Behind the deals: Our private equity experts answer your questions

One year after the launch of Carmignac Private Evergreen, our private equity experts answer the most frequently asked questions received from investors, who are keen to add this attractive asset class to their portfolios.

Thomas Moyse: Illiquidity is an intrinsic characteristic of Private Equity (PE). It is often seen as the price you pay to gain access to enhanced returns. For many investors, liquidity (or the inherent lack thereof) is the main deterrent to investing in PE – another reason why this asset class is considered risky despite its resilient returns.

This explains why the first collective PE structures were also closed-ended and illiquid, known as drawdown funds. From an investors’ perspective, this means that capital is tied up for years which reduces the ability to respond to financial needs or opportunities.

However, there are also several benefits to this illiquidity, which are particularly evident in today’s market environment characterized by high volatility: valuations in PE are typically predominantly driven by company’s fundamentals, allowing them to grow and mature as PE managers deploy strategic improvements and operational efficiencies that enhance their value.

The intrinsic illiquidity of the underlying assets often makes achieving full liquidity difficult, if not impossible. However, innovation within the PE ecosystem has led to the emergence of a new structure: evergreen funds. These funds offer an interesting solution for investors wishing to keep access to their capital and having more flexibility, without compromising the potential returns of their investments.

Megan Noelle Chew: At Carmignac, our approach to building a diversified portfolio of private companies includes focusing on secondary transactions, in particular through Limited Partners (LPs)-interest secondary transactions. This allows us to attain diversification across several dimensions, such as the type of underlying General Partners (GPs), the number of underlying companies, their investment vintage, geographical and sectorial exposure.

Beyond the underlying diversification we also aim to build a fund balanced across both younger and more mature portfolios. This offers the possibility of both early distributions from mature portfolios, as well as the greater upside potential inherent to younger ones, given the longer span for value creation. Diversification in the portfolio structure and the features of secondary transactions—such as deferred payments, leverage, and discounts—are also key, ensuring that portfolios have different potential value creation drivers and risk-return profiles.

In terms of concrete metrics, diversification targets ensure that no underlying company represents more a certain % of the NAV. This includes our exposures through our direct co-investments pocket, through which we invest in high-conviction single-name companies to generate alpha. The objective of this comprehensive approach to diversification is to seek to prevent the portfolio downside which is particularly important in today's environment of high uncertainty.

Whilst diversification is key to building a balanced and resilient portfolio, we do not strive for diversification for the sake of it – we adopt a disciplined approach on acquiring portfolios that respect our investment strategy by focusing on established mid-market companies in developed markets through buyouts. We cherry pick portfolios and try to carve out assets that might not be relevant whilst maintaining an attractive acquisition proposal for the seller. We also pay particular attention to exposure to certain vintages, where private market valuations were known to be elevated due to overall market exuberance, indicating a potential overvaluation of companies acquired in those years.

Adding PE to a traditional investment portfolio can be highly complementary. Its unique advantages, such as multiple levers of value creation, long-term horizon, ability to work closely with the management team, and potential for structuring (for secondary transactions), creates an inherently low correlation with public markets. This positions PE as a robust and resilient investment strategy that may better withstand market fluctuations and deliver consistent returns throughout cycles.

Alexis de Chezelles: Sourcing quality deals for our fund is built on three main pillars: our strategic partnership with Clipway, our own deal flow, and a thorough due diligence process carried out by the PE team, Clipway and other significant Carmignac contributors.

Firstly, the partnership with Clipway allows us to benefit from their expertise in the secondary market. Members from Clipway have been active in this market for over 20 years and have a wide network of strong relationships with the world’s largest private equity investors, primarily in North America and Europe. The Clipway team has close relationships with all the leading secondary intermediaries and has recognized expertise in deal execution, providing a robust and sustainable flow of investment opportunities. Their technology platform TESS offers deal-making advantages such as quicker and deeper deal analysis, better risk management, and improved portfolio construction. Leveraging Clipway's strengths and our efficient relationship ensures smooth and transparent communication between our teams. We can also take advantage of our privileged access to Clipway's deal flow through co-investments at attractive terms.

We perform detailed analyses to evaluate each deal's viability and potential return on investment, relying on many of Carmignac experts to help us assess every single opportunity: from macroeconomists for a top-down approach, to sector specialists, ESG, product or credit experts for bottom-up views, giving us additional reassurance in our ability to validate quality deals. Clipway also systematically reviews all investments considered by our team, although the ultimate investment decision rests solely with Carmignac’s PE team, after receiving Investment Committee’s approval.

Edouard Boscher: Carmignac Private Evergreen stands out due to its unique approach and strategic advantages. Carmignac Private Evergreen employs a purely private equity-focused strategy, whilst remaining highly diversified in terms of underlying assets. This approach ensures that the fund remains dedicated to PE investments without the dilution of returns which may arise from hybrid models (e.g. including infrastructure, private debt, venture etc.) and allows investors to have additional confidence in these types of exposures through their investments.

One of the key differentiators of the fund is its unbiased access to blue-chip GPs in the industry, hence ensuring a diversified and balanced portfolio with exposure to a wide range of names. This is reinforced by our focus on LP-interest secondaries. Unlike closed-ended funds with large LPs that may prioritize their own co-investments, our structure offers investors access to high-quality deals without conflicts of priority.

The fund also benefits from the active management of its liquid sleeve, invested strategically in Carmignac’s money market, fixed income and credit funds, with no fees. This unique ability to seek to maximise the returns of the liquid sleeve plays an important role in bolstering overall returns of the fund, especially given that it represents a key feature of evergreen funds.

Now, as the fund celebrates its first anniversary, its double-digit performance stands as a testament to our unique strategy, the efficient utilisation of all in-house resources, and the valuable recommendations from our strategic partner. This combination of factors sets Carmignac Private Evergreen apart from other solutions in the market, making it a compelling choice for investors seeking a one-stop-shop private equity investment solution.