Accessing private markets through evergreen funds

Historically, it has been difficult for certain investors to gain exposure to private markets (such as private debt and private equity), which can offer a number of portfolio benefits including the ability to harvest an ‘illiquidity premia’.

With the advent of evergreen structures, a wider range of investors now have the opportunity to access private market strategies through more efficient structures (rather than via mandates), effectively allowing for the ‘institutionalisation’ of their investment programs.

Evergreen funds, also known as open-end, perpetual capital and semi-liquid funds, offer investors a flexible and efficient means to gain exposure to private assets. Unlike closed-end funds with fixed lifespans, evergreen funds by design continue indefinitely, therein providing investors with a degree of flexibility to both enter and exit these structures.

Much like traditional closed-end funds, evergreen funds pool capital to invest across a diverse portfolio of equity or debt issued by private companies or backed by assets. However, a key advantage of evergreen funds over their closed-end counterparts is that they can offer investors access to their capital on a periodic basis. Their growing prevalence is attempting to bridge a liquidity mismatch – between the underlying assets and investor’s time horizon. In this paper we examine the trade-offs investors should consider before investing in evergreen funds.

This paper delves into:

• The key differences between traditional closed-end funds and their evergreen counterparts.
• The significant growth in private market products launched through an evergreen structure.
• Key features of fund design.
• The spectrum of asset types’ duration within the private credit universe.
• How funds remain open for investment.
• How the peer group provides liquidity, and does it come at a cost.
• Performance outcomes.

Based on our analysis, private market allocations offer a number of portfolio benefits, including the potential for higher returns and reduced volatility, ultimately translating into more efficient portfolio outcomes.

There is a variety of options for investors to access private markets, albeit each will come with its own specific requirements and considerations. What option to use depends on investors’ preferences and circumstances. It can often be appropriate to use a combination of options.

We view evergreen structures as more suited to private wealth and smaller institutional investors, and/or those with less developed allocations to private markets or investors preferring simple implementation. For the larger and more sophisticated investor types, who can handle additional complexity, the appeal is less clear.

Notwithstanding the semi-liquid status, we believe investors should consider open-end funds as illiquid investments that offer a level of capital management flexibility. Investors should approach their usage with a long-term timeframe in the context of achieving their ultimate goal – an ongoing and stable private markets investment program.