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Lauri Ehanti to Leave Aalto University Endowment After 14 Years

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Lauri Ehanti to Leave Aalto University Endowment After 14 Years

Lauri Ehanti is leaving Aalto University’s endowment fund after 14 years in various roles, most recently as Head of Investments. His responsibilities will be handed over to Deputy Head of Investments, Lauri Ström, while Ehanti prepares to take on a new role later this year.

“It has been a privilege to be a part of building the endowment and funding Aalto University,” Ehanti shares on LinkedIn. “The investment portfolio is in good shape and the team – Lauri Ström, Filip Hintze, and Alex Ahlroth – is top notch. I will follow with interest all the great things they will achieve,” he continues. “I am taking some time off before starting in a new role later in the year.”

“It has been a privilege to be a part of building the endowment and funding Aalto University.” Lauri Ehanti

As Head of Investments, Ehanti was responsible for managing the university’s €1.5 billion investment portfolio, overseeing its investment strategy, selecting and monitoring external managers, and leading the internal investment team. He stepped into the role at the beginning of 2025, succeeding Iivo Paukkeri, who left to join the family investment company of Finland’s wealthiest individual, Antti Herlin, and his children.

Over his 14-year tenure, Ehanti held several positions, including Senior Portfolio Manager focusing on hedge funds, alternative credit, and private equity, as well as Portfolio Manager with responsibility for long-only equity and private equity manager selection.

Aalto University’s endowment exists to generate stable annual funding to support the university’s strategic goals in education, research, and innovation. In 2024, the endowment contributed €41 million to the university’s operations, covering around 9 percent of its annual budget.

The €1.5 billion investment portfolio maintains a significant allocation to diversifying strategies such as trend-following, systematic risk premia, equity market-neutral, global macro, relative value, and arbitrage strategies. At the end of 2024, these strategies accounted for 18.1 percent of the portfolio, delivering a return of 7.3 percent for the year and an annualized 5.5 percent over the past five years.

From Core to Alternatives: The ETF-Driven Approach of a Finnish Wealth Manager

Eugeniu Guzun
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From Core to Alternatives: The ETF-Driven Approach of a Finnish Wealth Manager

Wealth managers are tasked with designing investment portfolios that align with clients’ needs, objectives, risk tolerance, preferences, and financial circumstances. While high-net-worth clients often have access to a broad range of investment products, Finnish wealth manager Index Asset Management has chosen to primarily build portfolios using Exchange Traded Funds (ETFs), spanning traditional, active, and alternative ETFs.

Model Portfolios Tailored to Client Preferences

Index Asset Management primarily structures its offerings around a series of model portfolios, each tailored to different objectives and client preferences, including risk tolerance and ESG considerations. Serving clients with net worth ranging from €1 million to €20 million, the firm provides modular solutions for equity and fixed income exposures, alongside an additional alternatives component. “Some products aim to generate a bit of alpha, while others are more index-like, with a low-cost profile,” explains Simo Rahikainen, Partner and Head of Research at Index Asset Management.

“Some products aim to generate a bit of alpha, while others are more index-like, with a low-cost profile.”

For the equity and fixed income building blocks, Index Asset Management offers multiple options, allowing clients to combine them according to their desired risk and return profile. Equity exposure, for example, consists of a core portfolio that broadly mirrors the geographical composition of global markets, complemented by a 20-30 percent “satellite” allocation to thematic, factor-based, and other specialized ETFs. “The fixed income component is well diversified, including government bonds, investment-grade credit, high-yield bonds, emerging market debt, corporates, and sovereigns,” Rahikainen notes.

Active Management Through ETFs

While ETFs are often associated with passive market exposure, Index Asset Management can take a more active approach with these instruments. “We can replicate active management ourselves using sector, factor, or geographic equity ETFs,” explains Rahikainen. The wealth manager has been using factor ETFs since its inception in 2013. “Momentum is my personal favorite strategy, given my background in systematic hedge funds,” he adds. “We’ve also incorporated low-volatility exposures at times to manage daily risk views.” The same active approach is applied to selecting fixed income ETFs, ensuring both equity and bond components align with clients’ targeted risk-return profiles amid changing market conditions. 

“We can replicate active management ourselves using sector, factor, or geographic equity ETFs.”

“However, in terms of performance, we are targeting for selected benchmark performance, and risk is budgeted based on tracking error and beta in equity portfolios and duration and yield-to-maturity in fixed income portfolios,” elaborates Rahikainen. “Of course, without forgetting the ESG aspects if needed. This is an appropriate approach for our sophisticated Family Office and institutional clients.”

Exploring Alternatives via ETFs

Taking a step further into alternative investments, Rahikainen explains that Index Asset Management has been researching and developing a range of sophisticated strategies, including dimensional reduction techniques, principal component regime switching, and Markov process-based models applied to assets such as gold, silver, carbon, listed private equity, and other European-listed ETFs. One model portfolio, in particular, is specifically designed to provide robust diversification and additional risk-return drivers beyond traditional equity and fixed income exposures.

“We’ve been developing a model portfolio aimed at delivering strong diversification and risk-return drivers beyond equities and fixed income,” says Rahikainen. The portfolio currently includes gold, silver, other precious metals, and select commodity exposures among other suitable instruments. “Gold and silver have been the primary focus. Gold, in particular, provides strong risk mitigation, according to many academic studies,” he notes, adding that both metals have performed well over the past few years. The portfolio also incorporates carry ETFs, which are characterized as an absolute return strategies and offering diversification benefits by containing risk-return characteristics that are largely uncorrelated with traditional asset classes.

“We’ve been developing a model portfolio aimed at delivering strong diversification and risk-return drivers beyond equities and fixed income.”

Index Asset Management also seeks exposure to commodities for its portfolios, an area that requires careful selection and a deep understanding of the underlying instruments. “There are many types of commodity ETFs, and they differ in the futures contracts they use and the term structures – whether they focus on near-term or longer-dated contracts,” explains Rahikainen. Index Asset Management favors commodity basket ETFs with longer-dated futures, as they tend to provide a more stable return profile. “We can combine all these exposures in a way that mimics a hedge fund-style approach, targeting low volatility in 8–10 percent range,” he adds.

Alternative Asset Exposure: Listed Private Equity and ELTIFs

While ETFs have traditionally provided access to liquid public markets, recent years have seen the emergence of products designed to replicate or proxy alternative asset classes, including private equity, private credit, infrastructure, and real assets. Index Asset Management uses listed private equity ETFs to provide indirect, liquid exposure to private markets. These ETFs often outperform broad equity benchmarks like the MSCI World Index by capturing an illiquidity risk premium. “Similarly, REITs, listed infrastructure equities, and corporate fixed income act as liquid proxies for otherwise illiquid underlying investments.”

Additionally, the firm is exploring ELTIFs (European Long-Term Investment Fund), which provide semi-liquid exposure to non-listed equities, private credit, and infrastructure. These funds are typically semi-liquid or evergreen, with limited redemption windows, and are designed to capture both the diversification and illiquidity premia inherent in private markets. “We have begun using ELTIFs, which tend to be more multi-strategy, allowing us to diversify across non-listed equities, private credit, infrastructure, and even some direct private equity investments,” Rahikainen explains. “We try to replicate a diversified portfolio in the style of Yale or Harvard Endowments or usual large family offices, combining ELTIFs with other investments including commodities, gold and other relevant strategies.” 

“We try to replicate a diversified portfolio in the style of Yale or Harvard Endowments or usual large family offices, combining ELTIFs with other investments including commodities, gold and other relevant strategies.”

However, Rahikainen does not expect ELTIFs to capture a significant share of the private markets space, which remains dominated by traditional fund structures. “I believe allocations to these products will likely stay relatively modest, around 10 to 30 percent, with clients continuing to make direct investments in private funds,” he says. Echoing Larry Fink of BlackRock, Rahikainen notes that the primary goal of ELTIFs is to increase liquidity in an otherwise illiquid segment of the market.

“Eventually ELTIFs, along with non-listed companies and private credit, will evolve into a liquid market similar to today’s listed space,” Rahikainen predicts. “When that happens, the illiquidity premium they currently offer may diminish. But this is a pattern we’ve seen across many strategies, such as factor ETFs,” according to Rahikainen. “Factor premiums have been much lower recently, and in some cases even negative, compared with 10 to 15 years ago. It’s becoming increasingly difficult to gain a meaningful edge from these exposures without a systematic approach for investment strategy modeling and portfolio construction.”

