Private markets are rapidly expanding into portfolios of investors previously excluded due to income or wealth restrictions. Asset managers, seeing a decline in institutional investors willing to grow commitments to private markets, are adapting – creating products with lower minimums, immediate investment ability, and periodic liquidity. These features address real limitations of drawdown funds and appeal to individual investors. Government enthusiasm is helping: in 2025 alone, the SEC proposed amendments to the accredited investor definition, Congress passed the INVEST Act, and President Trump signed an executive order encouraging private market investments in 401(k) accounts. As of now, this act has only passed through Congress and is not law, as it has not yet passed through the Senate.
In 2023, I published An LP’s Guide to Manager Selection, drawing on 25 years of institutional investing experience to evaluate private market managers. That piece did not contemplate the evergreen space, and the unique structure demands its own questions. What follows applies the same six P’s framework – people, philosophy, process, portfolio construction, performance, and price – to the specific demands of semi-liquid funds. These questions are relevant not only to those investing in evergreen funds, but to anyone assessing what a manager’s expansion into this space means for its existing drawdown funds.
The Shifting Landscape of Private Market Access
The private markets, once the exclusive domain of institutional investors and ultra-high-net-worth individuals, are undergoing a significant transformation. Driven by a confluence of factors, including evolving regulatory frameworks and a strategic pivot by asset managers, access to private equity, venture capital, and private debt is becoming more democratized. This expansion is fueled by a desire to tap into new pools of capital as traditional institutional commitments to private markets face headwinds, such as maturing portfolios and a more cautious approach to increasing allocations.
Asset managers are responding by reconfiguring their offerings. The traditional drawdown fund model, characterized by long lock-up periods and capital calls, is being supplemented, and in some cases supplanted, by evergreen structures. These new products are designed with features tailored to a broader investor base, including lower investment minimums, the ability to invest at any time rather than through periodic closings, and crucially, provisions for periodic liquidity. These innovations directly address the inherent illiquidity and capital commitment challenges that have historically excluded many potential investors from private markets.
The regulatory environment has also shown a growing inclination to facilitate this expansion. In 2025 alone, the Securities and Exchange Commission (SEC) proposed amendments to the definition of an accredited investor, a move intended to broaden the eligibility criteria for private investment opportunities. Concurrently, Congress advanced the INVEST Act, signaling legislative support for increasing private market participation. Furthermore, a presidential executive order aimed at encouraging private market investments within 401(k) accounts underscores the burgeoning governmental interest in unlocking these asset classes for a wider demographic. It is important to note that as of this analysis, the INVEST Act has passed through Congress but has not yet been enacted into law.
This recalibration of access is not merely an opportunistic move by asset managers; it represents a fundamental shift in how private market capital is raised and deployed. As reported by PitchBook, the growth in private market fundraising has been substantial, with global private equity fundraising reaching over $1.2 trillion in 2023, demonstrating the continued appetite for these asset classes. However, the nature of this capital is evolving, moving from large, infrequent commitments by institutions to smaller, more frequent inflows from a more diverse investor base. This transition necessitates a re-evaluation of traditional investment due diligence frameworks, particularly for the burgeoning evergreen fund structures.
Deconstructing Evergreen Funds: A Six "P" Framework for Diligence
In her seminal 2023 publication, "An LP’s Guide to Manager Selection," Hilary Wiek, Principal Analyst, Fund Strategies at PitchBook, drew upon two and a half decades of institutional investing experience to outline a comprehensive framework for evaluating private market managers. This established methodology, centered on six key pillars – People, Philosophy, Process, Portfolio Construction, Performance, and Price – remains highly relevant. However, the unique architecture of evergreen funds introduces new complexities and demands a nuanced application of this framework. The following analysis extends Wiek’s established principles, dissecting the specific questions and considerations pertinent to semi-liquid private market vehicles. These inquiries are not only critical for investors contemplating allocations to evergreen funds but also for understanding the broader implications of managers venturing into this space for their existing drawdown strategies.
People: Navigating Co-Management and Brand Dilution
The "People" pillar of due diligence traditionally encompasses the firm’s management, the investment team’s expertise, ownership structures, and the alignment of incentives. In the context of evergreen funds, several novel lines of inquiry emerge.
