While not new, the number and scope of evergreen funds have expanded significantly in recent years. They provide a more straightforward access point to private markets with lower investment minimums for eligible institutional and individual investors than traditional closed-end funds, often known as drawdown funds.
Key Takeaways: Why Evergreen Funds?
Immediate Exposure
When subscribing to many evergreen funds, investors gain day-one exposure to private markets investments.
Continuous Compounding
Evergreen funds do not have a finite life and can recycle proceeds and profits from realisations into new deals.
Built-in Liquidity
Investors can withdraw some of their capital at certain points to gain periodic liquidity.1
Simplified Access
Often with no capital calls to manage, consistent exposure, and an element of liquidity, an evergreen fund can be a more flexible and efficient way of accessing private markets than drawdown funds.
1 Subject to certain restrictions, such as redemptions limits, which can vary by specific fund and company.
Why Are Evergreen Funds Developing and Expanding?
Historically, investors have built exposure to private markets through closed-ended drawdown funds. These are complex for investors to administer and have relatively high investment minimums. This is why private markets have – until recently - been suitable mainly for institutional investors with the human and financial resources required to build and manage diversified private markets allocations via drawdown funds.
However, in recent years, private markets firms have started developing and launching evergreen funds to simplify and expand access to the asset class for eligible individual investors and institutions. By providing investment in an existing portfolio of assets and, in some cases, recycling realised capital into new deals, evergreens can offer investors an efficient way of achieving diversified and continuously compounding private markets exposures, plus an element of limited liquidity.
Evergreen funds can offer access to primary and/or secondary investments in private credit, private equity, private infrastructure and private real estate. Some evergreen funds target specific asset classes or strategies, while others are more diversified across a range of investment types and/or managers.
How investors Get In and Out
Getting In:
Evergreen fund managers collect capital from investors via periodic (typically monthly or quarterly) subscriptions. They then allocate each subscription a proportion of the investment portfolio’s worth according to the fund’s net asset value (NAV) at the time of investment.
Getting Out:
Evergreen funds usually provide options for liquidity via redemptions—these are typically either periodic or with notice (of between 60 and 90 days) and tend to be based on NAV at the time of withdrawal.
However, since an evergreen fund’s underlying investments are illiquid (not readily tradeable at short notice), redemptions are subject to limits on the amount of capital an investor can withdraw and/or on the amount a fund can pay out at a given time. This helps protect remaining investors by preventing a run on the fund, which could lead to forced sales. Many evergreen funds also feature a lock-in period, during which investors cannot redeem any of their capital.
An evergreen fund is therefore suitable only for investors comfortable with keeping their capital locked up for the long term.
How Evergreen Funds Work Differently From Drawdown Funds
Both open-end (or evergreen) and closed-end (or drawdown) funds can play an important role for private markets investors, but they work in different ways. Key contrasts include:
- Term: Perpetual (evergreen) vs. 7–12 years (closed-end / drawdown).
- Capital timing: Often fully invested at entry (evergreen) vs. staged capital calls (closed-end).
- Liquidity: Periodic redemptions with limits (evergreen) vs. distributions at exits/fund wind-down (closed-end).
- Diversification: Quicker access to multi-vintage exposure (evergreen) vs. exposure built over the investment period (closed-end).
Drawdown funds are closed-ended and raise capital that is committed for the fund life (typically between 7 and 12 years, depending on the private markets strategy). Managers “call” investor capital over time as investments are made, so capital is not invested from day one, but is drawn gradually over several years (and the whole commitment amount may never be fully invested). Returns are realized and distributed back to investors as underlying assets are sold. (To learn more about how these funds work, visit our "What is Private Equity" page.)
This requires investors to hold sufficient capital in reserve to meet capital calls and then, if they are to maintain private markets exposure, to find new investments after receiving distributions, both of which take time and resources to manage effectively. For managers, however, drawdown funds tend to be less operationally complex than evergreen funds since they do not need to be consistently deploying capital, holding capital in reserve to meet investor redemption requests, or value portfolios as frequently.
Evergreen funds tend to accept capital on a continuous basis and stay open-ended, with no fixed termination date. Often, investors provide all capital immediately, and this is typically deployed into an existing portfolio shortly after subscription. Returns may come through periodic distributions or NAV growth, although proceeds can be reinvested in new deals so investors maintain continuous exposure. Investors can often redeem at scheduled intervals (subject to liquidity limits).
Evergreens are designed to provide smoother capital deployment, more frequent liquidity, and a lower administrative burden for investors. However, managers must be highly disciplined because the fund must balance inflows, outflows, and ongoing investments in real time as well as provide frequent valuation updates.
How Closed and Open-End Fund Cash Flows Differ
As a result of these differences, the cash flow profiles of the two types of fund—and how much of an investor’s capital is actually invested at a given time—are very different.
Exhibit 1: Most Evergreen and Drawdown Funds Have Markedly Different Cash Flow Profiles
As the chart above shows, in evergreen funds, managers deploy investor capital immediately into a diversified portfolio of private markets assets. The manager holds an amount of capital in liquid assets, known as a liquidity sleeve, so it can support continuous deployment and meet redemption requests. This is typically set at between 10% and 20% of the fund’s value. In some cases, the manager can also reinvest the proceeds from selling or otherwise realizing investments back into the fund. These features mean that investors have continuous exposures and have the potential to benefit from long-term compounding of returns on the vast majority of the capital they invest.
