Evergreen Funds: Definition, How They Work, and Differences from Closed-End Funds

According to Preqin, assets under management in the private markets are expected to exceed nearly $30,000 billion by 2030, driven in particular by the growing accessibility of private equity to retail investors.

In this context, evergreen funds are experiencing rapid growth. Designed to provide more flexible access to unlisted assets, they representone of the major innovations in the asset managementindustry in recent years.

But what exactly is an evergreen fund? How does it differ from a traditional closed-end fund? Why are more and more asset management firms developing this type of investment vehicle, and in what situations might it meet an investor’s objectives?

In this article, we explain how evergreen funds work, their advantages, their limitations, and their role in the evolution of private equity.

What is an evergreen fund?

An evergreen fund is an investment vehicle designed to operate without a predetermined liquidation date.

Unlike a closed-end fund, which is typically launched for a term of eight to twelve years, an evergreen fund can continue to operate for as long as the management company believes this structure is in the best interests of investors.

It works on a simple principle: the portfolio is not intended to be liquidated on a specific date.

Proceeds from new subscriptions or asset sales may be reinvested to maintain ongoing exposure to private markets.

This characteristic explains the term “evergreen, ” which literally means “always green” and refers to a vehicle capable of reinventing itself over time.

A simple definition

An evergreen fund is an open-end fund with no predetermined term, allowing for long-term investment in assets through a continuous process of subscriptions, valuations, and reinvestments.

Assets primarily invested in private markets

Evergreen funds are primarily used to invest in illiquid assets that require a long-term investment horizon.

In particular, they may be exposed to:

• unlisted companies (private equity);
• private debt;
• infrastructure;
• unlisted real estate;
• more rarely, to other real assets.

Their objective remains the same as that of traditional funds: to finance the development of value-creating assets over several years.

The main difference lies in the structure of the investment vehicle.

Why are evergreen funds on the rise?

The rise of evergreen funds is not simply the result of a technical innovation. It reflects a profound transformation of private markets and investor expectations.

Over the past two decades, companies have remained privately held for longer than before. Consequently, an increasing share of value creation occurs before a potential initial public offering (IPO), which has heightened investor interest in private equity.

At the same time, wealth investors are seeking solutions that allow them to access private markets within a more flexible framework than that of traditional closed-end funds.

Evergreen funds are a response to this twofold trend.

A Response to the Democratization of Private Markets

Historically, private equity was primarily reserved for institutional investors.

Changes in regulations—particularly with the emergence of new investment vehicles such as ELTIFs—along withinnovations by management companies have gradually made this asset class more accessible to private investors.

Evergreen funds are part of this trend, offering a structure tailored to a broader investor base while retaining the characteristics specific to long-term investments.

Changing Investor Expectations

Today, investors are seeking greater flexibility in managing their assets.

Without calling into question the long-term outlook for unlisted assets, evergreen funds generally offer:

• regular subscription periods;
• periodic valuations;
• regulated buyback mechanisms;
• a continuously invested portfolio.

This structure simplifies the investment experience compared to closed-end funds, which operate through capital calls and have a limited lifespan.

An Innovation That Has Become Structural

The growth of evergreen funds reflects a broader trend in the asset management industry.

Today, many international asset management firms offer evergreen strategies in private equity, private debt, infrastructure, and real estate. This trend reflects the industry’s commitment to reconciling the constraints of unlisted assets with the expectations of a new generation of investors.

How does an evergreen fund work?

The way an evergreen fund operates differs significantly from that of a traditional closed-end fund. However, its objective remains the same: to invest for the long term in long-term assets in order to support their value creation.

The main difference lies in the structure of the investment vehicle. Whereas a closed-end fund follows a defined life cycle, an evergreen fund operates on an ongoing basis.

Variable capital

Most evergreen funds are based on variable capital.

In practical terms, this means that the fund can accept new investors over time, without being limited to a single fundraising period.

Subscriptions are generally offered on a predetermined schedule, such as monthly or quarterly.

The funds raised are then gradually invested in assets selected by the management company.

In contrast, a closed-end fund typically raises capital only once at launch, before spending several years deploying those investments.

