Panel Discussion ‘Investing in Private Markets’

February 27, 2025

_{This report was originally written in Dutch. This is an English translation.}

The panel discussion ‘Investing in Private Markets’ took place at the end of the Financial Investigator seminar ‘Investing in Private Markets’, with Richard Abma of OHV Asset Management, Marc Debois of FO-Next, Raymond de Kuiper of BNP Paribas Asset Management, and Wouter Weijand of Providence Capital. The discussion was chaired by Huub Ten Holter.

By Hans Amesz

Moderated by Huub Ten Holter of Mercer Netherlands, Richard Abma of OHV Asset Management, Marc Debois of FO-Next, Raymond de Kuiper of BNP Paribas Asset Management and Wouter Weijand of Providence Capital discuss investing in mortgages, real estate and private markets

How do you advise on private assets and how do you guide your clients in this?

Marc Debois: ‘We guide families in direct investments, in which we find it crucial that they have a clear understanding of private markets. Too often we have seen families invest because others are doing so, with disappointing results as a consequence. After all, there are times when direct investments seem less appropriate than investing in funds, for example. We can guide clients in this: we need to know what they want to achieve with their investment and what impact they want to make with their money. Only by focusing on this can we optimally guide them.'

Wouter Weijand: ‘First and foremost, we want to know if investors are large enough to invest in private assets. For clients with €20 or €25 million to invest, the private assets portion could be around 15%, or perhaps 20%. And it could be 30% or more for clients with €50 to €100 million. Private equity was quite difficult for a while. We had a bear market for two to three years, and that may finally be over now thanks to the interest rate cuts by the central banks. At least for the most part, I think. It is becoming more interesting to invest in private equity. Infrastructure is interesting in any case and actually suitable for any client who wants to invest in illiquid assets. About a third of our clients have invested in illiquid assets; all of these portfolios include infrastructure, which has a low risk profile and with which you can make a return of about 7% to 9%.

Raymond de Kuiper: ‘We supply so-called building blocks. After a difficult time for private assets, we have put a number of these building blocks together in a so-called private credit fund, in addition to standard offerings. We want to help parties that do not have the necessary resources themselves and can purchase from us in one investment fund. These include infrastructure, commercial real estate and SMEs. And yes, of course we have ALM models, among other things to determine the optimal investment mix.

Richard Abma: ‘We are very diverse. We have many institutional relationships to whom we provide various types of services. We have mandates in the field of export financing (with AAA rating) with irrevocable guarantees from the Dutch government. This provides a nice risk premium compared to liquid Dutch government bonds. On the other hand, we have collateralised SME funds. We also work with insurers, providing financing to smaller insurance companies that want to merge, for example. So as I said, we are very diverse in our activities. To give another example, we also work with Invest International, which is looking for ways to provide the Netherlands with capital to export their capital goods, particularly to emerging economies.

How do you go about closing deals?

Mr Abma: ‘We conduct balance sheet analyses and analyse the income statements of companies that come to us. They obviously have to be solvent, healthy companies. Then we look at the collateral. Fortunately, the government is helpful in that respect with schemes such as the SME Credit Guarantee Scheme (BMKB). This allows us to cover certain risks. But export financing is different. Ultimately, it comes down to a liquidity premium and a complexity premium. How we look at it differs per borrower.

De Kuiper: ‘We are fortunate to be part of the BNP Group. This allows us to finance BNP Bank's loan portfolio if we want to. If BNP wants to provide a certain type of financing, we can participate at the mezzanine, senior or junior level. In addition, we have contact with two hundred other GP's that we can source from. It would not be good if we had to rely solely on BNP Bank. Sourcing is very important. We also discuss the following with a number of clients: ‘BNP Group is a long-term investor in the fund and BNP Bank provides the credit line. It is therefore possible that the borrower is financed by both BNP and the fund. The capital commitment for BNP Bank differs in terms of the investment in the fund and the direct loan to the borrower. The loans must meet the right criteria in terms of risk and return, etc. It is a fine line. You could lend out all the invested funds at once to the first borrower you come across, so that you have filled the fund and achieved returns. Perhaps this ‘non-selection’ means you have to deal with a higher than expected number of defaults and your returns drop. Yes, you want to be invested quickly, but there are other ways to do that. Selection is crucial.

How do you deal with costs?

Weijand: ‘We create pools for clients to achieve optimal diversification. Most of our own funds are not diversified enough because they do not go beyond twenty or thirty loans. We want to have hundreds of loans to be sufficiently diversified. So we select external funds and of course they charge costs. But for the pool we create, achieving sufficient diversification, the client pays six basis points in administration costs. We do not have our own funds and prefer to remain independent. This allows us to freely choose whether to invest in listed or private assets within each asset management mandate that allows us to invest illiquidly. The client does not pay extra for this.

