Are Evergreen Funds Good or Bad for the Secondary Market?

At IPEM, we hear a rising anxiety from LPs about how retail capital and perpetual vehicles may be reshaping the very mechanics of private equity liquidity. Are these new investors and structures elevating the asset class—or eroding it?

The story so far

Evergreen funds are attracting significant wealth capital flows, as a new investor base finds favour with a product that gives exposure to private assets whilst offering more regular redemptions.

Managers report evergreen funds as a significant growth driver. Partners Group, an early pioneer in the market, now has one third of its ~$150bn AUM in evergreen vehicles. Hamilton Lane, which launched its first evergreen product in 2019, saw evergreen AUM increase 65% in the past twelve months.

Once raised, the clock is ticking. Holding too much cash risks dragging down performance meaning that managers are under pressure to deploy capital quickly.

This could make evergreen funds one of the most important players in the evolution of the secondary market. Buying mature portfolios allows managers to gain instant exposure to underlying assets. It's the reason why Jefferies estimates 41% of evergreen NAV is currently allocated to secondaries.

On the sell-side, evergreen funds must realise their holdings quickly to cover redemption calls. This creates unpredictable cash flows and the extent to which this could cause fire-sales in the secondary market is still largely untested.

How realistic are fire-sales?

Gating controls the pace of redemptions is an essential feature of fund design. The market norm is currently established at 5% per quarter, according to Novantigo. 

Justina Deveikyte, Novantigo Research:

"Quarterly redemptions (subject to 5% limit of NAV) have become a standard feature for most UCI Part II evergreen funds"

However, European insurers speaking at France Invest 2025 voiced their concerns that semi-liquid funds were "dumping assets" into secondaries market at discounts.

This problem may be exacerbated in times of heightened volatility, as was highlighted by Blackstone's BREIT crisis.

In December 2022, Blackstone was forced to limit withdrawals from its BREIT evergreen real-estate fund as the liquidity was not available to meet redemption calls. 

Shortly after BREIT, KKR raised gates on its real estate trust in January 2023 after investors exceeded maximum redemption thresholds for the entire first quarter. Starwood Capital Group also put up gates on their real estate funds, evidence of industry wide concerns.

The repercussions were evident in redemption timelines. Willis Towers Watson noted evidence of elastic redemption timelines, increasing to 4 to 8 quarters instead of 1 to 2 quarters in normal times.

What does our community think?

Edouard Boscher from Carmignac:

"I'm not going to go into too much details about the gating mechanism, but you know that even in the worst case scenario, if everyone's everybody wants to leave at the same time, you will give a minimum of 5% cash per quarter, and this will guarantee 20% per annum. So of course, it's not full liquidity, but if I mean market is average, and you have subscription minus distributions plus 5% I mean, it could be very efficient in normal circumstances.”

Raluca Jochmann, Allianz Global Investors:

"Actually, one of the main risks, I would say is mis-selling the product as liquid or even semi liquid, and not explaining what this means."

Daniel Imhof, iCapital:

"Please don't call these funds semi liquid, because they are not right. You know, whilst the market has settled around monthly subscriptions and quarterly redemptions on 5% nav kind of limit, the underlying asset classes are not liquid, and so I think that that's important"

Takeaways

• Retail capital does not equal patient capital → Offering quarterly liquidity can mean having to get comfortable with unpredictable redemption calls.
• Liquidity strain is real → There is some anecdotal evidence that redemptions translate directly into forced selling, which may impact pricing.
• Opportunity calls → Institutional investors may stand to benefit on the sell-side, as evergreens sustain pricing levels, whilst also presenting attractive opportunities on the buy-side when these funds become forced sellers.