A significant development is the rise of co-managed evergreen funds. Structures involving multiple prominent asset managers, such as the collaborations seen between Capital Group and KKR, or Wellington, Vanguard, and Blackstone, necessitate a deeper understanding of decision-making authority. Investors must ascertain who controls which investment decisions, how asset allocation is determined, and who bears responsibility for critical functions like managing inflows, redemptions, valuations, and liquidity. A key question for investors is to probe the rationale behind a co-managed structure, seeking to understand why it would offer a superior outcome compared to a single-entity management approach.
Furthermore, the allure of established, name-brand firms launching evergreen products raises concerns about the actual team managing these funds. It is imperative for investors to determine if the team executing the evergreen strategy has a direct lineage to the individuals or teams that built the firm’s reputation. Many evergreen funds are leveraging secondary market purchases to deploy incoming capital. This means that portions of the portfolio are effectively managed by the original general partners (GPs) who issued those underlying funds. Consequently, the people an investor underwrote may not be the individuals actively managing their capital.
Alignment of interests also warrants rigorous scrutiny. Evergreen funds can rapidly outgrow the scale of even the largest traditional drawdown funds. Moreover, fees associated with non-institutional products often tend to be higher. If management fee income from these evergreen products becomes the dominant revenue stream, the traditional incentive of a 20% carried interest on drawdown funds may lose its primacy. Unlike drawdown funds where the GP commitment is typically locked up alongside investor capital, evergreen structures may offer managers greater flexibility, potentially allowing them to reduce their own exposure over time through liquidity provisions. This shift in incentive dynamics requires careful evaluation.
Philosophy: Defining Strategy in a Liquid-Adjacent World
It is insufficient for a fund manager to simply label their evergreen product as, for instance, a private equity fund. The inherent liquidity obligations of an evergreen structure often necessitate the inclusion of a significant liquidity sleeve and secondary fund interests alongside direct investments in private companies. This composition can be materially different from that of a traditional drawdown fund. Investors should press managers for a clearly articulated investment philosophy that acknowledges and addresses these structural differences.
A critical question is whether the manager aims to provide broad market beta exposure or to generate alpha through concentrated, high-conviction opportunities. The patience and dedicated effort required to identify and invest solely in the most promising opportunities – to meticulously create value and then exit at a favorable gain – may be at odds with investor expectations of immediate private market exposure. Managers might feel incentivized to deploy capital rapidly, perhaps by acquiring assets at less-than-ideal prices, rather than waiting for optimal entry points. Past successes achieved through pure drawdown strategies may not be directly replicable if the manager is compelled to relinquish control by purchasing secondary stakes rather than securing controlling positions in underlying companies. Investors should directly question whether the evergreen structure is truly the most appropriate vehicle for the manager’s core strategy, or if its adoption is primarily a pragmatic response to challenging drawdown fundraising conditions.
Process: Adapting Deal Structuring and Managing Conflicts
The operational processes of private market investing must adapt to the evergreen context. A manager whose reputation was built on the intricate process of restructuring distressed companies might find themselves shifting towards investments in more stable, income-generating businesses to support the fund’s income-based liquidity needs. Investors should not presume that traditional drawdown track records are a direct or sufficient predictor of performance in this new paradigm.
The management of conflicts of interest deserves particular attention, especially when a manager holds positions in both a drawdown fund and an evergreen fund. If a portfolio company requires additional capital, the question arises: will the evergreen fund provide this funding? If so, who champions the distinct interests of each fund in that crucial capital allocation decision? Furthermore, if a manager is actively acquiring secondary stakes to deploy capital, investors need to understand whether this is a temporary strategy to facilitate fund ramp-up or an ongoing, integrated approach. Equally important is a thorough vetting of the underlying managers of those secondary stakes.
Portfolio Construction: The Art and Science of Liquidity Management
Beyond the traditional dimensions of diversification, evergreen funds demand a highly active and sophisticated approach to liquidity management. Surprisingly, a considerable number of managers are still refining their strategies in this critical area. Common models include maintaining a cash reserve sufficient to meet the maximum anticipated redemptions, relying on a combination of portfolio income and asset exits, or utilizing lines of credit. Each of these approaches carries distinct trade-offs. Credit lines, while minimizing cash drag, introduce substantial risk if a systemic crisis occurs precisely when redemption requests peak, and creditors simultaneously withdraw their support.