ETF Market Trends and Future Outlook

Rahikainen also notes that the ETF market in the United States is more dynamic and innovative than in Europe, which is only gradually catching up. “There’s a lot happening in the U.S., with ETFs – including leveraged versions on companies like Tesla or traditional covered call strategies – pushing the boundaries of innovation. Strategies such as CTAs are common there but largely absent in Europe,” he explains. “I’m looking forward to seeing European investors embrace these products more openly.”

“ETFs function like building blocks, allowing you to select specific factor exposures. With the right knowledge, you can model risk, adjust beta, and design a portfolio to achieve nearly any objective.”

While traditional ETFs may be simple and accessible for less sophisticated investors, the growing range and complexity of available ETFs now requires greater expertise in manager selection and portfolio construction. “The evolution has been particularly interesting for professionals,” Rahikainen notes. “Today, ETFs function like building blocks, allowing you to select specific factor exposures. With the right knowledge, you can model risk, adjust beta, and design a portfolio to achieve nearly any objective. That’s exactly the direction we’re moving in.”

For retail investors, Rahikainen acknowledges, navigating this complexity can be much more challenging. “It’s difficult if they focus solely on historical returns and pick a momentum or quality ETF, only to find it underperforming in a given market environment,” he explains. “This is why portfolio modeling with these building blocks is so important. Investors need to take a more active approach, optimizing allocations to maintain target risk levels.”

Private Equity in Transition: Challenges and Opportunities

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Private Equity in Transition: Challenges and Opportunities

Private equity has matured into a mainstream – if not cornerstone – allocation for institutional investors. Following years of record fundraising and valuation expansion, the asset class now faces a more challenging backdrop – marked by higher interest rates, muted exit activity, and heightened scrutiny around transparency, ESG practices, and fees. Yet amid these headwinds, new opportunities are emerging through secondaries, continuation vehicles, and co-investments, while operational value creation has become a key driver of returns, according to Linsay McPhater of Industriens Pension.

Market Dynamics and Shifting Return Drivers

“The private equity industry has grown substantially, attracting larger pools of capital from institutional investors seeking higher returns, which in turn has led to funds seeing record fundraising levels,” says McPhater, who is a senior portfolio manager for private equity at Industriens Pension. Today, private equity is a core allocation in many pension and sovereign wealth fund portfolios. However, “the private equity industry has evolved significantly in recent years, with several notable structural changes and trends that reflect its maturity and adaptation to a more complex global environment.”

“The private equity industry has evolved significantly in recent years, with several notable structural changes and trends that reflect its maturity and adaptation to a more complex global environment.”

In particular, the industry has come under pressure from macroeconomic headwinds and evolving market dynamics. “Private equity firms are facing increased risks,” notes McPhater. “Sustained elevated interest rates are raising financing costs and reducing returns, ongoing conflicts and global instability are disrupting supply and tougher rules on cross-border deals, ESG compliance, and tax reforms are increasing operational and compliance burdens,” she elaborates. At the same time, the industry is experiencing shifting return dynamics.

Private equity activity has slowed notably since 2022. “With valuations rising, buyers have become more cautious, and the cooling IPO markets have led to reduced exit activity,” according to McPhater. This has created a liquidity bottleneck, causing many private equity firms to hold assets longer than initially anticipated. As a result, the average holding period for portfolio companies has extended beyond the typical four to five years. “This lengthening of holding periods affects IRR calculations and constrains private equity firms’ ability to return capital in line with investors’ expectations,” McPhater explains.

“This lengthening of holding periods affects IRR calculations and constrains private equity firms’ ability to return capital in line with investors’ expectations.”

The reduced exit activity has resulted in fewer distributions to limited partners, including Industriens Pension, which has impacted cash flow planning and limited the ability to recycle capital into new commitments, says McPhater. Consequently, Industriens Pension, like many other investors, has adjusted its pacing of new investments.

Challenges Bring Opportunities

McPhater goes on to point out that current challenges are driving innovation and new opportunities in the private equity market. “With investors seeking liquidity, the secondary market has seen a surge in activity, offering both buyers and sellers more flexible options for portfolio management,” she notes. “Additionally, private equity funds are also adopting tools such as continuation funds or NAV-based credit lines to provide interim liquidity and manage longer holding periods.”

“Additionally, private equity funds are also adopting tools such as continuation funds or NAV-based credit lines to provide interim liquidity and manage longer holding periods.”

Private equity is indeed navigating a more complex environment, where traditional drivers of returns – such as multiple expansion – no longer play the same role. With valuations high and financing costs rising, firms are increasingly relying on operational value creation, digital transformation, and hands-on portfolio management to generate returns. “As multiple expansion becomes less reliable, private equity funds are focusing more on operational improvements, digital transformation, and margin expansion to drive returns,” confirms McPhater.

Therefore, McPhater expects the private equity industry see a “more divided risk-return profile” among managers. “Top-tier firms with strong operational capabilities and disciplined capital deployment will continue to generate attractive risk-adjusted returns,” expects McPhater. “Conversely, weaker players may struggle to raise funds, exit investments, or generate returns due to macroeconomic headwinds.”

“Top-tier firms with strong operational capabilities and disciplined capital deployment will continue to generate attractive risk-adjusted returns.”

In today’s market environment, certain segments of the private equity landscape stand out, according to McPhater. Industriens Pension, for example, focuses exclusively on the mid-market – specifically, lower mid-market buyouts. “We believe this segment offers the most compelling opportunities, even more so given the current market environment,” she explains. “Valuations in this segment are more reasonable and there is less competition from large-cap managers.” McPhater notes that “these managers are more grounded in active value creation, where there is strong potential for the managers to create value through operational improvements by hands-on management, digital transformation and through buy-and-build opportunities.”

Manager Selection: A Key Differentiator

The increasing importance of operational value creation makes manager selection more critical than ever, as only those with strong teams, disciplined processes, and demonstrated value-creation capabilities are positioned to succeed. Industriens Pension evaluates managers across several key dimensions, including performance, people, process, strategy, ESG integration, and costs. “No single factor dominates our assessment,” McPhater explains, “but we prioritize top-performing managers who combine a stable, experienced team with a disciplined and consistent investment approach.”

Industriens Pension places significant emphasis on a manager’s track record, as strong historical performance remains a critical baseline demonstrating their ability to create value. “However, performance should be analyzed in context,” McPhater stresses. “We review risk-adjusted returns, vintage year cycles, and results across different market conditions. A manager who consistently delivers resilient returns through downturns demonstrates true skill rather than mere luck.”

“No single factor dominates our assessment, but we prioritize top-performing managers who combine a stable, experienced team with a disciplined and consistent investment approach.”

When evaluating the people behind a fund, the quality, experience, and stability of the investment team are essential, as they are the ones responsible for executing the investment strategy. “The team should have deep expertise, and there should be a collaborative culture, working together to drive value creation within portfolio companies,” notes McPhater. Additionally, continuity and succession planning help mitigate key-person risk if any team members depart. “Alignment of interests is also very important,” she adds, with Industriens Pension looking for significant personal capital commitments from the senior team, which ensures their incentives are fully aligned with those of the investors.

“Process is another critical factor,” McPhater explains. Managers need to demonstrate a disciplined, repeatable approach to value creation within their portfolio companies. “A rigorous, well-defined investment process ensures disciplined decision-making and risk management.” Industriens Pension also evaluates a manager’s ability to adapt their processes in response to changing market conditions. Equally important is the manager’s strategy – their focus and differentiation. “The strategy must be clearly articulated and differentiated,” McPhater emphasizes. “We look closely at what sets a manager apart from their peers, whether it’s a unique sourcing advantage or a particular operational focus that drives superior returns.”

Fees and cost efficiency are also key considerations for Industriens Pension. “We carefully analyze management fees and carried interest structures to ensure that teams remain truly performance-driven, rather than focused solely on asset gathering,” says McPhater. “We also review legal documents to confirm the fund promotes transparency and adheres to fair reporting practices,” she adds.

“Strong performance driven by capable people, a disciplined process, a focused strategy, and ESG integration, gives Industriens Pension the highest conviction in a private equity manager’s ability to succeed long term.”

Last but not least, ESG has become an increasingly important part of the selection process at Industriens Pension. “More recently, we have implemented a more rigorous ESG framework within our investment analysis,” McPhater explains. This includes evaluating how effectively a fund integrates ESG factors into its investment process and how this influences risk management. McPhater expects ESG considerations to “move from being a “nice-to-have” to a core component of investment decisions.”

