Evergreen Private Market Funds: A Growing Trend with Unique Challenges

The Bundesverband Alternative Investments (BAI) has recently published a comprehensive guide on private markets evergreen funds, addressing their growing significance and unique challenges. The guide provides insights into fund structures, liquidity management, and regulatory considerations for institutional investors.

Evergreen private market fund structures have seen significant growth since the early 2000s. However, it has taken nearly two decades for semi-liquid fund structures to gain traction. The market is still in a critical development phase.

Key Features of Evergreen Funds:

• Hybrid Structure: Evergreen funds combine aspects of both open-ended and closed-ended fund models.
• Liquidity Considerations: These funds provide more flexibility than traditional closed-ended funds but still have liquidity constraints.
• Diverse Fund Structures: They range from NAV-based open-ended structures to hybrid models that transition investors between fund cycles without new investments.

A recent BAI survey revealed that many German institutional investors remain undecided about investing in evergreen funds. The type of investor, assets under management, and experience in private markets are critical factors in decision-making.

Market Insights:

• Growing Adoption: Nearly 50% of asset managers within BAI offer evergreen solutions, and 20% plan to launch them soon.
• Investor Demand: 22% of German institutional investors are already investing in evergreen structures, with an additional 11% planning to do so.
• Key Advantages: Liquidity management, flexibility, and cost efficiency are the main reasons investors are considering evergreen structures.

Challenges and Considerations:

• Valuation Accuracy: Regular asset valuations are crucial for pricing and management fees.
• Liquidity Risks: Redemption policies, lock-up periods, and liquidity reserves impact investor confidence.
• Regulatory Constraints: New AIFMD 2 rules impose leverage limits on credit-focused evergreen funds.

While evergreen structures offer new opportunities, they do not replace traditional closed-ended funds. Instead, they complement existing strategies, especially for institutional and retail investors seeking flexible private market exposure.