Investors should also inquire about the fund’s strategy for managing large inflows when prevailing market conditions render primary investment opportunities unattractive. At what point does the manager deem the fund to be "fully mature," and what are the defining characteristics of such a state? What are the upper and lower capacity limits for the fund? An overabundance of capital can dilute investment discipline and dilute the impact of the best ideas, while insufficient capital can impede adequate diversification, particularly for strategies that require significant or controlling stakes in portfolio companies.
Performance: Valuations, Markups, and IRRs
The significance of valuations is amplified in evergreen funds compared to their drawdown counterparts. Investors subscribe to and redeem from these funds based on manager-determined Net Asset Values (NAVs). In some instances, performance fees are calculated based on these same NAV marks. Consequently, investors must gain a thorough understanding of the fund’s valuation policies for illiquid assets. Key questions include whether independent third parties are engaged to review these valuations and what proportion of the fund’s historical returns is attributable to realized exits versus manager markups.
Two specific issues warrant particular attention. Firstly, secondary stake purchases are often acquired at a discount to the underlying GP’s NAV and are subsequently marked up to that NAV, generating an immediate, short-term gain that can artificially inflate early performance figures. Investors should rigorously investigate the extent to which a manager’s track record reflects this phenomenon. Secondly, fund managers should not be permitted to imply that historical Internal Rates of Return (IRRs) generated from drawdown funds are meaningful predictors of the time-weighted returns achievable in evergreen funds. These are structurally different calculations, and any direct comparison is inappropriate and potentially misleading.
Price: Decoding Fees and Understanding Redemption Terms
The pricing structures of evergreen funds can be notably complex, difficult to compare across different offerings, and often multilayered in ways that disproportionately benefit fund managers. Investors should demand a comprehensive, itemized list of every fee charged per share class. This includes management fees, acquired fund fees stemming from underlying funds in secondary transactions, interest expenses, loads, and any other associated charges. Performance incentive fees levied on unrealized, manager-valued investments represent a significant conflict of interest and should be subjected to intense scrutiny.
Redemption terms, too, are often more intricate than they initially appear. Investors must fully comprehend the stipulated lock-up periods, the permitted interval amounts for redemptions, any redemption loads, and, critically, the specific conditions under which the manager retains the right to suspend redemptions entirely.
Potpourri: Additional Investor Considerations
While the primary framework has focused on the six core "P"s, a few additional considerations merit attention for investors allocating capital to evergreen funds, which may not fit neatly into the preceding categories. These include:
- Operational Due Diligence: Beyond investment strategy, a thorough review of the fund’s operational infrastructure, including fund administration, compliance, risk management, and technology platforms, is paramount. The increased volume of transactions and investor activity in evergreen funds places a greater burden on these operational functions.
- Tax Implications: The tax implications of evergreen structures can differ significantly from traditional drawdown funds, particularly concerning the treatment of income and capital gains distributions. Investors should consult with tax advisors to understand potential impacts on their specific tax situation.
- Manager’s Long-Term Vision: Understanding the manager’s long-term strategic vision for their evergreen offerings is crucial. Is this a core, enduring part of their business, or a tactical response to market conditions? This insight can inform an investor’s own long-term allocation decisions.
- Reporting and Transparency: Given the semi-liquid nature and potentially diverse holdings of evergreen funds, investors should assess the quality and frequency of reporting and the overall transparency provided by the manager. Clear and timely communication is essential for informed decision-making.
The expanding universe of evergreen funds presents both opportunities and challenges for investors seeking access to private markets. While these structures democratize access and offer greater flexibility, they also introduce new layers of complexity and potential conflicts. A rigorous, questions-driven approach, grounded in established due diligence principles but adapted to the unique characteristics of evergreen vehicles, is essential for navigating this evolving landscape effectively. The full version of this paper, offering a more in-depth analysis, can be accessed here.