“Balancing these considerations is about finding alignment and consistency across all dimensions,” concludes McPhater. “Strong performance driven by capable people, a disciplined process, a focused strategy, and ESG integration, gives Industriens Pension the highest conviction in a private equity manager’s ability to succeed long term.”

Interrupted Momentum in Private Markets as Evergreen Structures Reshape Dynamics

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Interrupted Momentum in Private Markets as Evergreen Structures Reshape Dynamics

The Manager Selection team at SEB Asset Management published their annual Private Markets Report in early April, which explores the shifting momentum across private equity, credit, infrastructure, and real estate, as well as some more niche private assets. 

“Private markets have already navigated three distinct phases in 2025. Going into the year, sentiment across private markets was broadly positive – returns in 2024 were higher, and the latest data showed positive cash flows, something we hadn’t seen in several years,” says Alexandra Voss, Senior Manager Selector at SEB. “That was a significant shift and created expectations for increased deal-making and capital returns, which would in turn support better fundraising.” Then, she notes, tariff-related uncertainty in April reintroduced volatility especially in the macroeconomic outlook and increased the dispersion of possible market trajectories. “And since our report was published in April, we have now entered a new phase where uncertainty remains, but the worst of the fear has receded, revealing a few potential bright spots of opportunity.”

Tariff Uncertainty Clouds an Encouraging Start to 2025

In the private credit space, Voss agrees with the consensus that tariff uncertainty will slow private equity-sponsored deal activity, leading to more supply than demand for direct lending loans. However, in a more uncertain environment, she notes that private equity sponsors are likely to place greater emphasis on execution certainty. “While overall deal volume may decline, direct lending’s share of completed deals in upper middle market may actually increase,” she adds. This shift, according to Voss, could preserve spreads and maintain quality in the direct lending space. “While the hard data still shows compression, the most recent forward looking survey data shows expectations for slightly higher spreads and more protections in Q2 versus Q1, as well as an increase in deal volume.” 

“While overall deal volume may decline, direct lending’s share of completed deals in upper middle market may actually increase.” 

Private equity deal-making has slowed notably in recent years. Higher interest rates, economic uncertainty, and tighter credit conditions have made transactions harder to finance and complete. At the same time, valuation gaps between buyers and sellers remain, leading to longer negotiations and more failed deals. Although the outlook heading into 2025 was generally positive, deal activity typically slows in periods of uncertainty – a dynamic amplified by the current U.S. administration’s tariff agenda.

Roughly 35 percent of private equity-backed companies in the U.S. have now been held for more than five years, increasing pressure to return capital to investors. But Alexandra Voss thinks the problem is bigger. “The 3-5 year holding period reflected a strategy similar to buying a fixer-upper house. The sponsor would identify a company that could benefit from improvements, both cosmetic and functional. Once the fixes are complete, the sponsor looks to sell it at a higher price.” It’s largely an operational play, she says, with value creation often coming from improving efficiency, cutting costs, honing market fit, and professionalizing management – factors that, along with access to cheap leverage, have historically driven strong returns. 

“But given the amount of capital raised for large cap private equity, it seems reasonable that the number of large fixer-uppers available has declined. You see this in the increase in secondary buyouts as exits, where one PE firm buys a company from another PE firm. This has become the most common form of exit for PE holdings in Europe and North America.” Instead, Voss thinks that one area that may stand out in 2025 is the middle market. “Smaller and middle market companies are typically less exposed to global supply chains, and valuations remain well below large-cap levels, yet less than 15 percent of buyout capital in 2024 went to funds under USD 1 billion, the lowest share on record.” This dynamic has left the middle market less crowded, creating a potentially favorable backdrop.

Evergreen Structures Gain Traction

Traditional private equity managers often feel pressure to return capital to investors so LPs can invest in their next fund vintage. However, the rise of evergreen and semi-liquid fund structures may be shifting this traditional dynamic, impacting how managers raise capital, make investments, value their portfolios, and distribute returns. Voss points to “push, pull, and [ELTIF] policy” as the driving forces behind the emergence of semi-liquid structures. 

“There have been lower levels of deal making, and that has real consequences for the traditional model,” says Voss. “This has pushed managers to look to new ways to attract capital.” On the pull side, these structures offer under-allocated investors access that better fits operational needs. “While these structures come with important considerations, they solve a problem for many investors,” Voss says.

“While these structures come with important considerations, they solve a problem for many investors.”

When first encountering semi-liquid structures in illiquid markets like private equity or private credit, Voss was skeptical. “I have always invested on behalf of institutions putting hundreds of millions of euros to work, and it’s a very intellectually rigorous way of investing,” she recalls. However, she soon recognized a practical reality: “If you’re investing in private debt, for example, and want to maintain a strategic allocation, you need to create an allocation program and be making new investments continuously to sustain that level.” Each vintage entails managing an average of 80 independent cash events – capital calls and distributions – requiring substantial infrastructure and effort. “For many managers and investors, that’s a significant amount of work and results in under-allocation for non-investment reasons.”

Private Debt Emerges as Natural Fit for Semi-Liquid Fund Formats

Thus, with the growth of structures like ELTIFs (European Long-Term Investment Funds), Voss sees a clear push and pull dynamic between the careful, traditional way institutions invest and the need for more practical, flexible solutions to manage ongoing investments. Yet, she stresses that evergreen structures won’t suit all private market segments equally. “Based on data, growth of evergreen funds won’t be evenly spread across private markets,” she explains. “I don’t expect many evergreen venture capital funds because of their wide return variability.” Instead, Voss sees the strongest potential for evergreen growth in private debt, a natural fit given its steady cash flow, more predictable liquidity, and narrower valuation ranges.

“Based on data, growth of evergreen funds won’t be evenly spread across private markets. I don’t expect many evergreen venture capital funds because of their wide return variability.”

Evergreen structures can be applied to other asset classes across private markets, but doing so demands a thorough understanding of each asset’s valuation range and outcome distribution. “This is why I don’t expect venture capital to gain much traction in this space –the range of outcomes there is extremely wide,” Voss explains. 

From an investor’s perspective, achieving a strategic allocation to private debt or private equity typically involves managing multiple vintages individually or opting for an evergreen fund that provides built-in vintage diversification – an outcome otherwise difficult to attain. “Operationally, it’s much simpler. You get valuations and returns more comparable to your other liquid investments, along with the flexibility to adjust your allocation,” she says, cautioning that “this isn’t a product to trade in and out of quickly. It’s designed to make a strategic portfolio allocation more accessible.”

This article features in the “2025 Private Markets” publication.

Evli’s Co-Investment Strategy: Opening the Door to Direct Private Equity Deals

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Evli’s Co-Investment Strategy: Opening the Door to Direct Private Equity Deals

Co-investing alongside private equity funds has become increasingly important for institutional investors seeking greater control, reduced fees, and selective deal exposure. Once reserved for the largest investors with direct access to sponsors, co-investing is now becoming more accessible through dedicated co-investment funds. Building on its longstanding experience in private markets through fund-of-funds strategies in private equity, infrastructure, and beyond, Finnish asset manager Evli has launched a co-investment fund called Evli Private Equity Co-Investment Fund I.

Why Co-Investing Works – for All Parties

Co-investments – direct, unlisted equity investments made alongside private equity managers – offer a range of benefits for both private equity managers (GPs) and their investors (LPs). “Private equity managers often invite co-investors to participate in a deal. This allows the manager to tap into additional capital without having to partner with other GPs,” explains Ilja Ripatti, Investment Director of Co-investments in Evli’s Private Assets team. “Private equity managers also use co-investing as a portfolio allocation tool.” For instance, a manager might not want to commit more than 8 percent of a fund to a single deal, with co-investments helping stay within that limit.

“Private equity managers also use co-investing as a portfolio allocation tool.”

Beyond capital needs and portfolio construction, co-investments also serve a strategic relationship-building tool. “Managers increasingly see co-investing as a way to build stronger, more durable relationships with their LPs,” Ripatti adds. “It’s a useful tool to have – both for managing the portfolio and for deepening investor relationships.”