A portfolio that is constantly evolving

Unlike a traditional fund, an evergreen fund is not intended to be dissolved after the sale of its holdings.

When a business is sold or an asset is disposed of, the cash generated may be:

• partially redistributed to investors;
• retained to finance new investments;
• used to maintain the fund's liquidity level.

The portfolio is thus being gradually renewed.

This ability to reinvest explains why it is referred to as a permanent vehicle.

The operating cycle of an evergreen fund

This structure allows the fund to maintain ongoing exposure to private markets.

Organized but Regulated Liquidity

One of the main questions investors ask themselves is about liquidity.

Unlike UCITS that invest in listed stocks, an evergreen fund generally does not guarantee daily redemption of shares.

Management companies establish liquidity windows, often on a monthly or quarterly basis, during which investors can request the redemption of all or part of their shares.

However, these buybacks remain subject to several conditions:

• the fund's liquidity;
• the rules set forth in the regulatory documentation;
• protective measures designed to safeguard the interests of all investors.

In practice, an evergreen fund’s liquidity is therefore structured, but it cannot be equated with that of a fund invested exclusively in listed assets.

How are the shares valued?

Since the assets held by an evergreen fund are mostly unlisted, their value cannot be continuously determined by a market.

Investment management companies therefore performperiodic valuations of the portfolio, generally on a monthly or quarterly basis.

This evaluation is based on several methods recognized by the profession:

• comparable stocks;
• transaction multiples;
• discounting future cash flows;
• independent expert opinions, when appropriate.

The fund's net asset value is then calculated based on these valuations.

This value serves as the benchmark for new subscriptions and, where applicable, for redemption requests.

Why keep a cash reserve?

To operate sustainably, an evergreen fund must be able to meet redemption requests while continuing to invest.

As a result, investment management firms generally maintain a cash reserve, consisting, for example, of:

• cash flow;
• more liquid assets;
• proceeds from sales pending reinvestment.

This reserve helps ensure the fund's smooth operation and limits forced sales of assets under unfavorable conditions.

This is one of the main differences from a closed-end fund, which does not have to arrange for regular redemptions.

A balance between flexibility and a long-term perspective

The success of evergreen funds hinges precisely on this balance.

On the one hand, they offer greater flexibility thanks to regular subscriptions, periodic valuations, and liquidity mechanisms.

On the other hand, they retain the fundamental characteristics of private asset investments: a long-term horizon, limited liquidity, and value creation that unfolds over several years.

In other words, evergreen funds do not turn private equity into a liquid asset. They offer a different structure, designed to facilitate access to private markets while respecting their nature.

Evergreen Funds vs. Closed-End Funds: What Are the Differences?

Evergreen funds and closed-end funds share a common objective: to invest in long-term assets in order to create value for investors. However, they differ in several key ways, including the fund’s lifespan, subscription terms, and liquidity management.

Understanding these differences provides a better grasp of the characteristics of each structure and helps identify which one best aligns with a given investment strategy.

Comparison Chart

A Different Lifespan

The most noticeable difference concerns the vehicle's lifespan.

A closed-end fund is established for a fixed term, generally between eight and twelve years. At the end of this period, the assets are gradually sold off and the fund is liquidated.

Conversely, an evergreen fund does not have a predetermined end date. Assets that are sold can be replaced with new investments to maintain a permanent portfolio.

This structure enables the fund to continue its operations over the long term, provided that the management company deems this structure to be in the best interests of the investors.

A Different Kind of Investment Experience

The investment terms also differ.

In a closed-end fund, investors commit to an amount that will be drawn down gradually as the fund Fund manager s investments.

In an evergreen fund, investors typically purchase shares directly at the fund’s net asset value. The capital is then invested in a portfolio that has already been established or is in the process of being established.

This structure simplifies the investment experience by eliminating, in most cases, the traditional capital call process.

Specific Liquidity Management

Evergreen funds offer redemption options that are generally not available in closed-end funds.

However, this liquidity remains structured and regulated. Redemptions are permitted only in accordance with the terms set forth in the fund’s documentation and may be limited in order to protect the interests of all investors.

