Private markets are constantly evolving, and one of the most exciting innovations in recent years has been evergreen funds. This relatively modern fund structure combines elements of open-ended and closed-ended funds, offering new flexibility for investors. The Bundesverband Alternative Investments (BAI) has explored the opportunities and potential of this type of fund in its first Evergreen Guide.
Evergreen Funds: An Innovative Alternative
Traditional closed-ended private markets funds require investors to make long-term capital commitments with limited subscription windows. Evergreen funds, on the other hand, allow for continuous capital inflows, greater liquidity, and more efficient capital allocation. These advantages make them attractive for asset managers, financial advisors, and private investors alike.
We summarize the key insights from the BAI Evergreen Guide for financial and wealth advisors, private investors, and asset managers.
Evergreens for Financial and Wealth Advisors
More Flexibility for Clients
+ Evergreen funds enable dynamic investment strategies, as capital can be invested or increased at any time.
+ No long-term capital commitments, allowing for more flexible financial planning.
Efficient Management & Reduced Effort
+ The traditional capital call process is eliminated, speeding up capital allocation.
+ Financial advisors do not have to deal with capital commitments and complex liquidity plans.
Attractive Returns & Fair Fees
+ Continuous reinvestment increases return potential.
+ Fee models are often based on Net Asset Value (NAV), ensuring transparency and fairness.
– A required liquidity buffer may slightly reduce returns compared to traditional closed-ended private markets funds.
Greater Market Transparency
+ Regular NAV valuations allow for more precise performance assessments.
+ Increasingly standardized reports make it easier to compare with other investment products.
Investor-Friendly Liquidity Options
+ Flexible redemption options (monthly or quarterly) enhance attractiveness for investors.
+ “Slow Pay” mechanisms help mitigate liquidity risks.
Why Evergreen Funds Are Attractive for Private Investors
Lower Entry Barriers & Broader Access
+ Lower minimum investment amounts compared to traditional private markets funds.
+ Private investors gain access to investment strategies previously reserved for institutional investors.
Reduced Blind Pool Risk
+ Investments are made in an already established portfolio, reducing uncertainties.
+ Immediate diversification across multiple assets in most cases.
Greater Liquidity
+ No fixed investment horizon: Investors can often redeem their investments flexibly.
+ No need to sell on an often illiquid secondary market.
Simple Management & Transparency
+ No cumbersome capital call management required.
+ Regular reports and updates facilitate performance tracking.
Long-Term Diversification & Return Potential
+ Global diversification across various private markets strategies.
+ Continuous portfolio adjustments protect against value losses due to market cycles.
New Opportunities for Asset Managers
More Stable Capital Base
+ No reliance on fixed fundraising cycles; continuous capital inflows secure financial stability.
+ Managing cash flows and liquidity buffers can be more complex.
More Efficient Capital Allocation
+ Ongoing portfolio adjustments without long capital call phases.
– Possible dilution of existing investments if new capital commitments and investment opportunities are not managed precisely.
Longer Holding Periods & Strategic Exits
+ No need to sell holdings at a fixed time, avoiding weak market phases.
+ More flexible exit strategies allow for better value creation.
– Risk of premature sales for liquidity management in overly concentrated portfolios.
Optimized Fee Models
+ Stable management fees based on NAV calculations.
+ Performance fees can be charged annually instead of as a one-time back-end fee.
Access to New Investor Groups
+ Private and, in some cases, semi-professional investors gain first-time access to private markets.
+ Wealth managers and family offices can diversify their investment strategies more easily.
Evergreen Funds as the Future of Private Markets
Evergreen funds offer an innovative and flexible alternative to traditional closed-ended private markets funds. Financial advisors benefit from easier management and more flexible investment options, private investors gain better access to alternative investments, and asset managers attract new investor groups to expand their capital base.
Given the growing demand from private investors for more accessible alternative investments, evergreen funds could play a key role in further opening up private markets.