On March 27, the Monetary Authority of Singapore (MAS) announced it is asking for feedback on a proposed regulatory framework for retail investors to invest in private market investment funds. The proliferation of evergreen products and the recent European Long Term Investment Funds (ELTIF) 2.0 regulation have made private equity more investment-friendly for retail investors.
MAS says it has observed growing interest from retail investors in such investments and from experienced industry players in offering private market investment fund products to retail investors.
Chue En Yaw, CEO and CIO of Azalea Investment Management, an indirect subsidiary of Temasek Holdings, notes: "From a global context, the democratisation of PE is evident with recent regulatory changes in the US and Europe, such as reforms to the ELTIF, which reduces barriers to entry and enabling retail investors to pool resources for access to PE and alternative investments. Digital platforms and private banks increasingly provide opportunities for accredited investors to invest in PE."
ELTIF 2.0 came into force last October. The new regulation "enhances the 'retail-isation' (i.e. wider distribution to retail investors by removing constraints in terms of the minimum ticket)" and enables a broader range of eligible assets (notably to enable implementation of funds of funds or real estate investment strategies) and increases flexibility for investment and marketing activities across the EU. At the same time, ELTIF 2.0 ensures the implementation of appropriate liquidity management tools.
Traditionally, PE was the preserve of institutional investors, such as sovereign wealth funds, pension funds, endowment funds and insurance funds, because of their long investment time frame. In the early 2000s, evergreen PE vehicles started gaining traction. Unlike conventional PE funds, which have fixed lifespans and require periodic fundraising, evergreen vehicles allow investors to maintain exposure to PE without the constraints of capital calls and fund closures.
To take a step back, a PE fund manager, the general partner (GP) of the fund, manages the PE fund. The GP's investors and capital partners are limited partners (LPs). Chue explains that in a PE fund, when the LP commits $100, the managers do not draw down $100 from day one. They draw down $100 over a period of three to four years. Imagine you have a lot of different managers drawing at different times. Some could draw from $10, or some could draw from $3.
Chue, who says he breathes, eats and sleeps PE, points out that managers and the funds need capital management initiatives to address these capital calls that occur in the initial period. After being fully invested, the LPs hold their position in the funds for seven years and capital is returned at the end of the period.
See also: Private equity may have rebounded in 2024, but 2025 is a big question mark
There are different risk profiles for different types of PE funds. Azalea has a full suite of products, ranging from the very low-risk Astrea bonds to the Altrium PE funds, which range from lower-risk buyout funds to high-risk, high-growth and venture capital funds.
"Over the last 10 years, we have developed a full product suite including buyout, growth and venture capital. Our idea is that if you are new to PE and want to build up a core foundation for yourself, stay with the Astrea bonds and Altrium PE funds and build your foundation," Chue says.
Evergreen funds
Evergreen funds have been around since the early 2000s. In an evergreen vehicle, capital is invested into a vehicle with a current net asset value (NAV) from day one. That vehicle is, on average, 80% to 90% deployed in existing private equity portfolio companies, with the remainder in a liquidity sleeve. Thus, the capital can generate returns from day one, while the vehicle can also manage upcoming acquisitions and liquidity requests.
An attractive feature of evergreen vehicles includes the ability for investors to buy in at the prevailing valuation of that month and allow participation in a well-diversified portfolio. This eliminates challenges like managing future capital calls as everything happens within the vehicle, enabling investors to fully deploy their funds, explains Mark Hindriks, managing director of investments at Azalea Asset Management.
Hindriks explains: "Some of the features of evergreen vehicles are very attractive, including their enhanced liquidity, which is why they are called semi-liquids. Instead of being traditionally locked up for 10 years, evergreen vehicles offer exit points throughout the year. You have liquidity that's provided to you if you want to and investors are given the opportunity to sell at NAV every quarter or enter the fund on a monthly basis."
MAS has requested views on direct funds, which are likely to be Singapore-constituted funds that make direct private market investments, and long-term investment fund of funds (LIFF), which are Singapore-constituted fund of funds that invest primarily in private market investment funds. MAS is also seeking feedback on liquidity.
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MAS says in its consultation paper dated March 27: "The proposal to allow for investments into liquid investments limited to one-third of the LIFF's NAV is to provide flexibility for the investment of capital that may not yet be deployed into private market investment (PMI) funds. This also allows an unlisted LIFF to provide for a liquidity sleeve for redemptions."
Performance of PE
Does PE outperform public markets? The answer used to be a categorical yes, but no longer. Alicia Gregory, managing director at Blue Owl, an alternative asset manager in Australia, says the outperformance of private equity depends on the vintage and the performance of the public markets over time.