Conversely, a closed-end fund generally does not provide for any redemption mechanism prior to its liquidation. Investors who wish to sell their holdings may, depending on the circumstances, turn to the secondary market.

In both cases, private equity remains a long-term asset class. Its liquidity mechanisms should therefore not be equated with those of a fund invested in publicly traded stocks.

Two structures designed for different purposes

The rise of evergreen funds does not mean that closed-end funds are becoming obsolete.

The two vehicles serve different purposes.

Closed-end funds continue to be widely used by institutional investors and remain the traditional structure of private equity.

Evergreen funds, for their part, offer greater flexibility in terms of subscription and holding arrangements, while retaining the characteristics specific to investments in private assets.

The choice between these two models depends primarily on the investor’s objectives, investment horizon, liquidity needs, and the characteristics of the proposed investment strategy.

Why are evergreen funds attracting more and more investors?

The rise of evergreen funds can be attributed to several profound changes in the private markets.

On the one hand, high-net-worth investors want easier access to private equity, private debt, or infrastructure, without necessarily having to follow the traditional structure of closed-end funds.

On the other hand, asset management firms seek to offer investment vehicles capable of continuously attracting new investors, while maintaining ongoing exposure to private assets.

This development is part of a broader trend toward the democratization of private markets, driven in particular by changes in European regulations and the development of new investment vehicles.

Evergreen funds thus meet a growing demand for flexibility, without compromising the fundamental principles of private equity: rigorous asset selection, a long-term investment horizon, and value creation based on supporting companies.

What are the advantages and limitations of evergreen funds?

Evergreen funds are growing rapidly in the private equity sector, but they are not a one-size-fits-all solution. Like any investment vehicle, they have both advantages and limitations that investors should understand before investing.

The appeal of an evergreen fund depends primarily on each investor’s financial goals, investment horizon, and liquidity needs.

The Main Advantages of Evergreen Funds

Ongoing exposure to private markets

Unlike closed-end funds, which have a limited life cycle, evergreen funds allow investors to maintain permanent exposure to private markets.

The portfolio is regularly renewed through the reinvestment of proceeds from divestitures and new investments.

This continuity saves investors from having to rebuild their private equity portfolio every time a new fund is launched.

Simplified Access to Private Equity

Evergreen funds are generally easier for investors to understand.

Subscriptions are made directly at the fund's net asset value, without going through a schedule of successive capital calls.

This structure simplifies asset management and provides greater transparency regarding the amounts actually invested.

Immediate Diversification

Evergreen funds often invest in an existing portfolio.

A new investor thus benefits from instant diversification across multiple companies, industries, geographic regions, or investment years.

This characteristic may also help mitigate the effects of the J-curve, a phenomenon frequently observed in closed-end funds early in their life cycle.

A smoother investment experience

Periodic valuations and regular subscription windows provide an experience more similar to that of other financial instruments.

Although private equity remains a long-term asset class, this structure makes it easier to monitor the portfolio and integrate private markets into an overall asset allocation strategy.

Limits You Should Be Aware Of

Liquidity that remains within established limits

One of the main misunderstandings concerns liquidity.

Evergreen funds offer redemption mechanisms, but these are subject to the conditions set forth in their legal documentation.

Redemption requests may be deferred, capped, or suspended when market conditions so require or when necessary to protect the interests of all investors.

An evergreen fund should therefore not be considered a liquid investment.

Valuation occurs less frequently than on public markets

Unlisted companies do not have a market price that can be observed at all times.

Their valuation is based on industry-recognized methods applied at regular intervals.

This characteristic means that the net asset value of an evergreen fund changes at intervals determined by the management company, rather than continuously as with a listed stock.

More complex management

Managing an evergreen fund is more demanding than managing a closed-end fund.

The management company must simultaneously:

• identify new investment opportunities;
• support companies already in our portfolio;
• process subscriptions and redemptions;
• maintain an appropriate level of liquidity;
• Revalue assets on a regular basis.

Achieving this balance requires significant operational expertise as well as rigorous management processes.

The selection of fund managers remains a key factor

As with any private equity investment, the quality of the management firm remains a key factor.

