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 traditional drawdown funds and are designed to appeal to a broader base of individual investors. This shift is being facilitated by government enthusiasm; in 2025 alone, the Securities and Exchange Commission (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. It is important to note that while the INVEST Act has passed through Congress, it has not yet been enacted into law as it requires Senate approval.
In 2023, Hilary Wiek, CAIA CFA, Principal Analyst, Fund Strategies at PitchBook, 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 emerging evergreen space, and its unique structure demands its own distinct set of critical inquiries. The following analysis applies the same six P’s framework—people, philosophy, process, portfolio construction, performance, and price—to the specific demands and complexities of semi-liquid, evergreen funds. These questions are relevant not only to those actively investing in evergreen funds but also to anyone assessing what a manager’s expansion into this burgeoning space signifies for their existing drawdown fund strategies and overall business model.
The Evolving Landscape of Private Market Access
The traditional private equity model, characterized by closed-end drawdown funds, has long been the exclusive domain of institutional investors and ultra-high-net-worth individuals. These funds typically require substantial capital commitments, often in the tens of millions of dollars, and operate on a capital call basis where investors contribute capital over time as investment opportunities arise. This structure, while effective for long-term, illiquid investments, presents significant barriers to entry for a vast segment of the investing public.
However, the past decade has witnessed a significant transformation. Asset managers, facing a plateau or even a decline in the willingness of some institutional investors to significantly increase their private market allocations, have sought new avenues for growth. This has led to the development of innovative fund structures designed to democratize access to private markets. Evergreen funds, also known as semi-liquid or perpetual funds, are at the forefront of this evolution.
These new products are engineered with features that directly address the limitations of traditional drawdown funds. Lower minimum investment thresholds make them accessible to a wider range of investors. The ability to invest immediately, rather than waiting for capital calls, provides greater flexibility. Crucially, periodic liquidity – typically offering quarterly or annual redemption windows – addresses the long-standing illiquidity concern that has historically deterred many from private markets.
This trend is not occurring in a vacuum. Regulatory and governmental support has been a significant catalyst. The SEC’s proposed amendments to the accredited investor definition, if enacted, could expand the pool of eligible investors in private offerings. The INVEST Act, passed by Congress, aims to streamline and encourage private investments, particularly within retirement accounts. President Trump’s executive order further signals a governmental push to channel more capital into private markets, including through vehicles like 401(k)s. While the INVEST Act has cleared one legislative hurdle, its path to becoming law is contingent on Senate approval, underscoring the dynamic and evolving regulatory environment.
Deconstructing the Evergreen Model: A Six ‘P’ Framework
The expansion into evergreen structures necessitates a rigorous due diligence process, distinct from that applied to traditional drawdown funds. The following framework, adapted from established institutional practices, aims to equip investors with the critical questions to ask when evaluating these novel investment vehicles.
People: Examining Firm Management, Investment Teams, and Alignment
The "People" aspect of due diligence is paramount, encompassing firm management, the expertise of investment teams, ownership structures, and the alignment of interests between managers and investors. In the context of evergreen funds, several new and complex lines of inquiry emerge.
Co-Managed Structures: A notable trend in the evergreen space is the emergence of co-managed funds, such as those involving Capital Group and KKR, or Wellington, Vanguard, and Blackstone. This raises fundamental questions about decision-making authority. Investors must probe: Who ultimately controls which investment decisions? How is the overarching asset allocation determined? Who is responsible for managing inflows, processing redemptions, conducting valuations, and overseeing liquidity management? A critical question for investors is to understand the rationale behind a co-managed structure and why it is considered superior to single-entity management for a particular strategy.
Brand Name vs. Operational Reality: When a well-established, "name-brand" firm launches an evergreen product, a crucial question arises: Will the team actually managing the fund have any substantive relation to the team 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 being managed by the original general partners (GPs) who issued those underlying funds. Consequently, the individuals and teams that investors initially underwrote may not be the same ones actively managing their capital in the evergreen vehicle. This disconnect can have significant implications for strategy execution and value creation.
Alignment of Incentives: The alignment of interests between fund managers and investors in evergreen structures warrants careful scrutiny. Evergreen funds can potentially grow to sizes that dwarf even the largest traditional drawdown funds. Furthermore, fees on non-institutional products, such as evergreen funds, tend to be higher. If the substantial management fee income generated by these evergreen products becomes the dominant revenue stream for the asset manager, the traditional 20% carried interest incentive on drawdown funds may no longer be the primary motivational driver. Unlike in 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 raises concerns about whether managers will remain as deeply invested in the long-term success of the underlying investments as they would be in a traditional drawdown vehicle.
Philosophy: Articulating Strategy in a Semi-Liquid Framework
It is insufficient for a fund manager to simply categorize their evergreen product as, for instance, a "private equity fund." The inherent liquidity obligations of an evergreen structure fundamentally alter its composition and operational dynamics. Such a fund may need to maintain a significant liquidity sleeve and hold interests in secondary funds alongside direct investments in private companies – a materially different composition than a typical drawdown fund. Investors should press for a clearly articulated investment philosophy that acknowledges and addresses these structural differences.