Speaking about the benefits of co-investments from the LP perspective, Ripatti – who previously served as a senior portfolio manager focused on co-investments and direct unlisted equity at Finnish pension insurer Ilmarinen – notes that institutional investors are drawn to co-investing as a way to reduce costs, enhance returns, and gain greater control over their portfolios. “Investors looking to access unlisted companies want to lower their fees and, of course, improve returns. They also want more visibility and control over what they’re actually investing in,” he explains.

“Investors looking to access unlisted companies want to lower their fees and, of course, improve returns. They also want more visibility and control over what they’re actually investing in.”

This growing demand reflects several key advantages. “Lower fees and the potential for higher returns – that’s the first,” Ripatti says. Second is better control over portfolio construction. And third is the ability to manage deployment pace more flexibly. “You can hit the accelerator when opportunities arise, or apply the brakes when needed,” he explains. “Plus, co-investments typically come with fewer unfunded commitments, making portfolio management more predictable and efficient.”

Evli Private Equity Co-Investment Strategy: Focused, Selective, Mid-Market

After years of allocating to private equity via fund-of-funds, Evli has launched a dedicated fund focused exclusively on co-investments alongside private equity managers. “We aim to invest in 15 to 20 co-investments over the next three to four years, with a fund maturity of around ten years – similar to a traditional buyout fund,” says Ripatti. The fund is managed by a dedicated three-person team supported by Evli’s broader private assets platform comprised of 39 people and primarily targets control buyouts. “We are looking at control buyouts, situations where the manager holds a controlling stake in the company and has a tangible value creation plan with multiple levers to enhance value.”

“We aim to invest in profitable, growing, and mature companies operating in resilient sectors and at reasonable valuations,” explains Ripatti, outlining the fund’s investment criteria. “The company should be in an attractive industry, hold a solid market position, and be led by a competent management team.” Valuation discipline is key. “Time and again, we have seen that overpaying – even for high-quality companies – can erode returns and lead to poor outcomes, especially when the typical investment horizon is around five years.”

“We aim to invest in profitable, growing, and mature companies operating in resilient sectors and at reasonable valuations.”

Ripatti and his team place particular emphasis on the strength of the underlying business and the broader industry. “The industry must be attractive. We focus on resilient sectors and companies that are less likely to suffer immediately in a downturn,” he says. “This is especially important in buyout investments, where leverage is often involved. The companies need to be able to withstand economic shocks.” Just as crucial is the fit between the deal and the private equity manager leading it. “The manager should have experience in the sector and ideally, some kind of unique angle or edge in the deal itself,” Ripatti adds.

The fund targets a broad range of enterprise values – from around €100 million to several billion. “The challenge with very large transactions is that they can limit your exit options,” notes Ripatti. In such cases, an IPO may be the only viable route. “We prefer companies with multiple potential exit avenues, which tend to steer us toward the mid to upper mid-market segment. The mid to upper mid-market range is our sweet spot.”

Sourcing: Relationships and Network Depth

Successfully running a co-investment strategy requires robust and reliable deal sourcing channels – typically accessible only to large institutional investors with established relationships in the private equity space. Evli draws on three distinct sourcing channels to identify and access co-investment opportunities.

“Our most natural channel is our existing relationships with private equity managers, developed through our funds-of-funds program, where we’ve made commitments to over 60 funds,” explains Ripatti. “These are managers we know well and have backed for years.” The second channel involves new or prospective managers that Evli has been monitoring and is interested in partnering with. “In the current fundraising environment, many GPs are using co-investment opportunities as a ‘carrot’ to attract LPs to their funds or to incentivize due diligence,” he notes. “This makes it a very good market to be a co-investor.”

“Our most natural channel is our existing relationships with private equity managers, developed through our funds-of-funds program…These are managers we know well and have backed for years.”

Having previously served as a senior portfolio manager focused on co-investments at Ilmarinen, Ripatti brings a well-established personal network to Evli’s sourcing efforts. “I’ve been doing this for over a decade and have built strong relationships with many private equity managers,” he explains. “Co-investments offer a natural way to nurture and deepen those relationships.”

More importantly, allowing Evli – or institutional investors – to co-invest in a deal ahead of making a fund commitment offers a powerful due diligence opportunity. “It’s an excellent way to conduct due diligence on a manager,” says Ripatti. “By looking at a live deal the manager is executing, we gain far deeper insights than we would from just reviewing fund pitchbooks,” he explains. “It’s a highly effective way to assess how a manager thinks, operates, and adds value.”

Broadening Access to Private Equity

Private equity investing is often associated with notable fees for end investors, and co-investing offers a way to access the asset class at a lower cost. “Carried interest is typically around 10 percent for co-investment funds, which is roughly half of what you usually see in traditional private equity funds,” explains Ripatti. Moreover, the underlying co-investments generally do not charge any management fees. “In some cases, there might be transaction-related fees, but overall, compared to a typical private equity fund, co-investing tends to be significantly more cost-efficient – both in terms of ongoing fees and performance-related costs.”

“…overall, compared to a typical private equity fund, co-investing tends to be significantly more cost-efficient – both in terms of ongoing fees and performance-related costs.”

Given the vast opportunity set in the unlisted space – illustrated by the fact that only about 13 percent of U.S. companies with revenues over $100 million are publicly listed – co-investing offers an efficient way to gain access to this otherwise hard-to-reach segment. Evli’s Private Equity Co-Investment Fund is designed to open the door for smaller investors who may lack the internal expertise or resources to independently execute such transactions. “It’s quite resource-intensive to do this well,” notes Ripatti. “Even some fairly large investors have struggled with co-investments because direct deals require a very different toolkit.”

This article features in the “2025 Private Markets” publication.

Infrastructure: Building Blocks for a Sustainable Future

Eugeniu Guzun
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Infrastructure: Building Blocks for a Sustainable Future

Infrastructure across many parts of the world is either decades old or, in some regions, barely existent. Against this backdrop, the need for infrastructure investment is immense. Powerful structural shifts – such as the transition to sustainable energy, widespread decarbonization, and the rapid expansion of AI-driven technologies – are only accelerating demand. With the capital-intensive nature of infrastructure projects, public funding alone is insufficient. This gap creates an important role for private capital, with global institutional investors like Allianz Global Investors stepping in to meet the growing need.

“Infrastructure investment is not only a need in emerging markets,” says Maria Aguilar-Wittmann, Co-Head of Infrastructure Equity Funds and Co-Investments and Secondaries at Allianz Global Investors. “Of course, the need is more acute in some of those regions, but the necessity for modernizing infrastructure spans virtually every jurisdiction.” Aguilar-Wittmann, who has over 15 years of experience in infrastructure investing, notes that demand consistently outpaces actual infrastructure spending – “a trend that hasn’t changed over the last five, ten, or even twenty years.”

“Of course, the need is more acute in some of those regions, but the necessity for modernizing infrastructure spans virtually every jurisdiction.”

This is driven not only by the aging state of current infrastructure but also by deep-rooted structural trends. “Decarbonization efforts cut across all sectors – energy, transport, mobility, buildings, agriculture, forestry,” she notes. “Studies show that achieving net-zero targets would require approximately $9 trillion in annual infrastructure investment in energy and land-use systems. And we are nowhere near that figure today.[1]”

As governments face fiscal constraints and competing priorities, the role of private capital in infrastructure has become increasingly essential. Beyond merely plugging funding gaps, private investors are helping to shape what gets built and how. “Private capital is not just there to fill the space left by governments or public sources,” says Aguilar-Wittmann. “It’s also helping steer the direction of infrastructure development. Institutional investors and fund managers are focused on ensuring that these projects address infrastructure needs while delivering attractive, risk-adjusted returns.”

Key Investment Themes: Energy, Digitalization, and Geopolitics

Infrastructure plays a foundational role in transitioning to a more sustainable and resilient global economy. Recent geopolitical disruptions – particularly the war in Ukraine – have underscored vulnerabilities in existing systems, catalyzing the shift toward long-term infrastructure solutions. The energy crisis following the invasion revealed Europe’s heavy reliance on fossil energy imports, which could be reduced through investments in renewable energy produced within Europe. Decarbonization is no longer just about clean power; it now includes broad sectors such as mobility and industrial production.

Another structural trend reshaping infrastructure needs is digitalization, an area that has seen explosive growth with the rise of artificial intelligence. “Even before the AI boom, demand for digital services drove major investments in macro towers, fiber networks, and data centers,” says Aguilar-Wittmann. “The public cloud and the increasing speeds demanded by mobile users were already pushing capacity to its limits.”