For instance, when the S&P 500 is on a tear, it is not easy to outperform the index. "For 2023 and 2024, equity markets had phenomenal returns. When you're getting 20% a year out of equities, that's a hard hurdle for PE to outperform." PE returns are more like 5%-6% a year. "The five-year numbers continue to show PE doing very well," she adds. If what you are looking at is the last 12 months, it has been hard to beat the equity market, Gregory points out.
That is not the only challenge. "It was definitely harder to raise money in PE in 2021 and 2022. I know it's hard to raise funds when people ring me to ask to come down to Australia to raise funds," Gregory quips.
In addition, dispersion returns, which refers to the range or spread of possible returns, in PE are much larger than those in equity as the cost of getting it right or wrong is a lot higher than in the public markets, Gregory adds.
Chue emphasises that PE is a very long-term asset class. "Historical data has shown that the best time to invest in PE funds is right after the crisis. Crises like the Global Financial Crisis of 2008 have produced strong returns. In our view, PE is a long-term asset class. We are not focused on short-term market volatility. In fact, it might present interesting buying opportunities for some of our managers," he says.
According to Alicia Amorosa Woods and Chris Harrington, who are partners of PE manager KKR, over the past 25 years, PE has delivered higher returns than public markets. "For example, the Global Private Equity Index outperformed the MSCI World Index by over 500 basis points annually. This is often attributed to the active role PE managers play in value creation and their long-term investment strategies," they say in a recent KKR report.
Many public managers try to influence the strategy and direction of companies through informal engagements with management teams or even going public with their views. However, Wood and Harrington reckon that their influence over day-to-day decisions, strategy and operational best practices is not comparable to that of a private manager owning the business and partnering with management on long-term value creation with full alignment of interests.
Because PE managers have committed capital and can have successful capital calls, they can focus on the long-term future with the patience to undertake strategies and large investments that take years to bear fruit.
"Private managers are focused beyond the next quarter on helping portfolio companies achieve long-term, durable business performance," Wood and Harrington say.
Moreover, the number of US publicly listed stocks is on the decline, having already shrunk from over 7,000 companies in 2000 to about 4,500 companies today. "Many fast-growing companies are staying private for longer. We think PE investors have a larger, more diverse set of companies to invest in than ever before. In contrast, the universe of public companies is increasingly concentrated, with much of the market performance coming from a few large companies," Woods and Harrington add.
Layers of fees
One criticism of private equity is the layers of fees charged to investors. The first step is the fee charged by the GP to its LPs. To invest in funds of funds such as the LIFF proposed by MAS, more than one layer of fees has to be paid first to the manager or GP. Secondly, for funds of funds, a second layer of fees is paid.
In recent years, the tilt is towards a lower-level fee structure, which is the European waterfall structure. In PE, an American waterfall favours the GP.
In the European waterfall structure, LPs and investors are at a slight advantage. In the US waterfall structure, profits are distributed on a deal-by-deal basis, allowing the GP to receive carried interest sooner than in a European waterfall. The GP can receive carried interest even if the entire fund has not reached a desired return, as each deal's paid-in capital is treated independently.
Hence, the GP may receive carried interest before all investors are fully repaid, potentially incentivising quicker, shorter-term gains. LPs may bear more risk as they might not reach their hurdle rate before the GP receives carried interest. However, US waterfalls often include clawback clauses to protect investors, ensuring that the GP's carried interest can be clawed back if a deal underperforms.
Meanwhile, the European waterfall prioritises investors by returning capital and preferred returns before the GP receives any carried interest, and the waterfall is applied to the fund as a whole. The European waterfall prioritises investors by ensuring they receive their initial investment and preferred return before the GP receives any carried interest.
The hurdle rate is calculated at the fund level and all initial capital is considered collectively.
The GP only receives carried interest once the fund as a whole meets certain performance thresholds, potentially encouraging long-term fund growth.
Market watchers have told The Edge Singapore that global investors are leaning towards the European model. This fee structure is viewed as more favourable for investors as it reduces the downside risk for LPs. However, European waterfalls typically do not include clawback provisions as the GP's carried interest is only distributed after investors are fully repaid.
Interest rates and tariffs
The global order was upended on April 2 when the Trump administration announced a spate of tariffs on its trading partners. The problem is that the administration keeps changing its mind about who and how much it wants to tax.
Chue says: "A lot of the managers are still assessing the impact of the tariffs on their companies. It's too early to tell, but we view private equity as a long-term asset class. Our managers will need to adjust and adapt the strategies of their underlying companies. Our managers have strong track records of riding out the short-term fluctuations."