Beta vs. Alpha Generation: A key question is whether the manager aims to provide broad market exposure (beta) or to generate superior, risk-adjusted returns (alpha) through active stock selection and value creation. The patience and deliberate effort required to invest only in the most compelling opportunities, to actively work with portfolio companies to create value, and to sell at a favorable exit may conflict with investor expectations of immediate and broad private market exposure. Managers might be incentivized to deploy capital quickly rather than waiting for optimal entry points. Past success achieved through drawdown strategies may not be directly replicable if the manager must relinquish control by purchasing secondary stakes rather than acquiring controlling positions. Investors should directly ask: Is the evergreen structure genuinely the most suitable vehicle for this manager’s core investment strategy, or is its adoption primarily a tactical response to challenging drawdown fundraising conditions?
Process: Adapting Deal Structuring and Conflict Management
The operational processes within an evergreen fund must adapt to its unique characteristics. Deal structuring, for example, may need to evolve. A manager whose reputation was built on acquiring and turning around distressed companies might shift towards investing in more stable, income-generating businesses to support the predictable cash flows required for liquidity. Investors should not assume that drawdown-era track records translate directly to the operational realities of an evergreen mandate.
Conflict of Interest Management: Conflict of interest management deserves particular attention, especially when a manager holds a position in both a drawdown fund and an evergreen fund. If a portfolio company requires additional capital, will the evergreen fund be the source? If so, who advocates for the distinct interests of each fund in that capital allocation decision? Furthermore, if a manager is actively acquiring secondary stakes to deploy capital, investors must understand whether this is a temporary strategy to ramp up the fund or an ongoing approach. It is also crucial to ascertain whether the underlying managers of those secondary stakes have undergone rigorous due diligence.
Portfolio Construction: Balancing Liquidity and Investment Strategy
Effective portfolio construction in an evergreen fund requires a sophisticated approach to liquidity management, a challenge that a surprising number of managers are still actively refining. The fundamental models for managing liquidity typically include holding sufficient cash reserves to meet the maximum anticipated redemptions, relying on portfolio income and anticipated exits, or employing lines of credit. Each of these approaches carries inherent trade-offs. While credit lines can minimize cash drag, they introduce significant risk if a market crisis occurs precisely when redemptions peak and creditors simultaneously withdraw their support.
Investors should also inquire about the fund’s strategy for managing substantial inflows when prevailing market conditions make primary investment opportunities unattractive. At what point does the manager consider the fund to be "fully mature," and what are the defining characteristics of such a state? Understanding the upper and lower capacity limits of the fund is also critical. An excess of capital can dilute investment discipline and dilute the impact of the best ideas. Conversely, insufficient capital can hinder adequate diversification, particularly for strategies that require significant or controlling stakes in portfolio companies.
Performance: Navigating Valuations and Return Metrics
Valuations play a far more consequential role in evergreen funds than in 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 valuations. Investors must thoroughly understand the fund’s valuation policies for illiquid assets, whether independent third parties are engaged to review these valuations, and what proportion of the fund’s historical return reflects realized exits versus unrealized gains (markups) as determined by the GP.
Two specific issues warrant particular attention regarding performance. Firstly, secondary stake purchases are often acquired at a discount to the underlying GP’s NAV and are immediately marked up to that NAV. This can create an immediate, short-term gain that artificially inflates early performance figures. Investors should probe the extent to which a manager’s reported track record reflects this phenomenon. Secondly, it is crucial for fund managers to refrain from implying that historical Internal Rates of Return (IRRs) from drawdown funds are meaningful predictors of evergreen fund time-weighted returns. These are structurally different calculation methodologies, and any direct comparison is inappropriate and potentially misleading.
Price: Unraveling Fee Structures and Redemption Terms
The pricing of evergreen funds can be intricate, difficult to compare across different vehicles, and often multilayered in ways that benefit fund managers. Investors should request a comprehensive, itemized list of every fee charged by share class, including management fees, acquired fund fees from underlying funds in secondary transactions, interest expenses, loads, and any other applicable charges. Performance incentive fees levied on unrealized investments, which are valued by the manager, introduce a serious conflict of interest and require exceptionally close scrutiny.
Redemption terms, too, are often more complex than they initially appear. Investors must gain a clear understanding of lock-up periods, the permitted interval amounts for redemptions, redemption loads, and, critically, the specific conditions under which the manager reserves the right to suspend redemptions entirely. These clauses can significantly impact an investor’s ability to access their capital when needed.
Potpourri: Additional Considerations for Investors
While the six "P’s" provide a robust framework, several additional considerations may prove valuable for investors allocating capital to evergreen funds. These points, while not fitting neatly into the preceding categories, are nonetheless pertinent to a comprehensive due diligence process.
The ability of evergreen funds to offer liquidity is a double-edged sword. While attractive to investors, the need to manage potential redemption requests can influence investment decisions, potentially leading to a preference for more liquid or income-generating assets over longer-term, high-growth opportunities. This strategic shift could alter the risk-return profile of the fund compared to its drawdown predecessor.
Furthermore, the regulatory landscape surrounding these semi-liquid structures is still developing. As more capital flows into evergreen products, regulators may introduce new rules or guidance to ensure investor protection and market stability. Investors should stay abreast of these evolving regulatory developments.
The operational infrastructure required to manage evergreen funds is also more complex. This includes robust systems for NAV calculation, investor reporting, and liquidity management. The capability and experience of the operational team are as critical as the investment team’s expertise.
Finally, the integration of evergreen strategies within larger asset management firms needs careful consideration. How do these new products fit within the firm’s overall business strategy? Are there potential internal conflicts or synergies between evergreen offerings and other fund types? Understanding the firm’s holistic approach is essential.
The full version of this analytical paper, offering deeper insights and further detailed examination, can be accessed here.
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