Chapter 3: Wealth Product Design Points Towards An Evergreen Future
Just as we saw with the rise in popularity of ETFs in the mutual fund industry, a similar trend could well transform private markets in the coming decades.
Evergreen fund design has enjoyed significant traction in the last few years, as more private markets firms look to build solutions for the private wealth channel. There are currently an estimated 500 evergreen funds managing a combined $350 billion in assets. The depth and variation of evergreens is expected to expand in the coming years, as more thematic products come to market on the back of broad, multi-strategy products launched by some of the largest managers including Apollo, Blackstone, Carlyle, KKR etc.
“Our prediction is in the next three to five years in private markets for KKR we’re going to see 50% of our flows through these vehicles,” commented Alisa Wood, Partner, KKR. Wood was speaking on the panel “How Fund Managers Are Adapting To Seize The Wealth Opportunity” at IPEM Cannes Wealth 2025.
She added: “What are you solving for with an evergreen? You’re solving for greater efficiencies, reducing or eliminating your investment J curve, creating greater diversification, greater velocity of compounding. There are a lot of knock-on benefits to evergreens, whether you’re an institution or an individual investor.
Numerous legal structures are available when designing an evergreen. These include UCI Part II funds in Luxembourg; ELTIFs, a highly regulated structure that provides a pan-European retail marketing passport; the Long Term Asset Fund (LTAF) in the UK; Interval Funds; Tender Offer Funds, and Business Development Companies (BDCs), SEC-regulated structures that are commonly used in private credit.
Jake Williams, Head of International Product Strategy, Wealth Management Alternatives, Franklin Templeton, explained to the audience at IPEM Cannes Wealth that a big focus for the firm when assessing the best structure to use was liquidity management and scale for diversification.
“As we reviewed the different structures, what we wanted to understand was what would allow us to target the largest amount of clients possible to manage the liquidity aspect and get to scale with the seed portfolio…We landed on the UCI fund structure to target a professional client base,” said Williams, who was speaking on the panel "Understanding Evergreen Funds: ELTIF 2.0, LTAF, Interval Funds, BDCs, REITs... Will They Become The Ultimate Product?”
Regardless of which legal structures are used - which may include specific structures for individual European countries - the aim when designing an evergreen product is to ensure that distributors and clients understand how the fund works. As Victor Mayer, Managing Director and Head of International Private Wealth at Pantheon noted: ”It’s making the user experience simple, attractive and compelling.”
When evaluating product design, there are two main aspects to consider: type of asset class (private equity, infrastructure etc.) and investment structure: primaries, co-investments and secondaries.
These form the building blocks of evergreen, which are combined in different ways depending on the fund manager. Two of the main challenges associated with evergreens are: 1) Timing of returns is uncertain; exits/distributions are difficult to forecast - you need flows to meet your 5% quarterly redemptions and 2) Valuations; as these are not marked-to-market assets, the GP’s valuation policy has to be fine-tuned to ensure fair price when investors are buying and selling in an open-ended evergreen.
Four Variables
The variations are legion in what defines a good product but as with everything in the investment world, it all hinges on knowing who one’s target market is. This is especially important in private wealth. While closed-ended feeder funds and fund-of-funds have long been available to UHNW investors and family offices to access private markets, evergreens offer an easier access route thanks to their use of a single drawdown.
This means investors - institutional or individual - are fully invested on day one, without having to plan ahead for additional capital calls commonly associated with closed-ended structures. The GP continually reinvests the proceeds in perpetuity, until the investor decides to redeem.
GPs must consider four variables in an evergreen that they need to solve for at any given time that they don’t need to solve for in a closed-ended structure.
- How much capital is coming in on a monthly basis?
- How are they managing redemptions on a monthly or quarterly basis?
- What is their deal flow like at any given time?
- What level of realisations are coming from the portfolio that will need to be reinvested?
