high fees, high minimum investment amounts and other unfavourable product characteristics. However, product innovation, increasing education, awareness and greater strategic focus placed on Australia from global PE managers has prompted a flood of new entrants and products into our local market.

Private equity offers investors access to businesses outside public equity markets, with the potential to generate attractive long-term returns through active ownership, operational improvement and strategic growth initiatives. Performance is often driven by company specific value creation rather than short-term market sentiment. History has proved that investors can be rewarded for accepting illiquidity and longer investment horizons, but manager or product selection is the critical element, with a wide dispersion in performance between the best and weakest managers in this area.

Central to the increased popularity of this sector among Australian wealth investors has been the formation of ‘evergreen’ or ‘open-ended vehicles’. These are products which are designed to address the structural barriers that prevented many individuals and groups from investing in this sector. Central to this has been the creation of ‘semi-liquidity’.

A typical closed end fund would have a 7-10yr lock up with additional 1-2 yr options – an investor would generally hold this investment until it was wound up. An evergreen fund aims to provide a small level of liquidity on a regular basis (i.e. quarterly), usually with a limit on the amount that can be redeemed in total by investors – typically 5% and is often referred to as a ‘gate’. In turn and in direct contrast to ‘closed-end funds’, evergreen vehicles will hold some form of liquid assets (equities, cash, credit) to help manage this small but regular commitment to liquidity, which is used to smooth the irregular cash flow profile of the unlisted assets in the portfolio.

This liquidity provision, coupled with lower minimum investment amounts, friendlier investment documentation, some currency hedging, an ability to invest on an ongoing basis and the increasing sophistication and breadth of investment opportunities has seen demand and product issuance surge. Partners Group, a Swiss listed global private market firm, was a pioneer of this investment strategy over 10 years ago. Now, we estimate there are over 70 products available to Australian wealth investors currently – including major global players such as Hamilton Lane, KKR, Blackstone, Apollo and some local managers such as Pacific Equity Partners, Five V and others. The popularity of this product structure is also spilling over into adjacent private sectors such as real estate, specialist credit or capital solutions, unlisted infrastructure and most recently, venture or growth capital.

Exhibit 1: The evergreen build-out – supply is compounding faster than demand

Note: Global figures in USD.

Support has also flowed into closed-end products, providing more traditional access points to structural thematics around AI, defence, energy transition and security – as well as traditional buy out and venture / growth capital products. A broader variety of investment approaches have also become available – dedicated co-investments, fund of funds, secondaries, continuation vehicles, specialised managed accounts – while in the listed arena, Listed Investment Companies and potentially exchange traded funds are being designed to be a way for retail investors to access private markets.

While the increased opportunity set and product range has been very welcome, we believe this sector is set to undergo a phase of digestion and consolidation, reflecting a variety of challenges;

Too many products chasing too few dollars

Depending on an investors’ asset allocation, PE could command up to 5-10% of a high growth investor (family office and endowments could hold multiples of this). Clearly 70 evergreen and an endless stream of closed end products are not going to be able to make it into everyone’s portfolio. Most big global players and increasingly more local PE managers, have or are planning to add a ‘wealth solution’ to their product menu – which in most cases equates to an evergreen product.

With a mix of justification and clever marketing, many private markets managers are doing their best to position their product as specialists into a more nuanced or specific market or thematic, to justify carving out a niche role in a portfolio. But we are already seeing evidence of saturation as some fund managers are delaying product launches, fees are increasingly being reduced for early investors in some cases, sales staff leaving after not delivering on aggressive growth targets, flows are slowing. The high degree of competition is also starting to see some rotation across established and more mature funds into relatively unproven new offerings – usually incentivised via fee reductions or seeded by discounted secondary deals.

Performance and exit challenges

In broad and generalised terms, PE has experienced tougher returns over the last 5 years as the overhang of cheaply funded, higher multiple deals through 2020-2022 have helped lay the foundations for a much softer exit environment for private assets.

Investors who have been supporters of many of these products for several years are becoming increasingly frustrated at the lack of distributions returning to them and in turn, have generally reduced or stopped future commitments to new funds until a greater level of capital is returned back to them. Several mature evergreen funds have also seen their performance moderate as they have held on to businesses for longer than they originally anticipated. We regularly hear this quote “we haven’t overpaid, we are simply waiting for our investee companies to grow into their valuation multiples more” but this is wearing thin with investors. IPO markets are showing some signs of life currently, especially via the US – however the local IPO market remains muted right now.

Exhibit 2: Four years of distribution drought – the numbers behind investor frustration

*Note: DPI = distributions to paid-in capital. DPI has displaced IRR as the defining fundraising metric of 2026 (PwC)

Gating mechanisms are becoming tested

The gating mechanisms for evergreen products are important. They prevent the fund manager from being forced sellers of illiquid assets to meet large redemption requests. They also help the fund manager continue to support existing deals and fund new opportunities to keep the portfolio well balanced, maintaining its ability to continue to perform.

Several major products overseas across credit, real estate and equity have recently been receiving quarterly redemptions above their 5% limit for that period. Partners Group, which run the largest evergreen fund in Australia, has had to do the same thing recently and may not be able to potentially fully satisfy investor redemption requests for the next quarter or two.

