While evergreen structures have broadened access to private markets, they remain relatively new to many advisers.
The rise of evergreen funds over the past decade has been one of the most significant developments in private markets, expanding access to the asset class for a broader pool of investors. Today, Australian private wealth investors can access a range of private equity, private credit, and infrastructure strategies that were once primarily available to large institutional investors.
This broader access is creating new opportunities for advisers and their clients to incorporate private markets into portfolios. As a result, evergreen vehicles are expected to be a major driver of private markets growth as investors seek greater flexibility and accessibility, with evergreen funds poised to exceed $1 trillion in assets under management by 2029, according to PitchBook.
Over the next five years, private equity and real assets are expected to be the fastest-growing segments, and evergreen vehicles have several advantages, including immediate portfolio exposure, automatic reinvestment, reduced J-curve effects, and greater operational flexibility.
While evergreen structures have broadened access to private markets, they remain relatively new to many advisers. As a result, misconceptions persist, particularly around liquidity and redemption limits. Here are some key issues Australian advisers should consider as they review evergreen funds:
Redemption gates are there for a reason
Recent redemption gates across several global evergreen funds have highlighted a common misunderstanding about the vehicles. Gates are often read as distress when, in fact, they are an example of the funds working as intended. They are there to protect long-term investors when redemption requests exceed available liquidity.
Evergreen and mature drawdown portfolios may deliver similar liquidity over time
Terms such as “semi-liquid” are often used to describe evergreen funds, yet, in reality, evergreen funds may change how liquidity is delivered, but they do not change the liquidity of the underlying assets.
Evergreen funds don’t suddenly transform private equity holdings into ETFs. They provide periodic access to liquidity, not instant liquidity. Investors should view their redemption features as a limited mechanism rather than access to capital on demand. They remain designed for long-term investments.
While evergreen strategies are often perceived as significantly more liquid, the difference may be smaller than many investors realise. HarbourVest’s global portfolio of drawdown venture and buyout funds has historically distributed roughly 21% of NAV annually through realisations, while many evergreen funds offer redemption capacity of up to 20% of NAV annually.
The difference is not the amount of liquidity, but how it’s delivered: an individual investor in an evergreen fund may redeem 100% of their investment during periods of modest redemption activity, whereas a drawdown fund investor generally must wait for realisations. At the portfolio level, though, both structures ultimately depend on the same underlying assets: the fund manager’s private markets portfolio.
The reason behind the recent redemption wave
Redemption gates and requests have become more common in recent times, driven by myriad factors, including contagion concerns, muted distributions, a retail base more sensitive to sentiment, and manager-specific performance. Together, these forces have created a feedback loop, in turn driving more requests and increasing the likelihood that redemption gates activate.
Other contributing factors include the pressure on 2021-vintage investments acquired at peak valuations (now facing higher financing costs and lower multiples), and AI-driven uncertainty across software portfolios, which has forced many investors to reassess their portfolios, including those in the private credit space.
These developments are putting evergreen funds through a period of stress-testing and increasing scrutiny of portfolio construction, liquidity management, valuation governance, and fundraising discipline.
Redemption pressure should not automatically be read as broad portfolio deterioration. We expect greater dispersion moving forward, rather than a uniform decline in fundamentals: managers with disciplined underwriting and conservative construction may perform very differently from those exposed to challenged sectors or to aggressive leverage.
The theme for evergreen funds is shifting to which funds are best positioned to manage liquidity, portfolio construction, and investor expectations in more challenging environments. Advisers should review which portfolios are built to perform across a range of environments versus those built on assumptions of low rates and elevated valuations.
What advisers should look for
The key question for evergreen funds is no longer whether they can provide access to private markets, but which managers are best positioned to manage liquidity, portfolio construction, and investor expectations through more challenging environments. As the industry matures, scrutiny is likely to increase around diversification, valuation governance, liquidity management, and fundraising discipline. For advisers, understanding these differences will be critical when evaluating evergreen strategies and identifying managers capable of balancing growth, liquidity, and portfolio quality through a full market cycle.
By Warwick Mancini