Deal Velocity
To generate the compounding effect in an evergreen, doubling the MOIC in five years, tripling it in 10 years, places a different set of demands on the GP’s portfolio management skills than a closed-ended fund. There is more emphasis on generating exits and reinvesting distributions, which means the GP has to be sure they are doing enough deals each year. If the team only does four or five deals a year then an evergreen really isn’t going to be a viable option.
KKR’s Wood pointed out there is a portfolio management element to evergreens that looks more like a hedge fund than it does a private equity fund or infrastructure fund. Even though the underlying assets are still the same.
Quality Matters
Today, evergreens are becoming an increasingly important complement to closed-ended feeder fund programmes by widening the scope to mass affluent investors. The two are not, however, mutually exclusive. For many reasons, a family office - or even an endowment for that matter - might decide that they want to invest in an evergreen as part of their tactical asset allocation, and enjoy the improved liquidity profile.
Private banks are very focused on understanding how an evergreen fund has been constructed. While at the surface, evergreens look similar, they can differ significantly when one digs down into the details. Liquidity management, deployment capabilities, fees…these are important considerations, as is the quality of deal flow.
Wealth partners expect identical deal exposure in an evergreen to a closed-ended product to ensure they are not being penalised.
Greta Teot, Head of Private Markets, Mediobanca, told members of the IPEM community that when the bank began adding evergreen funds to its platform, product mechanics such as gating were important, but also the seed portfolio. “We need to ensure we have a product that is up and running, and diversified by underlying investments and underlying clients. We started with multi-strategy and then moved to various verticals such as private equity, private credit, to build a blended fund-of-funds approach,” she said.
Convenience and Performance
When designing an evergreen, GPs should remain mindful that the objective should always be to deliver performance in a convenient way. This is something that EQT have spent significant time and energy focusing on internally, as they build out their private wealth offering. This has involved hiring the right talent when constructing its platform, including operations people with a long-only industry background.
“Performance and convenience are the two most important factors and making sure everything works operationally,” said Peter Beske Nielson, Global Head of Private Wealth, EQT at IPEM Cannes Wealth. “We have to interact simply with our clients (distribution partners - private banks and wealth partners) because you can win business by doing things easily: performance, convenience and trust in your brand are key.”
Other leading fund managers such as Ardian have leveraged their DNA to build the right platform, with the right approach, and with the right partnerships, to build evergreen funds that ensures the right level of investor experience. “You can have the best deal flow, the best performance, but if it’s too hard for clients to come in then they won’t. It’s about consistency. Clients are looking for access to the right deals…they’re not looking for anything else,” emphasised Erwan Paugam, Head of Private Wealth Solutions at Ardian. He was speaking on the same panel as KKR’s Wood and EQT’s Nielson.
Gatings are also part of product design. How they are used will differentiate good managers from those who are just chasing the hype.
Secondaries: A key pillar of evergreen design
The single drawdown feature of evergreens is important for private banks and wealth advisors when building their clients’ asset allocation programmes.
This means that the GP has to be certain that when designing an evergreen fund they have the capacity to invest immediately, once they begin the fundraising process with their distribution partner(s).
To achieve this, a seed portfolio of secondaries will often be used.
Secondaries are a great way to get into an asset class because they are already invested and there’s very little unfunded exposure, they provide a good level of liquidity and generate a much higher velocity of cash compared to a primary fund investment. However, you give up some returns when investing in to secondaries even though the assets are often purchased at a discount. Co-investments are less liquid and present more of an asset/liability mismatch than secondaries.
“We believe PE secondaries are ideally suited for core exposure to private markets. There’s no better risk/return profile in private markets, comparatively speaking, for the level of diversification and the low loss ratio that secondaries offer,” commented Boris Maeder, Managing Director and Head of International Private Wealth Distribution, Coller Capital.
As evergreen product design evolves, some would like to see more use of technology and further evolution on the user interface, to make the investment experience as clear as possible.
“The most important thing is that the GP needs to embody the fund,” stressed Agathe Laurent, Head of Private Equity Origination & Development, Natixis Wealth Management
