Evergreen funds for everyone?
UK Private Capital’s Head of Legal & Regulatory Policy, Tom Taylor and Research Manager, Ewa Skornas share their insights on the hot topic of evergreen funds. Insights taken from a recent LP-GP forum discussion featuring a panel of Luke Finch, Hg; Katie Lee, Franklin Templeton; Emily Pollock, KKR; and Shaha Miah, Pantheon; as well as wider conversations across the market.
Primer: What are evergreen funds?
Evergreen funds are investment funds with no fixed end date. Unlike traditional closed-ended‑end funds that usually run 7–10 years or more, with capital calls and a defined wind‑down, evergreen funds typically do not have a fixed size or finite fundraising period, allow periodic subscriptions and redemptions, and reinvest proceeds indefinitely.
The exact redemption rights for each fund may vary – evergreen funds allow investors to withdraw their investments periodically, up to a cap based on a proportion of assets (for example, the maximum redemption amount might be 5% of the fund’s NAV per quarter after 12 month lock-in period).
Growth spurt
The number of evergreen funds has grown significantly in size in recent years, with Hamilton Lane estimating that evergreen funds currently represent roughly 5% of the overall private markets AUM, with this predicted to increase to around 20% of total private markets AUM in 10 years’ time. This growth is being driven by increased demand from both institutional investors and the private wealth channel. Like any exciting segment of the market, there is now a wide variety of evergreen structures investing across different strategies and through primaries, secondaries, and co-investments.
(Options to access) Cash is king
Investors, particularly the private wealth segment, are attracted by factors such as greater flexibility; immediate and constant exposure to private markets through capital deployed on day one and distributions immediately reinvested; more tailored liquidity options; and the potential for diversification across asset classes within a fund.
As with any financial product, investor education is key to ensure that the evergreen fund offered is right for the investor, particularly if this is a first step into private markets. Evergreen funds can be an attractive option for institutional investors that wish to start or expand their private markets exposure. For evergreen funds with a reasonable exposure to private markets, performance measurement should be assessed after 5-6 years, in line with the duration of the underlying assets.
Scaling sustainably
From a fund manager perspective, scale is an advantage when offering these products, as managing evergreen vehicles requires a distinct skill set and presents operational and administrative challenges. It is also important to scale up at the right pace, ensuring that the capital raised can be allocated effectively to avoid cash drag. Both traditional closed-end funds and evergreen structures have a role to play, with suitability depending on investors’ risk appetite and liquidity needs. Evergreen funds may not be for everyone, but they are a valuable addition to the investment landscape.
Authored by Tom Taylor, Head of Legal & Regulatory Policy, UK Private Capital
and Ewa Skornas, Research Manager, UK Private Capital
