There are six major differences between these evergreen structures and their traditional counterparts.
First, evergreen funds are continuously raising and deploying capital with no termination date. Traditional funds close to new investors once they reach a certain level of capital commitment and have a predefined life span, often in the 10-year range.
Second, evergreen funds require a single upfront payment from investors, who can then make additional subscriptions as they see fit. Traditional funds typically issue capital calls to investors at infrequent intervals in varying amounts over the initial three to five years of the fund’s life, because of investment funding needs.
Third, evergreen private market funds are referred to as semi-liquid because they offer limited periodic liquidity — typically quarterly redemption windows with advance notice requirements and maximums capped at a percentage of fund net asset value (NAV), typically between 2.5% and 5%. Traditional funds are closed end and do not offer any liquidity.
Fourth, evergreen funds most commonly strike a NAV monthly. Traditional funds typically strike their NAV quarterly, although it can be as infrequent as semi-annually or annually.
Fifth, while evergreen funds invest primarily in private assets, a portion — usually 10%–20% — is allocated to liquid assets (cash equivalents, bonds and/or public equities) to support redemptions. Traditional funds are 100% invested in private assets.
And sixth, many evergreen funds are structured with minimums around $25,000, although some outside Canada are as low as $5,000. Traditional private investment funds require minimum commitments of $250,000 or more. Those focused on ultra-high-net-worth and institutional investors can have multi-million-dollar minimums, typically in USD.
Incorporating evergreen private investment funds in a portfolio can contribute to a more robust asset mix in four ways.
1. Expanded opportunity set
Promising private companies are delaying going public because they can source capital from private investment funds. In the U.S., the median age of a company in its initial-public-offering (IPO) year lengthened from six years in 1980 to 14 years in 2024.
The growing role of private equity funds in the early funding of private companies is evidenced by IPO sponsorship, when private equity funds begin to cash out of their holdings. Venture capital-backed IPOs in the U.S. have grown from 32% of total IPOs in 1980 to 51% in 2024, while buyout-backed IPOs have climbed from 1% to 18%.
Overall, the growth in U.S. private equity has outpaced even the dynamic U.S. public equity market. According to Apollo Global Management, the size of private equity relative to the total U.S. public stock market has grown from 3.8% in 2003 to 8.8% in 2024. More broadly, it was recently estimated that private funds account for approximately 9% of the global investable universe in fixed income, equities and real estate. Private assets are too big an opportunity set to ignore.
2. Improved diversification
Private investment funds deliver two diversification advantages relative to publicly traded funds.
One is lower volatility, which is due to the lagged and smoothed returns that arise from the methodologies managers use to periodically value their portfolios. This reduced volatility is really a statistical phenomenon as opposed to a manifestation of reduced risk. Nevertheless, to the extent that a smoother return experience allows investors to stay invested through adverse market cycles, it can be viewed as positive.
The second diversification advantage arises from sources of returns that cannot be traced to the market and the factor risks of publicly traded assets. Academic studies have found that in private equity, these sources include selective well-timed investment, enhanced governance, operational engineering, accelerated investment and acquisitions, increased capital intensity and higher financial leverage.
3. Potentially increased returns
Many studies have found that, on average, over longer time periods, private equity funds have outperformed public market indices. For the 10 years ending Dec. 31, 2024, the internal rate of return of the Bloomberg Private Equity Index (USD) was 13.6%, well ahead of the 9.8% rate of return of global stocks.
Private credit funds on average have outperformed high-yield bond indices over longer periods as well.
4. Immediate investment
Evergreen private investment funds provide immediate exposure to private markets, excluding the liquidity sleeve, allowing faster and more efficient implementation.
Simulations have found that this can result in greater wealth compounding vs. traditional private funds. It also enables an advisor to plan a gradual entry into a portfolio of evergreen funds to diversify strategy, manager and entry-timing risk.
Evergreen limitations
Advisors must be aware of the limitations inherent in these investments when they assess the role and weighting of these funds in a client’s portfolio. Liquidity is limited, so only capital that can be invested for a minimum holding period of five years or preferably longer should be allocated to these vehicles. These are truly long-term investments so clients should explicitly commit to this before investing.
Realistic return expectations are also critical. Valuations for private firms acquired by private equity funds are generally higher today than 10–15 years ago. The cost of leverage is also higher as interest rates have increased.
Evergreen private fund fees are higher than public equity and fixed income ETFs and mutual funds, so strong management performance is essential. Overall, a target of a 2%–3% premium over comparable long-term public market returns should be realistic.
Deep due diligence is vital. Each evergreen private fund is unique and the dispersion between top and bottom quartile managers in private markets is typically much wider than in public markets.
Evergreen funds vary by target asset composition; objectives (e.g., income vs. growth); manager expertise, track record and capital raising capability; liquidity terms and gating mechanisms; distribution policy (e.g., mandatory reinvestment vs. cash distributions); fee structures; and tax characteristics.
And since performance in the early years of private investment funds is not necessarily predictive of longer-term performance, the due diligence focus should be on the fund structure, underlying strategy and portfolio construction, manager attributes and risk management, offering particulars, tax aspects and key qualitative considerations.
Michael Nairne, RFP, CFP, CFA, is president and CIO of Tacita Capital Inc., a private family office, and manager for TCI Premia Portfolio Solutions.