The total amount of evergreen funds has nearly doubled to 520 in the last five years as high-net-worth investors seek access to private markets
Private wealth will accelerate growth in private markets’ assets under management (AUM), which Preqin estimates has reached $16.3tn. Evergreen funds, also known as open-ended funds, perpetual capital, and semi-liquid funds, provide individual investors with access to a market traditionally dominated by institutional LPs – those who have significantly larger sums of capital to put to work.
Asset managers are fast developing new products tailored to the high-net-worth (HNW) and ultra-high-net-worth (UHNW) segments, resulting in the number of funds nearly doubling in the last five years to 520.
Fig. 1: Evergreen fund growth over time
Source: Preqin*
Evergreen funds represent at least $350bn of net asset value (NAV) as of the end of 2023 – and that’s a conservative estimate, given only a portion of these funds (427 of 522) disclose their latest valuation (predominantly, ELTIFs and LTAFs do not disclose). The figure below displays NAV broken down by fund structure, and as the chart shows, funds structured as US-based Business Development Companies (BDCs) dominate.
Fig. 2: Net Asset Value by fund structure*
Source: Preqin*
*Excludes LTAFs and ELTIFs due to low levels of disclosure.
Why are evergreen funds proving increasingly popular? Compared with the traditional, closed-end, drawdown vehicles common in private markets – such as typical buyout funds – evergreen funds offer a range of benefits that are especially attractive to non-institutional investors. These include:
Lower minimum investment sizes – typical ticket sizes in the tens of thousands, rather than the millions, needed to invest in conventional private capital funds.
Immediate capital deployment – unlike a typical closed-end fund, evergreen funds put capital to work straight away without the burden of calls, distributions, and a multi-year investment period.
Periodic liquidity – evergreen funds offer regular subscription and redemption periods.
Simplified tax reporting – much like mutual funds, evergreen funds offer straightforward tax reporting. US investors file Form 1099, which is simpler to complete compared with Schedule K-1, the federal tax document typically used in private equity investing.
These advantages are attracting ever larger amounts of retail capital into the industry. ‘The next frontier of AUM growth for alternatives is in the private wealth channel, and we have seen various innovations in financial products, technology, and distribution models to facilitate access,’ said Jonathon Furer, Head of Limited Partner Solutions at Preqin.
‘These structures are attractive as they solve frictions in market access for individuals. We are finding that wealth managers that are building out private market platforms often use these vehicles as a way to get their clients started on alternatives, ahead of entering traditional LP structures.’
Common evergreen fund structures
Interval funds
These are closed-ended investment vehicles that offer investment/redemption at some regular interval, most commonly every three, six, or 12 months. Interval funds are not restricted by investment type but will usually make investments into other alternative funds along with private and public assets.
Example: Bluerock Total Income+ Real Estate Fund
NAV: $6.0bn as of September 30, 2023
Inception: 2012
Asset class: Real estate
Overview: Invests utilizing a multi-manager, strategy, and sector approach across the US.
Tender offer
These are closed-ended investment vehicles that offer investment/redemption at the discretion of the fund's board. Tender Offer funds are not restricted by investment type but will most commonly make investments into other alternative funds along with private and public assets.
Example: AMG Pantheon Master Fund
NAV: $2.4bn as of September 30, 2023
Inception: 2015
Asset class: Private equity
Overview: Offers a diversified private equity portfolio across multiple sectors and geographies, with a focus on technology and North America.
Non-traded REIT
REITs are vehicles that own, operate, or finance income-producing real estate across various sectors, such as residential, commercial, industrial, and healthcare properties. Non-traded REITs are not publicly traded, and although usually open ended, they often have more restricted liquidity than public REITs.
Example: Starwood Real Estate Income Trust
NAV: $10.3bn as of January 31, 2024
Inception: 2018
Asset class: Real estate
Overview: Invests in a portfolio of stabilized, income-producing real estate assets across the US and Europe, with a focus on multifamily and industrial assets.
BDC
A business development company (BDC) invests primarily in small and medium-sized businesses. Though a BDC may invest in debt or equity, most active BDCs focus on debt and are found only in the US market.
Example: Ares Capital Corporation
NAV: $10.8bn as of September 30, 2023
Inception: 2004
Asset class: Private debt
Overview: Invests in both debt and equity investments in US middle-market companies. Primarily focuses on first and second lien senior loans and mezzanine debt.
LTAF
UK FCA regulated and authorized open-ended fund structure that enables investment in long-term, illiquid assets (at least 50% in unlisted assets). It is envisaged that investment in such funds will support economic growth and the transition to a low-carbon economy. Accessible to institutional, defined contribution pensions and professional investors.
Example: Aviva Investors Real Estate Active LTAF
NAV: n/a
Inception: 2023
Asset class: Real estate
Overview: The first LTAF managed by Aviva with a focus on giving institutional and professional investors access to direct real estate assets seeded by Aviva UK Life.
ELTIF
An AIF domiciled in the EU that encourages investment into companies and projects in need of long-term capital. The structure is aimed at both institutional and professional investors.
Example: Amundi ELTIF Agritaly PIR
NAV: €126.7mn as of December 30, 2023
Inception: 2021
Asset class: Private debt
Overview: Focuses on lending across the Italian food industry with a focus on producers of parmesan cheese, cured ham and wine from Italy.
*Data will be available to clients in Q2 2024.
For access to the data, Preqin clients can get in touch with clientservices@preqin.com.
The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.