“The AI wave has created incremental demand, particularly for data centers. And data centers are extremely energy-intensive.”

AI has added a new dimension to the infrastructure narrative. “The AI wave has created incremental demand, particularly for data centers,” Aguilar-Wittmann continues. “And data centers are extremely energy-intensive. Generative AI, in particular, is driving up workloads and therefore dramatically increasing energy needs across digital infrastructure that preferably should be met with green energy.”

Why Infrastructure Matters for Institutional Portfolios

The surge in infrastructure investment needs is underpinned by aging assets, growing populations, urbanization, digital transformation, and the energy transition. For institutional investors, infrastructure offers more than just impact – it also delivers long-term, often inflation-linked, and relatively stable cash flows. These features align well with the liabilities of pensions and insurance companies.

“There are different risk-return profiles in infrastructure: core, core-plus, value-add,” explains Aguilar-Wittmann. “But across the board, infrastructure is known for capital preservation, even in downside scenarios,” she notes. “Long-term contracts support cash flows, and contractual protections provide visibility over the investment period.”

“But across the board, infrastructure is known for capital preservation, even in downside scenarios. Long-term contracts support cash flows, and contractual protections provide visibility over the investment period.”

These protections can vary depending on the type of infrastructure investment, from regulatory guarantees to strong market positions. Aguilar-Wittmann, whose focus is on infrastructure equity, emphasizes that even though equity sits at the bottom of the capital structure, it carries relatively lower risk compared to other private market investments. “Returns typically range from single digits in super-core assets to high teens for value-add investments. The downside protection makes this asset class uniquely attractive.”

Infrastructure equity can also serve as a hedge against inflation. “Many infrastructure business models have built-in inflation protection, whether through contractual indexing or market positioning that allows for pricing power,” says Aguilar-Wittmann. “That’s a valuable feature in today’s macro environment.” Over time, infrastructure has proven to deliver recurring cash yields, particularly appealing to institutions seeking income. 

Long-Term Nature: Challenge and Opportunity

The long-term horizon of infrastructure can be a barrier for some investors. “Liquidity can be a hurdle for those just becoming familiar with the asset class,” Aguilar-Wittmann acknowledges. Regulatory complexity is another challenge, particularly for global investors. “Some jurisdictions treat infrastructure the same as private equity from a regulatory standpoint, even though the risks are quite different. That misalignment can affect allocations.”

As in many private market strategies, sourcing high-quality opportunities remains one of the key challenges in infrastructure investing. However, for established players like Allianz, scale and reputation help to ease that burden. “Allianz is the number one institutional infrastructure investor in Europe[2],” says Aguilar-Wittmann. “Between Allianz’s insurance business and Allianz Global Investors’ private markets arm, we have strong brand recognition, and fund managers in the space often come to us.”

“Between Allianz’s insurance business and Allianz Global Investors’ private markets arm, we have strong brand recognition, and fund managers in the space often come to us.”

In addition to inbound opportunities, the firm maintains an active sourcing effort. “We have a large, dedicated infrastructure equity team – about 70 professionals globally – covering energy, digital infrastructure, and all other infrastructure sectors,” notes Aguilar-Wittmann. “This breadth allows for deep sector expertise and internal knowledge-sharing.”

A Rapidly Growing Asset Class

Infrastructure has evolved from a niche asset class to a $1.5 trillion industry over the past two decades[3] – a transformation driven by the global need for modern, resilient systems. That growth is expected to accelerate further as long-term structural trends like decarbonization and digitalization continue to shape investment needs. “At the same time, emerging dynamics such as market consolidation, deglobalization, and the push for national energy independence are opening new avenues for deployment,” concludes Aguilar-Wittmann. As countries invest to strengthen both their physical and strategic infrastructure, the asset class is becoming an increasingly vital component of institutional portfolios.

[1] Pathway toward 1.5°C using the Net Zero 2050 scenario from the Network for Greening the Financial System (NGFS). https://www.mckinsey.com/capabilities/sustainability/our-insights/the-net-zero-transition-what-it-would-cost-what-it-could-bring

[2] IPE Real Assets top 100 ranking (2024).

[3] Preqin data as of June 2024.

Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable at the time of publication. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). The Summary of Investor Rights is available in English, French, German, Italian and Spanish at https://regulatory.allianzgi.com/en/investors-rights The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted; except for the case of explicit permission by Allianz Global Investors GmbH.

This article features in the “2025 Private Markets” publication.

The Changing Role of Private Credit in a New Interest Rate Environment

Eugeniu Guzun
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The Changing Role of Private Credit in a New Interest Rate Environment

During the era of near-zero or negative interest rates, traditional fixed income delivered minimal returns, prompting investors to turn to private credit for higher yields driven by illiquidity and complexity premia. However, the shift to a higher-for-longer interest rate environment has altered the dynamics and appeal of the asset class. The role of private credit in an investor’s portfolio has “changed a bit” over the years, according to Tero Pesonen, Director for Private Equity and Private Credit at Local Tapiola Asset Management.

“When rates were zero or negative, moving to private credit was a conscious choice to get a yield pickup, and the mandate was much narrower,” says Pesonen. “Today, mandates have broadened to capture illiquidity premia wherever they’re best attainable.” He emphasizes that private credit now serves primarily as a return enhancer and portfolio diversifier. “You get different return components, diversification benefits, and non-mark-to-market exposure. But that last part is not a target or design – it’s more of an added advantage.”

“You get different return components, diversification benefits, and non-mark-to-market exposure. But that last part is not a target or design – it’s more of an added advantage.”

Local Tapiola Group is one of Finland’s largest insurance and financial services companies, formed through the merger of Lähivakuutus and Tapiola in 2012. Since 2015, the group’s private equity and private credit allocations have been made through fund-of-fund structures launched approximately every three years for both asset classes. Since 2020, these vehicles have also raised external capital. “It’s a good mix of internal capital and a business-building exercise on the side,” says Pesonen, who oversees manager selection and manages about €2.4 billion invested in third-party private credit funds.

Defining Private Credit: Beyond Direct Lending

While private credit has cemented its position as a standalone asset class and a cornerstone in most institutional portfolios, Pesonen emphasizes the importance of first agreeing on what the term actually means. “More often than not, private credit is almost synonymous with direct lending,” he notes. However, private credit reflects a broader universe. “Direct lending is a big part, but just a part.” Although private credit existed well before the global financial crisis – through mezzanine financing within private equity and distressed debt within hedge funds – “the wave of post-crisis bank regulation truly established direct lending as a standalone asset class.” Today, the private credit market stands at around $1.5 trillion, roughly equivalent in size to the syndicated loan market.

Collaboration Between Banks and Private Credit Managers

International banking regulation increased capital requirements and made many forms of lending less profitable for banks. Direct lending – the largest sub-strategy within private credit – has emerged to fill this gap, with direct lending managers increasingly resembling banks in function. However, banks remain present and increasingly collaborate with private credit players.

“Origination partnerships between private credit managers and banks have been a very natural progression,” argues Pesonen, adding that he’s “quite surprised this trend has only emerged recently – perhaps banks were a bit slow to realize the opportunity.” He believes that the market is well divided, with banks having established partnerships with private credit managers. “There are already large players with very strong market positions.”

“Origination partnerships between private credit managers and banks have been a very natural progression.” 

However, Pesonen does not see these origination partnerships as the main driver behind the ‘bigger-getting-bigger’ or ‘winner-takes-all’ trend. Instead, he emphasizes that banks need these partnerships because private credit players provide the necessary capital when clients seek to raise funds, making collaboration essential on both sides. “Buyout firms, in particular, prefer to work with lenders who have substantial capital,” he points out. This makes sense because the buyout strategy is primarily buy-and-build – acquiring a platform and then expanding through further acquisitions. To support this growth, “they need lenders capable of financing those acquisitions.”

On the other side, limited partners (LPs), have recently shown a clear preference for investing in the biggest players. While these firms may not always be the absolute best, their size gives them an undeniable advantage. “This creates a reinforcing cycle: larger firms find it easier to raise capital, and buyout firms are increasingly inclined to work with them, further consolidating their market dominance.”

Direct Lending vs. Syndicated Loans: Increasing Convergence

Private credit has not only caught up with the broadly syndicated loan (BSL) market in terms of scale – now standing at roughly the same size – but direct lending is increasingly beginning to mirror the syndicated loan market in both structure and competitive dynamics. “Direct lending has become a standardized commodity,” says Pesonen. “In many ways, it resembles the syndicated bank loan market from 20 years ago when the banks used to syndicate loans between themselves.” Today, direct lenders are syndicating loans among themselves, particularly in the upper mid-market, which is driving increased price competition and putting downward pressure on spreads.

