Private Equity: Can we Trust Evergreen Funds?
Private equity for everyone—that’s the promise. Evergreen funds are booming, making private equity more accessible than ever. But this new investment vehicle is reshaping the very structure of corporate financing. How can we strike the right balance between risks and opportunities?
Long regarded as the exclusive territory of seasoned investors, private equity is becoming more widely accessible. European legislation is fueling the rise of a new generation of evergreen or semi-liquid funds, which could appeal to the heirs of the roughly €3,500 billion set to change hands by 2030.
Despite being relatively unknown just a few years ago, these investment vehicles are now growing at nearly 30% a year. They account for around 5% of the global private-equity market—roughly $700 billion—and could quadruple within the next decade, according to projections from U.S. asset manager Hamilton Lane.
Evergreen Funds: Redefining Private Equity
Traditional private equity funds have a ‘closed-ended’ structure and typically run for about ten years. During this period, investors pledge capital to the fund, which is then gradually drawn down, invested in companies, and eventually returned through sales or IPOs. While the system is efficient, it is inflexible: investors cannot withdraw their money early, even if they require liquidity.
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Evergreen funds work differently. As their name suggests, they are built to last indefinitely. Investors (Limited Partners, or LPs) can join or exit at regular intervals, while profits are automatically reinvested. In practice, this means the fund manager (General Partner, or GP) is no longer bound by a ten-year countdown. They can support a company over the long term, without forcing it toward an artificial exit.
Flexibility and Democratization
The secret to evergreen funds’ success lies in changing expectations. Large institutional investors (LPs), along with a growing number of individual savers, want access to private equity without being locked into a rigid investment horizon. Evergreen funds meet this demand for flexibility.
European regulation has played a key role in this trend. The 2024 ELTIF 2 reform has made it possible to distribute private equity funds to non-professional clients across the European Union. In other words, individual investors can now access vehicles that were previously reserved for pension funds or high-net-worth individuals. Firms like Hamilton Lane, Carmignac, and Apollo have already rolled out evergreen funds under this framework to target this new clientele.
The model also provides a technical edge: capital is invested and reinvested continuously. This solves the ‘dry powder’ problem of closed-end funds, in which pledged money often sits idle waiting to be drawn down. As a result, returns can start compounding from the very first day.
The Pitfalls of Evergreen Funds
The main limitation of evergreen funds lies in liquidity management. How can investors be granted the possibility of being “liquid” and exiting whenever they wish when the underlying assets—start-ups, SMEs, and infrastructure—are liquid by definition? To manage this, funds establish liquidity reserves of around 20% of the net asset value (NAV) or limit redemptions to specific times and percentages, known as ‘gates.’ While effective under normal conditions, these mechanisms can be strained during a crisis period if too many investors attempt to withdraw at once.
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Another key concern is transparency. In an evergreen fund, the holdings’ value is updated regularly and forms the basis for the fund’s valuation. Yet valuing private companies is far from straightforward, and approaches can differ from one manager to the next, despite the existence of regulatory guidelines. This creates the risk of a sudden drop in the net asset value if valuations are not sufficiently conservative.
Finally, this type of structure does not have a substantial performance track record. Large closed-end funds benefit from decades of data and standardized indicators such as the distribution to paid-in (DPI) metric. Evergreen funds, by contrast, report performance as an annual return, which is difficult to interpret accurately given the absence of long-term data.
The Future of Private Equity?
Traditional private equity therefore still offers strong advantages and meets the needs of many institutional investors. Yet evergreen funds are emerging as a complementary solution that is better suited to investors who cannot bear the burden of illiquidity and frequent capital calls.
The challenge for GPs lies in striking the right balance. Too much liquidity, and the evergreen fund risks losing touch with its inherently illiquid assets. Too little, and investors will be disappointed. Distributors also face the task of guiding a broader audience through these nuances.
Evergreen funds are not a passing trend. They reflect a structural shift in private equity toward greater accessibility, flexibility, and diversity. With careful risk management, they have the potential to become a central pillar of European private finance in the decades to come.
