Evergreen Funds – Taking the Good with the Bad

The private markets industry has seen remarkable growth in fund structures designed to balance liquidity with access to traditionally illiquid investments. One structure that has been gaining momentum is the evergreen fund. Estimates from Preqin indicate that the number of evergreen funds has doubled between 2018 and 2023, with more than 500 funds worldwide now representing over $350 billion in assets. Despite these numbers, many investors and even fund professionals remain unfamiliar with how they work.

So, what exactly is an evergreen fund – and what makes them both appealing and challenging?

What Are Evergreen Funds?

Evergreen funds are open-ended structures, similar in structure to hedge funds, but they invest in private market strategies typically associated with closed-end funds – such as private equity, private credit, and other illiquid alternatives.

Instead of a fixed term where investors commit capital for 5-10 years, evergreen funds provide an ongoing vehicle with rolling subscriptions and redemptions. This flexibility offers clear benefits to both investors and managers, though it also introduces new risks and complexities.

Why Investors Like Evergreen Funds

For investors, evergreen funds offer:

• Access to illiquid assets: Exposure to private markets through a more liquid vehicle.
• Convenience: The ability to “roll” investments forward without needing to re-commit capital every few years.
• Improved Liquidity Options: Redemption terms may be restrictive, but investors aren’t necessarily locked in for 5-10 years as they would normally be in a traditional closed-end fund.
• Evergreen funds can provide private-market exposure with a level of flexibility that aligns better with certain investors' liquidity needs.

Why Fund Managers Like Evergreen Funds

For fund managers, evergreen structures present their own set of advantages:

• Access to New Capital: Potential to attract investors unwilling to commit to long-dated closed-end funds.
• Reduced Fundraising Burden: Less pressure to raise new capital every few years.
• Performance-Driven Growth: Strong returns can help lead to continuous inflows of new capital
• Cost Efficiency: Managers avoid the expense of launching new funds repeatedly.

This structure enables managers to concentrate on investing rather than the cycle of raising new vehicles.

The Challenges to Consider

Of course, with benefits come trade-offs. Both investors and managers face unique challenges with evergreen funds.

For Investors:

• Ongoing need to evaluate the manager and performance – “should I stay or should I go?”
• Navigating the complex redemption rules.
• Potentially lower returns, as managers often hold more cash to manage liquidity.

For Managers:

• Liquidity management is a constant and difficult balancing act.
• Operational complexity compared to traditional closed-end structures.
• Reinvestment vs. distribution dilemma when investments are realized.
• Fixed terms that may not evolve with the market environment.

Evergreen funds are not a silver bullet—they’re a trade-off between flexibility and complexity. For some investors, they offer an attractive entry point into private markets without a decade-long lockup. For managers, they open doors to new capital and operational efficiencies.

At the same time, they demand robust liquidity management, thoughtful structuring, and close reliance on experienced legal, accounting, and administrative partners.

Ultimately, the decision to launch—or invest in—an evergreen fund depends on fit. Like any structure in the private markets, it will be the right choice for some and the wrong one for others.