“Direct lending has become a standardized commodity. In many ways, it resembles the syndicated bank loan market from 20 years ago when the banks used to syndicate loans between themselves.”

At the larger end of the market, loan documentation is increasingly similar to the covenant-light terms common in syndicated loans. “The weaker documentation is also coming into the direct lending market,” notes Pesonen. Borrowers often have a choice between syndicated bank loans and direct lending, creating real competition between the two. “The syndicated loan market typically lacks certain features like acquisition lines suited for buy-and-build strategies, which direct lenders offer.” Nevertheless, “these two options compete closely.” One manager described their upper-market offering as essentially “BSL plus,” highlighting how the boundaries between these markets are increasingly blurring.

“The syndicated loan market typically lacks certain features like acquisition lines suited for buy-and-build strategies, which direct lenders offer. These two options compete closely.”

In 2022 and 2023, the broadly syndicated loan (BSL) market faced a significant disruption due to issues in the collateralized loan obligation (CLO) market, which underpins much of the loan syndication process. “Seventy percent of bank loans end up in CLOs,” Pesonen explains, highlighting how deeply interconnected these markets are. While the spreads on the underlying loans remained relatively stable, the spreads on the AAA tranches of CLOs – the safest liability slices – widened sharply. This spike made funding via CLO liabilities too costly for managers to issue new debt. “The math didn’t work, so the liabilities were too pricey,” Pesonen says. This bottleneck allowed direct lending to temporarily replace the syndicated loan market as the primary financing source. In 2024, “the triple-A spread tightened back to around 110 basis points,” reviving CLO issuance and normalizing syndication once again.

Challenges and Systemic Risk in Private Credit

At the same time, signs of strain are emerging in legacy private credit portfolios. “While transparency remains limited, anecdotally you hear in many places that extended holding periods are becoming common,” Pesonen notes. “Maturities are being pushed back, and amendments are used to delay refinancing because securing new financing has become more challenging.” Although new deals may still offer attractive pricing, older vintages – originated under very different market conditions – are starting to show pressure as exit timelines lengthen and refinancing options remain constrained.

The question of whether private credit poses a systemic risk has been much debated. To that, Pesonen is clear: “My answer is a definite no. This really comes down to the fundamental differences between private credit and traditional bank lending.” He explains that banks historically were highly leveraged – sometimes up to 30 times – and faced significant asset-liability mismatches, borrowing short-term funds while lending long-term. “This imbalance created a fragile system susceptible to runs and liquidity crises.”

“Most private credit vehicles are closed-end funds with long-term capital, and they tend to be hardly leveraged. From a societal and systemic point of view, this makes private credit a far more stable and less risky component of the financial ecosystem.”

“In contrast,” Pesonen continues, “private credit funds operate in a very different environment. Most private credit vehicles are closed-end funds with long-term capital, and they tend to be hardly leveraged.” This structure aligns asset and liability durations much more closely, reducing the risk of sudden liquidity shortfalls. “From a societal and systemic point of view, this makes private credit a far more stable and less risky component of the financial ecosystem.”

In conclusion, Pesonen highlights growing regulatory scrutiny around private credit, noting that while increased regulation could pose new challenges, the broader trend in bank oversight over the past 15 years has consistently moved toward stricter standards. He also emphasizes the role of political uncertainty: “Political shifts could lead to looser bank regulation.” Given that banks and private credit funds effectively compete for the same business, “regulatory changes in one can influence the other.”

This article features in the “2025 Private Markets” publication.

Interrupted Momentum in Private Markets as Evergreen Structures Reshape Dynamics

Eugeniu Guzun
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Interrupted Momentum in Private Markets as Evergreen Structures Reshape Dynamics

The Manager Selection team at SEB Asset Management published their annual Private Markets Report in early April, which explores the shifting momentum across private equity, credit, infrastructure, and real estate, as well as some more niche private assets. 

“Private markets have already navigated three distinct phases in 2025. Going into the year, sentiment across private markets was broadly positive – returns in 2024 were higher, and the latest data showed positive cash flows, something we hadn’t seen in several years,” says Alexandra Voss, Senior Manager Selector at SEB. “That was a significant shift and created expectations for increased deal-making and capital returns, which would in turn support better fundraising.” Then, she notes, tariff-related uncertainty in April reintroduced volatility especially in the macroeconomic outlook and increased the dispersion of possible market trajectories. “And since our report was published in April, we have now entered a new phase where uncertainty remains, but the worst of the fear has receded, revealing a few potential bright spots of opportunity.”

Tariff Uncertainty Clouds an Encouraging Start to 2025

In the private credit space, Voss agrees with the consensus that tariff uncertainty will slow private equity-sponsored deal activity, leading to more supply than demand for direct lending loans. However, in a more uncertain environment, she notes that private equity sponsors are likely to place greater emphasis on execution certainty. “While overall deal volume may decline, direct lending’s share of completed deals in upper middle market may actually increase,” she adds. This shift, according to Voss, could preserve spreads and maintain quality in the direct lending space. “While the hard data still shows compression, the most recent forward looking survey data shows expectations for slightly higher spreads and more protections in Q2 versus Q1, as well as an increase in deal volume.” 

“While overall deal volume may decline, direct lending’s share of completed deals in upper middle market may actually increase.” 

Private equity deal-making has slowed notably in recent years. Higher interest rates, economic uncertainty, and tighter credit conditions have made transactions harder to finance and complete. At the same time, valuation gaps between buyers and sellers remain, leading to longer negotiations and more failed deals. Although the outlook heading into 2025 was generally positive, deal activity typically slows in periods of uncertainty – a dynamic amplified by the current U.S. administration’s tariff agenda.

Roughly 35 percent of private equity-backed companies in the U.S. have now been held for more than five years, increasing pressure to return capital to investors. But Alexandra Voss thinks the problem is bigger. “The 3-5 year holding period reflected a strategy similar to buying a fixer-upper house. The sponsor would identify a company that could benefit from improvements, both cosmetic and functional. Once the fixes are complete, the sponsor looks to sell it at a higher price.” It’s largely an operational play, she says, with value creation often coming from improving efficiency, cutting costs, honing market fit, and professionalizing management – factors that, along with access to cheap leverage, have historically driven strong returns. 

“But given the amount of capital raised for large cap private equity, it seems reasonable that the number of large fixer-uppers available has declined. You see this in the increase in secondary buyouts as exits, where one PE firm buys a company from another PE firm. This has become the most common form of exit for PE holdings in Europe and North America.” Instead, Voss thinks that one area that may stand out in 2025 is the middle market. “Smaller and middle market companies are typically less exposed to global supply chains, and valuations remain well below large-cap levels, yet less than 15 percent of buyout capital in 2024 went to funds under USD 1 billion, the lowest share on record.” This dynamic has left the middle market less crowded, creating a potentially favorable backdrop.

Evergreen Structures Gain Traction

Traditional private equity managers often feel pressure to return capital to investors so LPs can invest in their next fund vintage. However, the rise of evergreen and semi-liquid fund structures may be shifting this traditional dynamic, impacting how managers raise capital, make investments, value their portfolios, and distribute returns. Voss points to “push, pull, and [ELTIF] policy” as the driving forces behind the emergence of semi-liquid structures. 

“There have been lower levels of deal making, and that has real consequences for the traditional model,” says Voss. “This has pushed managers to look to new ways to attract capital.” On the pull side, these structures offer under-allocated investors access that better fits operational needs. “While these structures come with important considerations, they solve a problem for many investors,” Voss says.

“While these structures come with important considerations, they solve a problem for many investors.”

When first encountering semi-liquid structures in illiquid markets like private equity or private credit, Voss was skeptical. “I have always invested on behalf of institutions putting hundreds of millions of euros to work, and it’s a very intellectually rigorous way of investing,” she recalls. However, she soon recognized a practical reality: “If you’re investing in private debt, for example, and want to maintain a strategic allocation, you need to create an allocation program and be making new investments continuously to sustain that level.” Each vintage entails managing an average of 80 independent cash events – capital calls and distributions – requiring substantial infrastructure and effort. “For many managers and investors, that’s a significant amount of work and results in under-allocation for non-investment reasons.”