This is quite different from a drawdown fund, where investor capital is drawn down over several years and the proceeds return to investors as and when a manager realizes investments. This means investors rarely achieve full investment of their capital. As a result, they may opt to keep money aside in potentially lower returning liquid assets in the early stage of an investment to meet capital calls. They also need to source new investment opportunities as they receive distributions (returns) if they wish to keep their capital at work.
Evergreen vs. Drawdown Fund Comparison
| FEATURE | DRAWDOWN FUND (CLOSED-END) | EVERGREEN FUND (OPEN-END) |
|---|---|---|
| Capital Commitment | Investors commit capital upfront; capital is called over time as deals are executed. | Capital is typically invested immediately upon subscription. |
| Fund Life | Finite lifespan—often 7–12 years with defined investment, harvest, and wind-down periods. | Perpetual or long-term with no fixed termination date. |
| Liquidity | Illiquid until distributions; investors generally cannot redeem early. | Periodic redemption windows (subject to liquidity management). |
| Cash Flow Pattern | Irregular capital calls and distributions tied to investment and exit timing. | More stable NAV-based flows; investors see smoother contribution and distribution schedules. |
| Portfolio Construction | Investors gain exposure to a specific “vintage year” and lifecycle of investments. | Exposure is continuously refreshed as the manager buys and sells positions over time. |
| Valuation | Typically valued quarterly; emphasis on long-term realized outcomes at exit. | NAV updated more regularly; values reflect ongoing portfolio turnover. |
| Deployment Speed | Depends on deal pace; capital may take years to be fully called. | Capital is deployed more quickly, improving cash efficiency for investors. |
| Return Profile | J-curve effect common—early negative returns before exits drive performance. | Reduced or absent J-curve due to ongoing deployment and immediate exposure. |
| Investor Base Suitability | Institutional investors comfortable with illiquidity and multi-year commitments. | Broader investor universe, including eligible individual investors, given more flexible access and redemption. |
| Manager Requirements | Focus on executing a defined investment program and eventual exit strategy. | Requires continuous portfolio management, liquidity planning, and capital flow balancing. |
Compounding Returns in Evergreen Funds
Since investor capital tends to be put to work straight away and remains continuously invested, evergreen funds benefit from faster and more consistent compounding of returns. Unlike drawdown funds, where returns are often negative in the early years of a fund’s life and only start turning positive as capital is returned to investors, there is no J-curve effect within an evergreen fund.
How Compounding Works in Evergreen Funds
Exhibit 2a: Evergreen Vehicle Would Outperform a Drawdown Fund When Gross Returns Are Equal Assuming Uncalled Capital is Deployed in a 60/40 Portfolio
Exhibit 2b: The Evergreen Structure Has the Potential to Deliver a Higher Net MOIC1 for An Equivalent Net IRR2
Evergreen funds therefore have the potential to outperform comparable drawdown funds.
Assuming an investor’s uncalled capital is deployed in a 60/40 portfolio (as described above), the illustrative examples above show:
1. How the cumulative value of an evergreen fund can grow more—and more quickly—than that of a drawdown fund with the same amount of capital commitments.
2. How an evergreen fund’s more efficient use of capital can translate into a higher multiple on invested capital (MOIC) return for investors: for example, as described above, to generate a 2.5x net MOIC, a drawdown fund net internal rate of return (IRR) would need to be 13.5%, while an evergreen fund would only need to generate a net IRR of 9.6% to reach the same multiple.
How Investors Can Use Evergreen Funds in a Private Markets Portfolio
Set and Forget
Since individual investors do not usually have access to a wide range of managers or sufficient capital to pursue complex allocation and cash management strategies, evergreen funds are a compelling way for many individual investors to access private markets. Evergreens’ relatively low investment minimums and convenient and familiar format provide investors with an efficient way of staying invested in private markets, and with sufficient diversification.
Combine Evergreen and Drawdown Strategies
For those for whom private markets are appropriate, an evergreen fund can complement drawdown fund exposures when integrated into a private markets investing portfolio or strategy. Evergreen funds typically continue making new investments, providing a growing portfolio of assets that can add diversification benefits, including across several vintage years.
By blending the two types of fund in their portfolio, investors can use evergreens as a capital management tool. This has the potential to help investors achieve higher compounded returns than by using drawdown funds alone.
Exhibit 3: Blending Evergreen and Drawdown Funds Could Produce Higher Compounded Returns Over Time
In the illustrative example above, an investor uses evergreen funds as a diversified, fully invested allocation, providing a baseline private markets level of deployment and diversification, but also has strategy-specific investments in drawdown funds to fine-tune exposures. In the program’s early years, the investor keeps sufficient capital in liquid assets to meet capital calls, but as the drawdown funds start to realize returns, the investor recycles the capital returned into evergreens to maintain a desired allocation to private markets. While a drawdown-only allocation results in an illustrative 1.55x MOIC at five years and a 2.5x MOIC at 10 years, a 40% drawdown and 60% evergreen fund mix could result in 1.69x and 3.04x, respectively.
