Private credit evergreen and semi-liquid structures are gaining ground among LPs as well as wealth clients. Here’s why.
Evergreen and semi-liquid structures in private markets have proliferated over recent years. A total of 333 private markets evergreen funds launched between 2019 and 2024, according to Preqin data, and there have been more since, including in private credit. Ares’ €2.2 billion open-ended European direct lending fund and Blackstone’s perpetual private credit vehicle are among them, as are the newly-launched ELTIFs from AXA IM Alts and Muzinich & Co and an evergreen fund from King Street Capital Management and Lumyna Investments.
Many of these vehicles are targeted squarely at the wealthy individual market, but institutional investors are also increasingly attracted to the flexibility these funds can offer their portfolios. So what’s in it for them? And what comes next?
The development of semi-liquid and evergreen structures is one of the biggest evolutions in private markets, says James Reynolds, Co-Head of Global Private Credit at Goldman Sachs Alternatives. It will drive growth in private credit across both direct lending and investment grade investments. Institutional investors are looking for a range of access points, including semi-liquid and evergreen funds.
Tamsin Coleman, Principal and Senior Private Credit Specialist at Mercer agrees. “We’re seeing the blurring of public and private markets”, she says. “Semi-liquid and evergreen structures are bridging the gap. A decade ago, private credit was seen as an alternative to private equity in an alternatives allocation.”
“Today, it’s often a step up from fixed income, and a more permanent part of the portfolio. Evergreens now have a strong place in portfolios to help investors keep capital invested, while semi-liquids represent the opportunity to get exposure quickly, with the ability to provide limited liquidity to modify exposure over time. They are opening up private credit to clients that weren’t previously able to access it.”
The structures can be particularly suited to smaller or new investors in the asset class, says the head of private debt at a family office. "Many of our clients currently have a small allocation to private credit because they have so far focused on private equity," she explains. "Evergreens can help them give them rapid access to private credit while they ramp up their exposure. They also have lower minimums than closed-ended funds."
“Evergreens are investor-friendly”, says Fabio Monteine, Vice President, Direct Credit Investments at Hamilton Lane. “They can access them monthly, they provide some liquidity, and they offer immediate investment exposure and vintage year diversification.”
The recent liquidity crunch LPs experienced as distributions slowed in 2023 and 2024 has only added to these vehicles’ allure for some investors.
"When interest rates went up, private credit faced a big issue as LPs struggled with the denominator effect," says Frank Meijer, Global Head of Alternative Fixed Income at Aegon Asset Management. "LPs have not forgotten this – that’s why semi-liquids are very much in favour. They also do away with having to manage portfolio tail-ends, which can be a nightmare for everyone to deal with because the holdings are often tiny and the outcome usually binary."“For us, the liquidity profiles are attractive when compared with closed-ended funds," adds Ralph Guenther, Partner and Head of Investor Relations Continental Europe at Pantheon. “When we launched evergreens, it was to open up the wealth market, but they have become popular among some institutions, such as smaller pension funds. They like the power of compounding within an evergreen structure as well as the liquidity profile.”
Yet not all investors see these vehicles as providing liquidity. “We don’t model evergreens as being liquid – we put them in the illiquid bucket,” says the family office head of private debt. “When we initially plan investments, we assume the same reallocation period as a closed-ended fund.”
“Our clients have been investing in private equity for a long time and so they know how closed-ended funds work. Many of these structures have single capital calls of 100%, so investors are actually deployed for longer than in a closed-ended fund.”
As investors diversify into other types of private credit, evergreens are gaining popularity in areas such as real estate, as Gregor Bamert, Head of Real Estate Debt at Aviva Investors, points out.
"Real estate has a wide range of strategies," he says. "But you have to align the underlying investment strategy to the vehicle and its liquidity profile. Long-dated investments are inherently not liquid and so are not appropriate for evergreens, but construction debt, for example, is shorter-dated. That said, if you have a diversified mix of durations that can work."
"There needs to be sufficient deal flow so that investors get exposure from day one," says Monteine. "If you are raising every month, you need a wide funnel so you can be selective. Pressure to deploy capital is a potential pitfall in these vehicles."
It all comes down to cash management, adds Guenther. You have to be able to synchronise cash deployment and capital raising. That means starting with secondaries, where you can deploy more quickly and show some early returns, and then adding primaries and co-investments over time.
Given the volatile times we currently face, LPs should also examine what other types of investor are in the fund. Pure retail capital, for example, is more likely to head for the hills when things get tough.
“A run on a fund is serious matter,” says a seasoned evergreen manager. “We have never had a run on our funds – even in Q1 2020 when Covid first hit. That’s because we’ve targeted wealthy investors with a $1 million minimum investment size. They can afford to wait out the storm.”