It’s clear to us that the private markets industry and investors need to maintain a rationale dialogue and expectation around the term ‘semi-liquid’. Overzealous sales and marketing teams from some firms we have met with in the past have been very promotional around their characterisation of available liquidity, but in virtually all cases, the underlying core assets in any of these evergreen funds are still highly illiquid.

Many of the newer products launched in Australia have simply relied on copying the same terms as more established players, but these new entrants may not have the same level of people, experience, processes and infrastructure to manage the complex cashflow and commitment requirements of a large evergreen fund, which raises the risk of generating very poor outcomes for investors should that specific fund experience a run of redemptions.

Equally for investors, semi-liquid means just that. As always in financial markets, liquidity is generally plentiful when you don’t always need it and vice versa. The best fund managers in the evergreen peer group will continue to hold sufficient liquidity that meets or exceeds that of its gating requirement, but we continue to emphasise a ‘counter-cyclical’ approach to trimming investment sizes during periods of stronger returns and topping up in softer periods, acknowledging that ‘crowd behaviour’ in weaker periods of sentiment may result in you not being able to exit your investment in full at that time.

We trust that the current redemption pipelines being managed appropriately by Partners Group and other global firms will help generate confidence in the robustness of the evergreen structure in the future. However we are not naïve to assume there may not be some pockets of stress building with certain products out there.

Investor fatigue

Many private market managers are very well resourced from a sales, marketing and communication perspective. With so many managers now flooding into Australia, it is becoming increasingly challenging to firstly meet all the players and understand their firm, people and products, identify those which have genuine points of differentiation and then track their investments and performance over time.

Success breeds imitation and there are a lot of unproven evergreen strategies out there in terms of delivering exits and sustainable performance over the long term. We have seen several firms begin to dabble in previously unchartered areas for them, such as secondaries, co-investments, different industries and even simply being able to provide liquidity to investors on a regular basis.

Data services are not perfect, but they are improving, which can assist in providing some independent evidence of success (many fund managers you meet only profess to be ‘top quartile’). However, unless you have a sizeable research team, currently there is simply not enough time to meet with all the different managers effectively, in the time frame that the fund managers would like. Many of these operators have very ambitious sales targets which are becoming increasingly more difficult to achieve and at times, leads to very earnest attempts from their sales staff to sell their wares to investors – a trait we experience regularly! Additionally, better resourced fund managers are crowding out their competitors through staging of major events, publishing various communications and hosting numerous product road shows, further stretching the bandwidth of wealth group researchers and limiting the ability for smaller firms to get ‘airtime’ with prospective investors.

Greater competition does have some benefits though and is gradually leading to improvements in the way some products are being structured and occasionally, leading to cheaper fee deals for investors. Transparency is improving and, in some cases, access can be granted for a Fund’s investors to future co-investment opportunities.

Historically, several global private market firms used to retreat from Australia when market and fund raising conditions or product performance soured. But there is clearly now a solid cohort of fund managers which have built very profitable and now scalable products, ensuring they have a permanent foothold here in Australia to serve their investor base. This now requires wealth management research teams to upskill and equip themselves with sufficient knowledge and individuals to research these managers effectively. Capacity is finite however and we expect some product closures to occur in the next 24 months, with at least 30-40 products in the evergreen PE peer group alone, operating at a sub-scale level in our opinion. It’s very clear many managers are struggling to attract investors to their fund(s).

Regulation

Australia’s private markets are moving from a light-touch to a more supervised regime, and evergreen structures are in the crosshairs of the regulator’s aim to place greater scrutiny on valuations, conflicts, fees and how funds are characterised to investors.

The regulator has flagged that it will want greater notification powers, recurrent data collection and audited reporting for wholesale funds, alongside a likely review of the wholesale investor test, all raising the compliance bar for wholesale products.

Most pointedly for open-ended vehicles, ASIC has said operators should notify it and investors when redemptions are suspended, which speaks directly to the gating now playing out in some evergreen PE funds.

For closed-end funds the key risks are valuation and conflicts transparency, plus the extension of responsible entity duties to wholesale operators. For evergreen funds, the incremental risks are related to governance around their provision of liquidity – whether a gate is genuinely justified and well disclosed or becomes the flashpoint in a stress event. Scale, governance and disclosure are becoming the price of admission for product operators, which we believe is reinforcing the consolidation pressures already at work.

What does this mean for investors, researchers and fund managers alike?

To achieve a more sustainable footing for all stakeholders, less is going to be more. At this stage, the Australian wealth market is now saturated with products, of which a material number may not become viable over the longer term. Product closures within private markets can take a long time to unwind, with the risk of inferior performance outcomes for investors if that eventuates.

This has the potential to create an environment where it hurts investors, can lead to damaged fund manager reputations and harms broader sentiment toward a still very exciting and valuable investment segment.

Every product category available to Australian investors experiences its own mini-cycles and PE is having its moment right now. We hope that product manufacturers take heed of this message and don’t overcook the golden goose.

At Pitcher Partners, we continue to work closely with our approved managers and will be closely watching the market developments moving forward.