This is the first article in a two-part feature that examines the rise of “evergreen” funds in private market investing, their appeal, the risks and the challenges in managing them. 

The rapid growth of private market investing has seen the rise of open-ended “evergreen” funds, sometimes called “perpetuals.” Their ascent has been associated with the idea that assets, which were once dominated by large institutions and ultra-HNW individuals, are becoming “democratised.”

But open-ended, semi-liquid structures bring risks and investors who haven’t lived through a protracted market downturn might find that the ride is rough, people in the industry say.

Large firms such as Blackstone, Carlyle, Hamilton Lane and KKR have launched evergreen funds, often as part of a build-out of private wealth channels. Now an industry buzzword, “evergreen” describes a fund that doesn’t come with the drawdowns, capital calls, exit deadlines and other traditional features of private market entities. By deploying capital immediately rather than waiting to deploy the "dry powder," there is no cash “drag,” managers of these funds say.

A decade of ultra-low rates after 2008 helped drive the private markets story, even though the post-Covid interest rate spike cooled fundraising and left large institutional investors with indigestion and a longer wait for returns on their money than they had bargained for.

Cautionary points are not an attempt to dampen investors’ enthusiasm and desire to capture new sources of return, but with heavy inflows going on, and more retail and money at stake, it makes sense to be careful.

“The issues tend to arise with affluent/retail private clients who may not have all the information and influence that larger investors have,” Claire Madden, co-founder and managing partner, Connection Capital, a UK-based investment business, told this publication. “These retail investors, particularly if inappropriately targeted, may need liquidity more urgently in the event of a market dislocation and redemption demand may force the fund to sell its prize assets in a market which will know the fund is a distressed seller.”

The pullout from UK property funds unit trusts after the Brexit referendum in 2016 was an example of how funds that don’t use a closed-ended structure can be vulnerable, and it is important for the industry to understand how it could deal with redemptions, Madden said. (After Brexit and other episodes, the Financial Conduct Authority started a major probe into open-ended funds, with the intention of curbing liquidity mismatches.)

PwC, the global professional services firm, reckons that the evergreen model has been developed to take liquidity and market risks into account. 

"Evergreen structures are far more engineered than they were even five years ago, but it would be overstating things to say they are recession proven. As per Preqin, the net asset value of evergreen funds has scaled quickly to over $400 billion globally, yet most of that growth has occurred in a period without a prolonged downturn combining falling asset values, weak exit markets and broad investor liquidity needs at the same time," RenĂ© Paulussen, alternatives leader at PwC Luxembourg, told this publication. 

"Structurally, quarterly redemption windows capped at a small percentage of NAV usually around 5 per cent mean these vehicles are designed to pace liquidity, not provide it on demand. That distinction becomes critical in a stress scenario.

"Moreover, managers have, to their credit, built in more buffers. Cash sleeves, short-duration credit allocations and subscription line flexibility are more common, and operational playbooks around gating, queuing and side-pocketing are now standard. 

“But those are containment tools, they smooth outflows under normal volatility; they don’t remove the core mismatch between assets that can take years to exit and liabilities that can be presented every quarter. If redemptions rose materially above historical experience, the mechanism that would protect portfolio integrity would also be the one most visible to investors," Paulussen said.

Private market enthusiasm
Whatever the specifics of closed-ended versus semi-liquid routes, it appears there’s plenty of appetite – with caveats – for private markets. 

“We see a continued and deliberate shift toward private markets as core to portfolio construction rather than a satellite allocation. UHNW investors are increasing exposure to private equity, private credit, real estate, hospitality, infrastructure, and niche alternatives where return drivers are more controllable, cash flows are visible, and outcomes can be shaped through active value creation rather than market beta,” Tom Bratkovich, chief investment officer at DCA Family Office, a US group, told this publication. 

Tax plays a role, he said. 

“A defining feature of this shift is a more intentional, tax-advantaged approach. Clients are actively utilising established programmes and structures, such as 1031 exchanges, Opportunity Zones, QSBS, and bonus depreciation, to generate what we think of as `tax alpha,’ materially improving after-tax outcomes without increasing underlying asset risk,” Bratkovich said. 

“From a risk perspective, portfolios are becoming more customised and purpose-built. Rather than pulling back wholesale, families are reallocating risk by reducing reliance on public market volatility and reallocating toward private credit for income and capital preservation, real assets for inflation protection, and select private equity opportunities where secular tailwinds are strongest,” he added.

Where’s the exit?
Marco Bizzozero, head of international at iCapital, a New York-headquartered fintech platform for alternative investments, said the democratisation of private markets has so far focused on opening access, but there is also a need to address how investors leave the building. 

Much of the efforts of recent years have been to “make it [access] easier on the way in, but now it is about also facilitating the way out,” Bizzozero said in an interview with WealthBriefing at his London office.

An evergreen fund might typically have a 5 per cent cap on redemptions per quarter and apply a monthly subscription schedule and quarterly redemptions. This is very different from a listed product, he continued. An efficient and transparent secondary market for private investors is necessary to fully democratise the asset class on the “way in” as well as on the “way out,” he said. 

Where secondaries come in
Bizzozero’s reference to “secondaries” funds is apt: these structures hold pre-existing investment stakes and are part of the wider private markets story. As with any second-hand market, it increases liquidity, creates an exit route for those who want to sell earlier than perhaps originally planned, and a chance for buyers to obtain value. To a certain extent, secondaries reduce some of the illiquidity frictions, although they don't eliminate them.

This liquidity also enables price discovery. One of the earliest main players in secondaries is Coller Capital. Perhaps not coincidentally, EQT in Sweden said in January this year that it had bought Coller. Other players in the secondaries space include Alpinvest, Harbourvest and Lexington.

According to CVC, an investment firm, on 26 November last year, secondaries’ share of private equity AuM had risen almost threefold from its 2000 level, with momentum accelerating further since the pandemic. In absolute terms, this equates to approximately a 60 times rise in secondaries assets since 2000, to a total of $550 billion in 2024. In comparison, the wider private equity industry grew by about 20x to $17.2 trillion in the same period. Secondaries have headroom.

Connection Capital's Madden says secondaries have evolved. 

"The market for secondaries is still in good shape. The discount to NAV paid for secondary assets has been quite tight for some time," she said. As more money has gone into the space, it has narrowed those discounts.

Enthusiasm for the “semi-liquid” area appears to be robust. Carne Group, an independent third-party management firm, carried out a survey early this year with 200 C-suite fund management figures in the US and Europe. In a study issued today, it found that 89 per cent plan to launch semi-liquid structures in the next two years.