Beyond the fund’s legal structure, investors can analyze, among other things:

• the management team's experience;
• the investment strategy;
• the asset selection process;
• the fund's governance;
• the valuation and liquidity terms.

A well-designed evergreen fund depends first and foremost on the quality of its management and the consistency of its long-term strategy.

How can you tell if an evergreen fund can meet its objectives?

There is no one-size-fits-all answer.

The choice of an investment vehicle depends on several criteria specific to each investor.

Before making any decision, it is generally helpful to ask yourself the following questions:

What is the investment horizon?

Evergreen funds remain long-term investments.

What are the liquidity needs?

Buybacks are arranged but are not guaranteed.

What role do private markets play in cultural heritage?

Private equity is part of an overall asset allocation strategy.

Is the portfolio sufficiently diversified?

A well-balanced portfolio allows risks to be spread across several asset classes.

Is the fund's operation understood?

The terms and conditions for subscription, valuation, and redemption may vary from one investment vehicle to another.

These questions help us view evergreen funds not as a one-size-fits-all solution, but as a tool that can be integrated into a long-term wealth management strategy when their characteristics align with the investor’s objectives.

Conclusion

Evergreen funds exemplify one of the major trends in private equity in recent years. By offering a variable-capital structure with no predetermined lifespan and a continuously renewed portfolio, they provide a new way to access private markets.

Their development stems from two driving forces: the desire of management companies to offer more flexible investment vehicles and investors’ growing interest in unlisted assets. However, evergreen funds do not alter the nature of private equity.

They retain the key characteristics of this asset class: a long-term investment horizon, limited liquidity, and value creation based on company growth.

More than just a technical innovation, evergreen funds reflect the private markets industry’s shift toward solutions tailored to a growing number of investors.

‍Understandinghow they work, their advantages, and their limitations allows for a better appreciation of their role within a diversified investment portfolio.

Key Takeaways

• Evergreen funds are open-end investment vehicles with no predetermined term.
• They enable continued exposure to private markets through the reinvestment of proceeds from divestitures.
• Unlike closed-end funds, they generally offer regular subscription periods and regulated redemption mechanisms.
• Evergreen funds are primarily used in private equity, but also in private debt, infrastructure, and unlisted real estate.
• They facilitateaccess to private markets while retaining the characteristics specific to long-term investments.
• Their liquidity remains structured but is not guaranteed and depends on the terms and conditions set forth by each fund.
• As with any private equity investment, the quality of the management company is a key factor.

FAQ

What is an evergreen fund?

An evergreen fund is an open-end investment vehicle that does not have a predetermined term.

Unlike a closed-end fund, it can continuously accept new investors and reinvest proceeds from divestitures to maintain ongoing exposure to unlisted assets.

What is the difference between an evergreen fund and a closed-end fund?

A closed-end fund is established for a limited term, generally between eight and twelve years, with a defined subscription period and successive capital calls.

An evergreen fund operates on an ongoing basis, with regular subscriptions, periodic valuations, and regulated liquidity mechanisms.

Are evergreen funds invested solely in private equity?

No. Evergreen funds can invest in various private asset classes, including private equity, private debt, infrastructure, and unlisted real estate.

Their strategy depends on the investment policy established by the management company.

Are evergreen funds liquid?

Evergreen funds generally offer redemption mechanisms at intervals specified in their legal documentation.

However , this liquidity is still subject to certain restrictions and cannot be equated with that of a fund invested exclusively in listed assets.

Why are evergreen funds on the rise?

Their development reflects the growing accessibility of private markets, changing investor needs, and the desire of asset management firms to offer more flexible investment vehicles while maintaining a long-term investment horizon.

Do evergreen funds pose any risks?

Like any investment in unlisted assets, evergreen funds involve risks, including the risk of capital loss, limited liquidity, valuation constraints, and returns that depend on the quality of the investments made by the management company.

Are evergreen funds replacing closed-end funds?

No. The two structures coexist and serve different purposes. Closed-end funds remain widely used by institutional investors, while evergreen funds offer a more flexible way to access private markets.

Is an evergreen fund suitable for all investors?

No. The benefits of an evergreen fund depend, among other things, on each investor’s investment horizon, liquidity needs, financial situation, and investment goals.