Why It Is Important to Invest With Leading Managers
Unlike the listed market, where managers may have similar exposures, the gap between the best performing, top quartile private markets managers and those in the bottom quartile is wide: in buyouts, for example, it can be as high as 1,400 basis points.2 We believe this is because returns from private markets stem largely from strong investment sourcing and selection skills, the ability to support and add value to portfolio companies, and long-held experience of realizing investments at a profit. Portfolio composition is therefore unique to each fund—there may be little to no overlap in investments across managers—and capability in the above areas naturally varies.
In evergreen funds, managers face additional demands. They need the scale and capacity to manage complex operations to ensure:
- There is sufficient liquidity to meet investor redemption requests, regardless of market conditions, that does not rely on inflows from other investors
- Cash drag (caused by holding capital in liquid, often low-yielding assets) is sufficiently mitigated to prevent dampening of returns
- Portfolio valuations are updated regularly and—vitally, given that investors enter and exit the fund based on these—fairly
- Disciplined fundraising and sustained capital deployment to manage inflows and reinvestments since evergreens require a faster pace of investment
Absent these attributes, evergreens can present certain risks, including liquidity mismatch. In addition, managers raising too much capital for their strategy or capacity to source good investments may face pressure to invest in lower quality assets. Meanwhile, some managers may offer portfolios that are over-diversified and akin to a private markets index—this can dilute investor returns since by definition, investing in the mean does not produce top quartile performance.
Investors therefore need to choose managers carefully and understand what they are buying access to. See here for five of the most important questions investors should be asking evergreen fund managers.
REFERENCES
Note: KKR's evergreen strategies are vehicles, not funds. The above is for educational purposes only.
2 Source: eVestment Alliance database for 15‐year period through December 31, 2023. US Equities include large and small cap indexes; Preqin online database, performance as of December 2023 (includes vintages for the 16 years to 2021), top quartile, median, and bottom quartile boundary net IRRs. Performance for later vintage funds not available because the funds have not had adequate time to deploy capital, operate assets, and exit. Preqin’s database is continually updated and subject to change.
Frequently Asked Questions
What is an evergreen fund?
An evergreen fund is a type of open-end fund that raises capital from investors on a continuous or regular basis, often provides immediate exposure to private markets portfolios and offers an element of liquidity.
How do evergreen funds differ from drawdown funds?
In drawdown funds (which have a finite life), investor capital is drawn over several years as a manager finds suitable investments, and proceeds from realizations are returned to investors. In evergreen funds (which do not have a finite life), capital tends to be invested much more quickly into an existing portfolio, and realizations are sometimes recycled into new investments.
What types of investment do evergreen funds provide access to?
Private markets investments, including private equity, private credit, private infrastructure and private real estate. Some evergreens target a particular strategy; others are multi-strategy.
Are evergreen funds liquid?
They provide an element of liquidity but are not fully liquid. Because the fund’s underlying investments are illiquid (not readily tradeable at short notice), managers place limits on how much capital investors can request and/or on how much the fund can pay out at a given time. Investors in evergreen funds therefore need to be comfortable with having their capital tied up over the long term.
How do evergreen funds manage liquidity?
Managers typically reserve between 10% and 20% of investor capital in a liquidity sleeve, where money is held in liquid assets. This can be in cash or near-cash securities and sometimes, the manager may use also distributions from exits to return capital to investors.
How do evergreen fund managers build portfolios?
Many evergreen fund managers also run drawdown funds. When making a new investment, the manager can allocate a share of the investment to the evergreen fund alongside the drawdown fund, according to the fund’s terms, or pursue investments that are separate from the manager’s drawdown funds.
How do evergreen funds generate returns?
The underlying investments are in private markets. In equity private markets investments, the manager buys an ownership stake in a private company, improves it to make it more valuable and then sells it at a profit. In credit private market investments, the manager lends to private companies, generating yield from interest payments, plus sometimes upside from equity-type investments made alongside loans.
How are evergreen funds valued?
Since investors are allocated a share of the portfolio and returns based on the fund’s value, evergreen funds must undertake frequent and fair valuations. They use net asset value (NAV), which at a high level is the total value of a fund’s assets minus its total liabilities.
Are evergreens a replacement for drawdown funds?
No, although they are likely to be the most straightforward way for many eligible individual investors to access private markets. Eligble investors may also be able to use a combination of evergreen funds to benefit from continuous exposure and compounding returns, while also targeting specific strategies and managers via drawdown funds.
What fees do evergreen funds charge?
The fees tend to be similar to drawdown funds, in that they charge a management fee and carried interest (a performance incentive fee), but evergreen fund management fees are generally based on the fund’s (realized and unrealized) NAV, as opposed to committed or invested capital. Since evergreens provide continuous exposure, management fees do not step down.
What is a typical investment minimum for an evergreen fund?
Typical investment minimums range from $10,000 to $25,000, although rules and regulations will vary between products and jurisdictions.
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