As private markets open up to a wider range of wealthy clients, evergreen structures are emerging as an entry point that is both more flexible and more demanding. As Margareta McConnell points out, choosing the right vehicle now requires a detailed analysis of liquidity, governance, sourcing capacity and size, in order to make the right trade-off between access, risk management and long-term performance.
Private markets are entering a new phase, defined less by exclusivity than by accessibility. For decades, private equity, private debt and infrastructure were largely the preserve of pension funds, endowments and sovereign wealth funds able to accept long investment horizons and complex capital structures. This paradigm is changing.
The rise of evergreen structures marks a structural change. Companies are staying private for longer, institutional investors remain highly exposed and asset managers are increasingly seeking access to the same opportunities. For private banks, family offices and independent asset managers, in Switzerland as in Europe, the question is no longer whether to invest in private markets, but how to do so with discernment.
Today, 87% of US companies generating at least USD 100 million in sales are private, and they are staying that way for longer. The public markets represent only a fraction of the investable universe, while much of the growth, innovation and value creation occurs before any IPO. Investors limited to listed assets therefore only have access to part of the economic potential.
Despite this, allocations by private investors remain significantly lower than those of institutional investors. Institutional investors generally allocate between 25% and 30% of their portfolios, or even more, whereas these levels rarely exceed a few percentage points in wealth management. At the same time, semi-liquid private debt has expanded rapidly over the last decade, from a few billion dollars in 2013 to several tens of billions today. This rise in evergreen structures has, however, been accompanied by increased complexity. In this context, choosing the right evergreen vehicle requires a clear vision of what the structure is really supposed to achieve.
What evergreen structures solve
Traditional private closed-end funds are based on predefined life cycles. Capital is invested progressively, then returned after several years. Although this model has proved popular with institutional investors, it is often accompanied by the classic "J-curve" effect. Net cash flows are negative initially, then become positive as investments mature and value is realised.
Evergreen structures aim to reduce this friction. By allowing continuous investment and deploying capital over several vintages, they seek to smooth entry points and reduce timing risk. Recycling capital and using the secondary market can also mitigate the J-curve effect and provide more regular exposure.
In a diversified portfolio, private assets can also play a balancing role during periods of volatility on the public markets. As their valuations are based primarily on company fundamentals rather than daily market flows, their performance differs from that of listed equities. This does not eliminate risk, as private markets carry their own operational, leverage and liquidity risks, but it does contribute to diversification.
However, it is essential to remember that evergreen does not mean short-term. We are still talking about long-term investments in intrinsically illiquid assets. The innovation lies in the possibility of offering periodic liquidity windows and continuous exposure, not in transforming these assets into daily traded instruments.
Liquidity: a promise that demands discipline
The term "semi-liquid" deserves particular attention. Evergreen funds generally offer periodic redemption windows, but these are usually capped at fund level. If redemption requests exceed these limits, they can be prorated or postponed.
For asset managers used to the daily liquidity of traditional funds, this distinction is crucial. In private markets, liquidity cannot be taken for granted. It is constructed. It is based on portfolio cash flows, secondary market activity, credit lines and liquidity reserves. However, the strength of these mechanisms varies greatly from one asset manager to another.
A well-designed evergreen structure must clearly present its liquidity arrangements, including details of mechanisms for limiting redemptions, flow management and stress scenarios. Investors need to understand how it behaves in normal conditions as well as in times of stress. Liquidity is an asset, but excessive promises can undermine the whole, as some recent examples have shown.
Governance, sourcing and size
As the evergreen universe expands, performance dispersion becomes more pronounced. Access to institutional-level opportunities remains a key differentiator. The most solid platforms provide access to the same transactions as large institutional investors, often under comparable price and timing conditions. In increasingly competitive private equity markets, this access, along with the quality of manager selection, is a key determinant of performance.
Size is just as important. Larger vehicles benefit from greater diversification, more regular capital deployment and a reduction in uninvested cash. It also allows for more active portfolio management, in particular through secondary market purchases, which help to smooth exposure and improve liquidity management.
Transparency is another essential pillar. Private markets demand high standards of reporting, rigorous valuation methodologies and clear attribution of performance. Investors need to understand not only the returns posted, but also their origin, underlying risks and valuation methods over time.
Understanding the behaviour of asset classes
Evergreen structures cover several asset classes, each with specific characteristics. Private debt strategies, particularly senior direct lending, are a natural fit with semi-liquid formats. Their contractual flows and shorter duration can support periodic redemptions while generating income.
Private equity and venture capital involve longer time horizons and are more dependent on exit conditions. In an evergreen format, a well-calibrated pace of investment, diversification by vintage and use of the secondary market help to manage liquidity and mitigate J-curve, but investors need to maintain realistic expectations of their investment horizon.
Infrastructure is playing an increasingly central role in private portfolios, particularly in Europe. The energy transition, digital infrastructure and the resilience of supply chains are generating sustainable financing needs. Infrastructure assets are distinguished by their exposure to essential services and the visibility of their long-term cash flows, making them particularly attractive in a diversified private allocation. Understanding these differences in behaviour is essential for assessing the place of an evergreen strategy within an overall portfolio.
Education and alignment
As access becomes more widespread, the need for education intensifies. Private markets operate differently to public markets, in terms of valuation frequency, performance measurement and liquidity mechanisms. Managers need to ensure that their clients understand the role of these allocations, the investment horizons and the uncertainties surrounding liquidity.
Performance indicators also need to be explained. Internal rates of return can differ significantly from time-weighted returns, and interim valuations do not always reflect the results achieved. Clear communication is essential to build lasting trust, particularly in times of volatility.