As in every asset class it is important to not “put all your eggs in one basket“, as it will only create unwanted risk to your capital. Private Equity can normally be diversified in four layers; Vintage, Geography, Manager and Sector. It is important to have all four.
Vintage diversification means continually investing into the asset class in order not to be subjected to market timing as this has proven very difficult in Private Equity. Traditional structures do not capture this as they naturally start investing when the fund is launched through a two-year investment cycle.
To get access to historical vintages it is possible to buy Secondaries, meaning buying other investors exposure in an earlier/mature fund.
The desired state from building a Private Equity program / portfolio is reaching a state of steady NAV. This requires continuous investments in new funds as funds expire (normally after ten years). Around 10 managers and 20 fund investments are often mentioned as a sufficient size to build a program. This should of course also be diversified in Vintage, Geography and Sector.
A Private Equity fund is a closed-ended structure and refers to a fund manager raising a set amount from external investors for a fixed number of years (typically ten). After this process, the doors close, money is put to work and, at the end date, the fund is wound up and repaid. This is the traditional fund structure in Private Equity.
A Fund-of-Fund is a closed-ended structure and refers to a fund manager raising a set amount from external investors for a fixed number of years (typically fifteen). After this process, the doors close, money is invested into Private Equity funds (normally 8-10) during a two-year investment cycle and, at the end date, the fund is wound up and repaid.
An Evergreen Fund is an open-ended structure meaning that the fund does not have a set entry date nor a termination date when the fund should be wound up and repaid. Investors can hence invest into the fund at different times, investments are made at NAV. An open-ended structure typically offers better liquidity than a closed-end structure.
In any traditional structure (closed-end), the investor commits X amount and at day one holds 0% in NAV. That commitment is then drawn during the lifetime of the fund. –Normally a fund will never have more than 65% of commitment invested at the same time. This is due to that the fund will exit companies continuously.
While funds typically acquire 10 – 20 portfolio companies, these acquisitions do not take place at the same time. Instead, funds usually deploy their capital over the first three to five years of their life. Nor are portfolio companies held for the same period. While some portfolio companies are divested after two or three years (sometimes even earlier), others are held for six years (sometimes even longer). This implies that while some portfolio companies contribute to a continued increase in the NAV of the fund’s portfolio, other companies are already sold, resulting in a decline in the NAV. On a net basis, therefore, the NAV will not reach the total amount of an LP’s committed capital.
As stewards of perpetual capital, Carnegie Fonder is dedicated to maintaining a long-term focus when investing for our clients. Carnegie Fonder’s ESG approach aligns with this long-term orientation as companies must incorporate direct and indirect effects on all stakeholders including the environment and the community when building durable businesses.
When we started Alternative Solutions we analysed the entire market for potential cooperating parties. Makena stood out not only with stellar performance and team but also within ESG.
Makena believes that identifying and advancing material factors related to environmental stewardship, social impact, and corporate governance can improve shareholder returns. Their ESG framework starts with and is rooted in Makenas fiduciary responsibility to deliver the highest risk-adjusted, long-term returns for our investors. By integrating ESG factors into their investment activities we believe Makena can materially enhance financial outcomes or operating performance. There are three principles that guide Makenas ESG integration efforts:
Tailored Approach: Customizing ESG diligence areas and items for each strategy, sector, and geography.
Open Dialogue: Establishing an open dialogue with our external managers on ESG best-practices and encouraging the adoption and implementation of responsible investment criteria.
Continuous Improvement: Regularly engaging with our network—external managers, peers, industry organizations and service providers—to understand evolving best practices, raise awareness, and improve our capabilities.
Their passion for ESG shows in multiple ways.
Annual ESG report which includes a benchmark study of how the underlying managers compare to one another. The benchmark is used as a reference to increase overall ESG level in the portfolio.
PRI Signatories + All existing managers in the portfolio comply with PRI
No Oil & Gas, Gambling, Alcohol, Porn, Tobacco etc.
Makena is represented in numerous manager advisory boards and are ensuring that ESG is not neglected
CAS works as a distributor for Makena in the Nordics. In addition CAS also work as a sourcing agent for Nordic funds into Makena’s Private Equity and Venture Capital fund. Makena does not have any similar partners elsewhere.
Man fee, 1,25% yearly
Performance fee, 15% över 6% (High Water Mark)
Fund Company Costs, approx 0,2%
Makena and Carnegie Fonder constitute the costs/fees mentioned above. Underlying managers normally use the fee structure 2/20 meaning 2% man fee and 20% over 6%
The Carnegie Fonder structure is built around simplicity for our clients. The best way to do that have been to build it on a Swedish AB structure where one could either invest through Preference Shares or Principal Participating Loans. As we bundle the investment in an AB we settle the tax on gains that the underlying PE managers generate. As the majority of the gains are dividends and capital gains on business-related shares which is generally tax exempt under the Swedish participation exemption regime the tax burden is limited. This means that we as a wrapper handle the tax for all of our investors and you do not need to think about it.