Private Debt Emerges as Natural Fit for Semi-Liquid Fund Formats

Thus, with the growth of structures like ELTIFs (European Long-Term Investment Funds), Voss sees a clear push and pull dynamic between the careful, traditional way institutions invest and the need for more practical, flexible solutions to manage ongoing investments. Yet, she stresses that evergreen structures won’t suit all private market segments equally. “Based on data, growth of evergreen funds won’t be evenly spread across private markets,” she explains. “I don’t expect many evergreen venture capital funds because of their wide return variability.” Instead, Voss sees the strongest potential for evergreen growth in private debt, a natural fit given its steady cash flow, more predictable liquidity, and narrower valuation ranges.

“Based on data, growth of evergreen funds won’t be evenly spread across private markets. I don’t expect many evergreen venture capital funds because of their wide return variability.”

Evergreen structures can be applied to other asset classes across private markets, but doing so demands a thorough understanding of each asset’s valuation range and outcome distribution. “This is why I don’t expect venture capital to gain much traction in this space –the range of outcomes there is extremely wide,” Voss explains. 

From an investor’s perspective, achieving a strategic allocation to private debt or private equity typically involves managing multiple vintages individually or opting for an evergreen fund that provides built-in vintage diversification – an outcome otherwise difficult to attain. “Operationally, it’s much simpler. You get valuations and returns more comparable to your other liquid investments, along with the flexibility to adjust your allocation,” she says, cautioning that “this isn’t a product to trade in and out of quickly. It’s designed to make a strategic portfolio allocation more accessible.”

This article features in the “2025 Private Markets” publication.

Investing in Nordic Infrastructure Through Partnership with the Public Sector

Eugeniu Guzun
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Investing in Nordic Infrastructure Through Partnership with the Public Sector

Infrastructure investment is often viewed as a public sector responsibility, heavily influenced by political priorities. However, the growing need for new infrastructure projects – coupled with the urgent renewal of aging assets – has made private capital, particularly from institutional investors, an increasingly vital component. Founded in 2013, infrastructure manager Infranode has pioneered a collaborative approach by partnering with local authorities and mobilizing capital from both institutional investors and public bodies to help build resilient, sustainable infrastructure that serves the long-term needs of society.

Before founding Infranode, the three co-founders – Philip Ajina, Christian Doglia, and Leif Andersson – identified two critical gaps in the Nordic infrastructure universe that lacked a connection. “On the one hand, there was a massive infrastructure investment need across the Nordics – at the municipal, regional, and national levels,” explains Founding Partner Philip Ajina. “On the other hand, Nordic institutional investors were significantly under-allocated to infrastructure as an asset class,” he continues. “We saw two sides with clear investment needs but no bridge to connect them. That was the gap we set out to close.”

“On the one hand, there was a massive infrastructure investment need across the Nordics. On the other hand, Nordic institutional investors were significantly under-allocated to infrastructure as an asset class.” 

Bridging the Nordic Infrastructure Investment Gap

Despite the Nordic region being widely regarded as advanced in many aspects of society –including strong infrastructure – the need for investment stems from two underlying dynamics. “There’s a bit of a conundrum,” says Ajina. “Even with relatively high tax rates across the Nordic countries, the public sector has consistently underfunded reinvestment in infrastructure.” Much of the existing infrastructure, he explains, was built in the 1960s and 1970s and is now approaching or exceeding its technical lifespan.

“Even with relatively high tax rates across the Nordic countries, the public sector has consistently underfunded reinvestment in infrastructure.”

Ajina also highlights that, on paper, the Nordic countries are well positioned to fund such investments. “From a debt-to-GDP perspective, the region has been fiscally sound for many years. Municipalities and regions have their own taxation rights and relatively strong credit profiles and can access capital markets,” notes Ajina. But despite all that, there simply has not been enough investment to keep pace with the natural wear and tear. “The need for renovation remains significant.”

At the same time, the onset of the energy transition in recent years has further intensified the demand for infrastructure investment. “With the Nordics becoming the bedrock of the transition to a more sustainable society, it created two extremely powerful investment drivers,” says Ajina. “That, in turn, has increased the resource pressure on the public sector.” These two forces – the urgent need to renew aging infrastructure and the accelerating energy transition – remain the primary reasons why alternative sources of capital, particularly from institutional investors, are essential. “On top of this, a more recent third force is driving infrastructure investment demand – the geo-politically related resilience of our Nordic countries,” continues Ajina, saying that infrastructure investments in this area also play a key role to strengthen society, for instance, Sweden’s commitments linked to the NATO membership. “These are the same fundamental drivers across all the Nordic countries,” Ajina emphasizes.

“With the Nordics becoming the bedrock of the transition to a more sustainable society, it created two extremely powerful investment drivers.”

Ajina goes on to emphasize that virtually all areas of infrastructure require investment –particularly within the traditional sectors of energy, transportation, digital infrastructure, and social infrastructure, which form the core of Infranode’s investment focus. “Typically, we look for regulated businesses – electricity distribution being a good example – where regulation grants an exclusive concession to operate,” says Ajina. “It’s a protected environment, but also one where the regulator determines how you’re allowed to charge your customers.” He further notes other types of infrastructure that function as natural monopolies. “These businesses often have very high barriers to entry, mainly because infrastructure is a very capex- and balance sheet-heavy sector.” Long-term contracts is also a typical feature in infrastructure investing. “Inflation-linked long-term contracts are quite common in the infrastructure sector.”

Political Realities and Collaborative Investment Models

The founding team at Infranode early on identified a key challenge in the Nordics: despite the substantial investment needs and limited resources – both in terms of capital and sector expertise – fully privatizing critical infrastructure remains highly politically sensitive. “Perhaps the main differentiator between infrastructure and other asset classes is that you’re investing in assets closely tied to society, involving not just citizens but also politicians,” Ajina explains. Because of this dynamic, Infranode aimed to develop a model that enables co-ownership of assets alongside local and regional governments, including municipalities and regions.

“Perhaps the main differentiator between infrastructure and other asset classes is that you’re investing in assets closely tied to society, involving not just citizens but also politicians.”

“This approach has proven to be very effective,” Ajina explains. “Most of the deals we do start with identifying investment needs within the public sector and actively sourcing opportunities. We see that this model is also politically viable for decision makers.” Infranode’s strategy centers on making the majority of its investments contribute to building a stronger society – whether through climate action, social development, or digital innovation. The investments, therefore, are highly attractive both to investors and to society at large, including the decision makers. “This co-ownership model has been essential in unlocking these opportunities,” says Ajina. “As a result, Infranode has become synonymous with being a trusted partner to the public sector.”

A Local Partner Across the Nordics

Infranode also fully owns infrastructure investments by acquiring assets directly from private infrastructure owners and developers. “But what truly sets us apart is our ability to build strong partnerships with the public sector and the trust we have established,” Ajina explains. Because local infrastructure investments inevitably involve politics, Infranode has made a deliberate decision to be a local partner throughout the Nordic region. “We don’t see ourselves merely as a Swedish manager operating in the Nordics; we are a Nordic manager serving the entire region,” he adds. Infranode early on recognized the importance of being perceived as a local partner in each country. “That’s why we have established offices and local teams in every Nordic country.”

Infranode’s infrastructure funds are supported by institutional investors such as  KPA Pension, Folksam, Keva, Kyrkan Pension, AP4 and many others. According to Ajina, “this type of capital is very welcome back into society.” Not only do the beneficiaries of these institutional investors gain from the attractive characteristics of infrastructure investments –such as solid long-term returns, inflation protection, and portfolio diversification – but they also benefit from the tangible, real-world infrastructure these investments help build and maintain. “When these investors consider infrastructure investments through us, they appreciate the sound financial rationale. But they also recognize the added value of returning pension capital to strengthen the local communities where their customers and pensioners live and work. Instead of investing in a port in Sydney, why not invest closer to home, outside of Stockholm?”

“…they also recognize the added value of returning pension capital to strengthen the local communities where their customers and pensioners live and work.”

Building on the appeal to institutional investors, Ajina draws a comparison between infrastructure and real estate returns, noting that the range of return varies depending on the risk profile. “If you look at strategies focused on scaling infrastructure companies, it’s similar to private equity-style investing, where you might expect mid-teen percentage returns,” he explains. “On the other hand, the lower the risk you take, the lower the expected returns.”

