According to CNBC, Goldman Sachs’ Marc Nachmann is sounding the alarm about “deployment pressure” from the massive influx of evergreen funds into alternative assets. These funds, specifically structured for wealthy individuals seeking liquidity, require managers to deploy capital immediately rather than waiting for optimal market conditions. Nachmann, who runs asset and wealth management at Goldman, warned this pressure could lead to poorer deal selection and limited returns. He specifically noted his firm avoids deployment targets to prevent this exact problem. The rapid growth of evergreen funds means this dynamic now affects a significant portion of the private markets.
<h2 id="the-gift-card-problem“>The Gift Card Problem
Here’s the basic issue with evergreen funds: they’re structured completely differently from traditional private funds. Think of traditional private equity or credit funds like a gift card with no expiration date – managers can wait for the right moment to spend that capital. But evergreen funds? They’re like gift cards that lose value every day they’re not used. The money literally costs them more to hold than to deploy immediately.
Now, when only a handful of funds operated this way, it wasn’t a big deal. But with the explosion of these vehicles targeting wealthy individuals, you’ve got this massive wave of capital all needing to be put to work RIGHT NOW. And that creates some pretty serious market distortions.
When Everyone’s Buying, Prices Go Up
Nachmann’s concern about “deployment pressure” is basically Wall Street speak for “making bad decisions because you have to spend money.” When fund managers feel compelled to deploy capital regardless of market conditions, they end up overpaying for assets or accepting weaker terms. They’re buying because they HAVE to, not because they WANT to.
And here’s the thing – this isn’t just theoretical. We’re already seeing the effects. Returns are getting compressed across private credit and other alternative assets. The very thing that made these investments attractive to wealthy individuals in the first place – those juicy returns – are getting squeezed by the structure of the funds themselves.
How Goldman’s Playing It
What’s interesting is that Goldman has skin in this game with their own G-Series suite of open-ended funds. But Nachmann says they’re deliberately avoiding deployment targets. That’s a pretty significant statement coming from someone whose business includes these very products.
Basically, he’s acknowledging the structural problem while trying to position Goldman as the disciplined player who won’t chase bad deals. It’s a smart move – when the cycle eventually turns (and it always does), the firms that didn’t succumb to deployment pressure will be the ones left standing.
The Credit Cycle Returns
Nachmann thinks this will create differentiation similar to a “credit cycle.” Translation: some managers are going to look really smart when the music stops, and others are going to have some explaining to do. The evergreen fund structure essentially forces a Darwinian selection process.
So what happens next? Well, if you’re invested in these funds, you should probably be asking some tough questions about your manager’s deployment discipline. Are they investing because it’s a great opportunity, or just because they have money burning a hole in their pocket? The answer to that question might determine whether you get the returns you’re expecting – or become a cautionary tale in the next market downturn.