Interest rate movements played a key role in PE activity globally. As the US Federal Reserve cut rates in 2024, PE markets worldwide responded with increased deal activity each quarter. Lower borrowing costs helped narrow the pricing gap between buyers and sellers, facilitating more transactions, data platform PitchBook observes.
According to PitchBook's director of research Kyle Stanford and senior analyst Kaidi Gao, interest rates curbed PE deals and exits during the rate hike cycle. Globally, private capital struggled with "realisations" over the past three years, and Southeast Asia's relatively shorter track record exacerbated these difficulties, the duo points out.
PitchBook data shows that PE deal activity and exits in US-dollar terms are up by double digits in 1Q2025, but the deal count has fallen.
"Ebitda multiples of global PE rebounded, reaching the second-highest premium in a decade. Capital supply expanded as central banks - particularly in the US - eased monetary policy and the strong dollar encouraged non-domestic investments in emerging PE markets, including Southeast Asia," PitchBook points out.
However, it warns that geopolitical uncertainties - including ongoing wars, trade tensions, and potential US tariffs - could impact global markets. "While supply chain disruptions may boost investment in regions like Southeast Asia, their broader effect on inflation and interest rates remains uncertain."
For instance, in Indonesia, the venture capital (VC) sector suffered from the high-profile collapse of eFishery, an aquaculture unicorn accused of revenue fraud. This led to significant investor losses and increased the perceived risks of venture investment in the market. VC is in the highest risk spectrum of PE.
Valuing private companies
An issue that could be a conundrum for retail investors is the valuation of private companies.
One method is the price of the last funding round, where investors typically agree on the company's valuation. A more commonly used valuation is the EV/Ebitda multiple, where EV is the enterprise value.
Usually, big buyout companies are benchmarked against comparables in the listed market. For example, if a listed company is trading at 15 times EV/Ebitda, the PE firm will benchmark the target company against the listed company. Some managers may choose to give a liquidity discount on the valuation. Other valuation methods also include discounted cash flows.
"PE managers usually use a combination of valuation methods and they do not change their comparables from quarter to quarter," Chue says.
"A few factors make us feel comfortable, such as whether the valuations are fair. Firstly, an independent audit typically happens about once a year. Secondly, regulators, like the SEC or the UK's Financial Services Authority, usually license these managers. There's a downside if they don't comply with some of these regulations.
"Thirdly, based on our observations, PE managers tend to be more conservative regarding valuations. We have observed that when a manager announces an exit through a strategic sale or initial public offering [IPO], they always have a multiple uplift. This means that they value the asset at a much lower valuation on their books, and there's always an exit uplift," Chue adds.
Exits aren't the problem
A typical buyout fund owns 10 to 15 companies. The manager would have sold some of these companies throughout the fund's life. A good manager will run a process and return cash to investors.
"If you look at PE exits globally, only up to 20% of exits are through IPOs. The bulk of the exits are through sales to another sponsor or a strategic investor. It could be a larger fund that can bring the company to the next level or a sale to a listed company," Chue says.
As such, investors should not be worried about exits. "When you say people are worried about exits, PE has patient capital of potentially 10 or more years. Therefore, they can weather the storm and work these assets through the next cycle. That's one of the appealing aspects of being invested in PE," Hindriks says.
Strategic sales, the secondary market and continuation vehicles are some popular exits. For instance, in continuation vehicles, GPs proactively seek liquidity on behalf of investors, providing them the option to either divest for liquidity or continue holding a stake in the fund.
"Liquidity cannot come out of nowhere. So, whatever the underlying investments are, there needs to be some natural liquidity coming from these products. And that's why the blend between primaries and secondaries is quite important," notes Hindriks.
"One of the unique features about the secondaries market is that you're not only building diversification, but buying more seasoned assets too, so the underlying cash is coming back a little earlier. Blending secondaries into a programme, be it the Altrium programme (Azalea's private equity programme) or some of these semi-liquid funds, fits very well because they provide some in-built liquidity," Hindriks explains.
Often, the best assets in a PE fund are rolled into these continuation vehicles to give them more time for growth. "Continuation vehicles can come with follow-on capital to keep supporting these assets to grow even more," Hindriks says.
In the US and Europe, ultra-high-net-worth investors often wish to have a balanced portfolio with a combination of public market exposure, fixed income, and alternatives. "They see the benefits of a more diversified portfolio and the higher return potential that alternatives can offer. It's that combination that has increased the appeal of the product," Hindricks says.
In sum, the performance of PE funds depends on their managers and vintages and when they become available to the public, investors should stick with the best managers and vintages.