Debois: ‘Family offices often labour under the illusion that it costs less to invest directly. However, there are many factors that they may underestimate. Research shows that more than 60% of family offices indicate that they have insufficient access to quality deal flow. It costs money to find the right deals. About six years ago, you often saw deals involving just one family. The deals in the last quarter involved an average of seven families. This indicates a trend, namely that families emphasise cooperation and risk sharing.

What can you tell us about the investment horizon?

Mr Abma: ‘As far as SME-related loans are concerned, we often originate loans with a linear schedule over five to seven years. It is a semi-open-end fund, which even offers monthly liquidity. The duration in such a fund is two and a half to three years. The risk-adjusted return is attractive, but perhaps not exciting enough for many investors. As far as export financing is concerned, we see basically the same characteristics.

Weijand: ‘Traditional closed-end products need three years to reach full investment. They then invest for three years and then they wind down for three years. Then there are still things you have to sell off. The entire period covers ten to twelve years. Over that period, you are only half invested on average. With evergreen funds you are 100% invested over the entire period and thus achieve a much better return. With an evergreen there is no horizon, because with such a fund it comes down to being fully invested every day. In the first year you sometimes pay a penalty if you want to exit, but that penalty decreases if you have been invested for a few years. You can choose when you want to get out, except of course if everyone wants to get out at the same time, then it's not possible. So forget all those closed-end products, forget the investment horizon. Until recently there were no evergreen funds, now there are private debt and infra evergreens. Again: forget the horizon, evergreen is the only future.

Aren't there other ways to increase the J-curve or your term and your exposure?

Weijand: ‘Yes, but they are also in evergreen products. When you start with an evergreen fund, you have nothing. You need co-investments to buy investments from previous years and then you can say: I have also spread my vintages. That is almost only possible with co-investments and secondaries.

De Kuiper: We offer an evergreen structure in an open-ended fund. For the first two years, we apply an exit fee of 5% if you decide to exit. In the first few months to years, there is an average term of about four years in the fund. So it takes time to build up the book. A long-term investment horizon is one of the most important factors for an investment in private credits, because you want to be paid for the illiquidity risk. Building up a solid portfolio in the wrap-up period is part of that. We can say that it is an open-end fund, that everything is there and that there is liquidity. But if everyone wanted to get out at the same time, there would of course be no liquidity. As for performance and the fee, we have a fixed percentage fee and no performance fee. This is also the basic idea behind ELTIF 2. We are trying to make the fund as liquid as possible and accessible to everyone.

Debois: ‘In theory, a family does not think in terms of five to eight-year periods, but in terms of generations. With evergreen products and co-investments, we can ensure that the legacy is preserved and that the family benefits from it in the long term.’

Does ESG also play a role in your private markets proposition?

Abma: ‘Many clients are interested in ESG. We have an SME fund with which we want to make an impact and facilitate economic growth. Banks are increasingly unwilling to provide financing to Dutch exporters who ship capital goods to emerging economies, due to the uncertainty surrounding those markets. We are active in this area and it is very ESG-driven.’

Weijand: ‘You can see that fund managers in private assets have really made serious steps in the ESG area in recent years. Even large American parties are working hard on this. However, it remains difficult to achieve a high level of diversification, especially when fund managers themselves do a lot of fund-of-funds. We have an asset management mandate that we will be upgrading soon. In the beginning, we were sceptical about the availability of sufficient ESG data in the business community, but at the beginning of 2025, we will shift the entire process to Article 8. Then we will actually have the choice to select private funds that meet the requirements.

How do you view the private equity market? Is the bear market really over?

Abma: ‘We always say that time in the market is much more important than timing the market. The longer you are in private equity, the more you can balance your returns in the longer term. Of course, you can sometimes take advantage of opportunities when they arise, but looking ahead remains very difficult.’

Debois: ‘The peak year for direct investments by family offices was 2020, with 3,300 transactions totalling more than €128 billion. This year, the more than 800 families we follow have been involved in 1,437 transactions, totalling €23 billion. I don't think we're out of the bear market yet. Private markets and direct investments are in better shape now than in recent years, but we still see room for growth.

De Kuiper: ‘It is difficult to judge whether the bear market is over. In the audience, about 20% raised the green “yes” sign, but the red “no” signs were in the majority.

Weijand: ‘The private equity market peaked in 2021, when everyone was outbidding each other with multiples of up to 14, 16, 18, even 20 times the profit. The entire structure collapsed due to the large interest rate increase in 2022. This resulted in a huge gap between the bid and asking price. That gap could not be bridged. That has been going on for two years now and this year we are in the third year. Something did change in 2024, namely monetary policy. That is important because many private debt deals finance private equity deals. I expect more deals to come in the near future, especially in 2025. I therefore think we have seen the bottom and the liquidity of this market will gradually recover.'