Retail Capital Analysis - Executive Summary (ILPA)

Summary

• Retail vehicles and institutional funds possess distinct governance and regulatory requirements alongside fundamental differences in liquidity, valuations, investments, and fee structures.p.2
• Retail vehicles feature perpetual investment and harvest periods, requiring greater deal flow and leading to an increased reliance on secondaries.p.2
• Co-investment allocations for LPs in institutional funds could decrease as GPs gain access to retail vehicle capital to co-invest alongside institutional funds.p.3
• Investment decisions such as timing, sizing, and capital structure placement may be influenced by the needs of retail vehicles, potentially conflicting with institutional fund interests.p.3
• Hamilton Lane estimates a 75% likelihood of a market decline or major periodic event causing most evergreen funds to gate investors.p.4
• There is a 65% likelihood that evergreen fund growth causes increased regulatory scrutiny across various jurisdictions.p.4

Key insights

1. Retail vehicles participate in private markets under rigid regulations and distinct operational mechanics compared to institutional funds.p.2
2. Retail vehicles feature perpetual concurrent investment and harvest periods, driving higher deal flow requirements.p.2
3. Institutional LPs face potential decreases in co-investment allocation as GPs utilize retail capital alongside institutional funds.p.3
4. GP motivations may shift, causing potential conflicts regarding deal timing, capital allocation, fee distribution, and GP time allocation.p.3
5. Differentiated GP incentives, including lower hurdle rates and carry computed on unrealized NAV, may favor retail vehicles over institutional funds.p.3
6. According to Hamilton Lane, there is a 75% likelihood that a market decline or major event causes most evergreen funds to gate redemptions.p.4
7. Evergreen fund growth carries a 65% likelihood of prompting heightened regulatory scrutiny across multiple jurisdictions.p.4