Infrastructure is particularly well suited to deliver cash yield returns, making it comparable to a fixed income-like investment strategy. “If you invest in lower-risk infrastructure, a significant majority of your returns will come from steady cash flows. This means you are less dependent on exiting the investment to realize returns, which provides an additional layer of diversification,” further highlights Ajina. He points out that this is especially relevant today, given the current market dynamics where private equity exits are not unfolding as planned.

Whereas in the previous low-interest-rate environment capital was abundant but quality asset opportunities in infrastructure were limited, the balance has now shifted, concludes Ajina. “Now the situation is somewhat reversed, there are more infrastructure needs and investment opportunities than available capital.”

This article features in the “2025 Private Markets” publication.

From Loans to Layers: Navigating the CLO Capital Stack

Eugeniu Guzun
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From Loans to Layers: Navigating the CLO Capital Stack

Collateralized Loan Obligations (CLOs) play an important role in credit markets by bridging the capital needs of corporate borrowers with the return objectives of institutional investors. At their core, these structured vehicles pool hundreds of senior secured loans and repackage them into tranches with varying levels of risk and return. Beyond their structure, CLOs serve two fundamental purposes: they provide efficient financing for companies and offer investors a diverse set of risk-adjusted return opportunities across the capital stack.

“A CLO functions like a mini closed-ended fund, where limited partner (LP) commitments are tranched into AAA- to B-rated securities,” explains Cathy Bevan, Head of Structured Credit and Portfolio Manager at Alcentra. “This structure imposes a strict priority of payments on both principal and interest cash flows generated by the underlying loan portfolio.” That portfolio typically comprises broadly syndicated loans, with average spreads of approximately 320 basis points in the U.S. and 390 in Europe, while the CLOs themselves carry a weighted average cost of capital of around 200 basis points.

“From an equity perspective, investors gain exposure to levered excess spread. From the debt side, CLO tranches offer attractive floating-rate income with built-in structural protections and asset subordination.”

“From an equity perspective, investors gain exposure to levered excess spread,” Bevan continues. “From the debt side, CLO tranches offer attractive floating-rate income with built-in structural protections and asset subordination.”

Tailored Risk and Return Profiles

The CLO structure allows investors to tailor their exposure based on risk appetite and return objectives. Senior tranches offer strong credit protection and stable income, while junior and equity tranches provide higher return potential in exchange for higher risk. “AAA tranches are very remote from risk and are currently trading at base rates [SOFR/EUR] plus 140 basis points – still very attractive, though spreads are tightening,” notes Bevan. “BB tranches, by contrast, are trading around base rates plus 550 to 600 basis points. That’s compelling relative to leveraged loans and high yield, especially given the structural benefit of asset subordination, which shields them from the first losses in the portfolio.”

CLO equity in both the U.S. and Europe is currently trading at an internal rate of return (IRR) of around 13 percent, roughly in line with the yields on European single-B tranches, which offer base rates [SOFR/EUR] plus 900 basis points. Given that CLO equity is more directly exposed to default risk in the underlying loan portfolio, the team at Alcentra currently favors single-B tranches over equity. However, “CLO Equity is in demand at the moment because investors are seeking assets with high cash flow. CLO equity offers this, due to the leveraged interest income,” explains Bevan.

The bulk of the CLO equity return is driven by the excess interest earned on the underlying loans compared to the interest paid out on the CLO’s debt. “Because CLOs employ leverage, that difference – or “excess spread” – gets amplified, generating the majority of the equity returns,” she elaborates. “That cash yield is a key reason why many investors are being drawn to the CLO equity.”

“Because CLOs employ leverage, that difference – or “excess spread” – gets amplified, generating the majority of the equity returns.”

A less discussed risk is the mismatch in non-call periods between the underlying assets and the liabilities. “Underlying loans typically have a non-call period of around six months, while CLO liabilities are often non-callable for 1.5 to 2 years,” explains Bevan. When loan spreads tighten, the loan portfolio can be refinanced quickly, which compresses the excess spread and reduces equity returns – yet the liability costs remain fixed, at least until the expiry of the non-call period. “This erosion of the interest rate arbitrage is a unique risk to CLO equity that many fail to fully account for,” says Bevan. 

For this reason, Alcentra tends to favor purchasing CLO equity in the secondary market. “This strategy often provides more attractive risk-adjusted opportunities compared to investing in primary issuance during tight-spread environments.”

Structural Protection and Volatility as Opportunity

Collateralized Loan Obligation (CLO) debt tranches offer a compelling mix of solid returns and structural credit protection. However, this comes with trade-offs: CLO tranches are more sensitive to market sentiment, exhibiting greater mark-to-market volatility and less liquidity during periods of stress. “Sub-IG CLO tranches offer higher returns than loans or high yield, with the added benefit of first-loss protection,” confirms Bevan. “But when markets widen, CLO tranche discount margins tend to widen even more.”

The longer credit spread duration of CLO debt tranches – relative to broadly syndicated loans – also contributes to their greater price sensitivity. While CLO tranches tend to experience sharper spread widening than loans or high-yield bonds during periods of market dislocation, this volatility can be advantageous, creating attractive entry points. “CLO debt tranches offer better risk-adjusted returns than loans or direct lending from a fundamental standpoint, despite exhibiting higher mark-to-market volatility,” considers Bevan. “We view that volatility as an opportunity, and generally recommend maintaining a core allocation to CLO tranches with the flexibility to increase exposure in times of market dislocation or investing through closed-end vehicles with the ability to draw capital to allocate opportunistically.”

“CLO debt tranches offer better risk-adjusted returns than loans or direct lending from a fundamental standpoint, despite exhibiting higher mark-to-market volatility. We view that volatility as an opportunity…”

While CLO debt tranches are less liquid than broadly syndicated loans or high-yield bonds, they remain relatively tradeable. Dealers often hold inventory and support two-way markets, but a significant proportion of trading volumes occur via bond auctions called “BWICs” (Bids Wanted in Competition). “Given that each CLO is usually around $400–$500 million in total size, you’re unlikely to see observable two-way quotes across a large portion of your CLO tranche portfolio at any given time,” notes Bevan. Still, for allocators who can tolerate some liquidity constraints, CLO tranches offer a compelling long-term return profile, underpinned by strong structural protections and resilient credit fundamentals – making them a valuable component of a diversified income strategy.

Manager Selection: A Crucial Determinant of Returns

When investing in CLOs – especially in mezzanine and equity tranches – choosing the right manager is absolutely critical. “We observe significant dispersion in manager performance, particularly in the US, and this variation becomes increasingly impactful deeper down the CLO capital structure,” notes Bevan. However, she cautions that the label “top-tier” can be misleading; reputation and brand recognition do not always translate into strong performance. Instead, the Alcentra team takes a rigorous approach, “looking through to the underlying credit risk in each portfolio based on our own independent views – not relying solely on rating agency assessments – and evaluating managers accordingly.”

“We observe significant dispersion in manager performance, particularly in the US, and this variation becomes increasingly impactful deeper down the CLO capital structure.”

Assessing a manager’s true quality demands a deeper dive into their credit selection, portfolio construction, and skill in navigating the intricate structural dynamics of a CLO. “Some managers are better at portfolio construction and managing the CLO structure better,” explains Bevan. “Because of the leverage inherent in CLO equity, the portfolio should differ significantly from a typical high-yield or loan fund. Position sizing is crucial, as one large misstep in an overweight name can materially affect the CLO equity’s performance.”

Regional Market Divergence

The European CLO market has been growing at a faster pace than its U.S. counterpart, but the demand for CLO tranches hasn’t expanded at the same rate. “This imbalance creates attractive opportunities for investors like us to buy CLO debt tranches at attractive levels,” notes Bevan. Meanwhile, underlying loan markets in both the U.S. and Europe have experienced limited growth, which in turn pressures the traditional CLO equity arbitrage – the excess interest income generated through leverage. “That dynamic is putting strain on the new issue CLO equity arb, which is why we currently have a preference for single Bs over equity,” she adds.

“This imbalance creates attractive opportunities for investors like us to buy CLO debt tranches at attractive levels.”

Ultimately, CLOs remain a powerful vehicle for accessing diverse credit exposures with tailored risk and return characteristics. Structural protections, enhanced cash yields, and opportunities from market dislocations make them an attractive option for institutional allocators – provided investors apply rigorous manager due diligence.

Views expressed are those of Alcentra as of the date of this article and are subject to change.

This article features in the “2025 Private Markets” publication.

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