Evergreen Structures and Secondaries

As private markets continue to expand beyond institutional portfolios and into the wealth channel, evergreen fund structures have gained significant traction. Their promise of ongoing subscriptions, periodic liquidity and operational simplicity has resonated with financial advisers and clients seeking access to private equity, private credit and secondaries in a more flexible format. In practice, this typically means quarterly redemption windows, subject to gates and notice periods, rather than the kind of liquidity available in public markets. 

Yet with greater adoption has come a rise in misunderstanding. Evergreen vehicles are frequently described as semi-liquid, a label that can unintentionally blur the distinction between structural features and the fundamental nature of the underlying assets. When this distinction is not clearly understood, expectations can drift away from reality. Over time, this miscommunication risks undermining both portfolio outcomes and confidence in private markets more broadly. 

Understanding evergreen structures requires moving beyond surface-level features and engaging more deeply with the mechanics of illiquidity, risk premia and portfolio construction. This is particularly true when evergreen vehicles are used to access secondaries, an area of private markets that remains less widely understood despite their long track record. 

One of the most persistent misconceptions around evergreen funds is the belief that the liquidity of the legal structure improves the liquidity of the underlying investments. It does not. Private markets derive a significant portion of their long-term return potential from illiquidity. Investors are compensated for committing capital over extended periods and accepting limitations on when and how that capital can be accessed.

This dynamic holds regardless of whether capital is invested through a closed-end fund or an open-ended structure. Evergreen vehicles may offer periodic redemption windows, but those features do not change the liquidity profile of private equity or private credit assets themselves. When redemptions exceed available liquidity, gates or suspensions can be applied.

To illustrate: if investors request redemptions equivalent to 20% of fund assets in a quarter where only 5% of the portfolio has been realised, the fund faces a structural gap. Gates exist to manage this, but they can still come as a surprise to investors who did not expect them.

That does not mean evergreen structures lack merit. On the contrary, they can be highly effective when aligned with appropriate strategies. The critical point is that the trade-offs must be understood. Flexibility at the fund level introduces constraints elsewhere, and those constraints need to be incorporated into portfolio planning rather than overlooked.

Another common assumption is that evergreen funds are broadly interchangeable. In practice, suitability varies significantly depending on the strategy employed. Strategies with a large and consistent opportunity set, strong deal flow, and assets capable of generating regular distributions tend to function more effectively in an open-ended structure. Higher underlying cash flows help mitigate liquidity mismatches and reduce cash drag. A broad and scalable opportunity set also helps ensure that new capital can be deployed without compromising underwriting discipline.

By contrast, strategies such as early-stage venture capital or distressed investing tend to be poorly suited to evergreen formats. These strategies rely on longer, more unpredictable value creation cycles and offer limited visibility on near-term cash flows.

The greatest risks often emerge not from the structure itself, but from why an investor chooses it. In the wealth channel, advisers and clients are often navigating private markets together for the first time. Without sufficient understanding, there is a real risk that products are selected based on perceived convenience rather than suitability.

Private markets are designed to deliver an illiquidity premium. If an investor requires full liquidity across their portfolio, private markets are not appropriate, regardless of whether the vehicle is open-ended or closed-ended. A more coherent approach begins with determining how much illiquidity a portfolio can absorb. Only then should the question of structure be addressed. Perceived liquidity should never be the primary determinant.

Misconceptions are not limited to fund structures. Secondaries themselves are often misunderstood. Despite more than three decades of active investment, secondaries are still viewed by many as a niche or opportunistic corner of private markets.

One prevailing belief is that secondaries are merely discounted assets acquired out of necessity by sellers. In reality, the role of secondaries is far broader. Their diversification, lower loss rates, and historically consistent return profile make them well suited as a core allocation within private markets portfolios rather than an opportunistic addition.

Value creation in secondaries is also frequently mischaracterised. Purchase price discounts attract attention, but they are only one component of returns. Asset quality, portfolio maturity, and future cash flows matter far more. In practice, discounts alone explain only a small portion of long-term performance

Secondaries strategies can align naturally with the operational requirements of evergreen structures, particularly when portfolios are constructed across both Limited Partner-led (“LP-led”) and General Partner-led (“GP-led”) transactions.

LP-led portfolios often provide broad diversification across funds, managers and underlying companies. These portfolios are typically acquired several years into the life of the underlying funds, meaning investors gain exposure to assets that are already partially realised. This maturity can support earlier distributions and help reduce the impact of cash drag within an open-ended vehicle.

GP-led transactions offer complementary benefits, frequently involving high-conviction assets that managers wish to hold for longer, creating the potential for continued value creation alongside experienced sponsors. When integrated thoughtfully within a broader secondaries portfolio, GP-led investments can enhance return potential while still contributing to the overall cash flow profile of the fund.

A balanced approach that combines diversified LP-led portfolios with selectively sourced GP-led transactions can therefore support both income visibility and long-term value creation. The result is a portfolio capable of generating distributions while maintaining exposure to attractive growth opportunities.

The scale and depth of the secondaries market further support evergreen implementation. A large and continually replenishing opportunity set allows managers to deploy capital consistently whilst maintaining underwriting discipline. Acquiring interests across multiple vintages simultaneously can also mitigate vintage concentration risk, a challenge often faced by primary evergreen strategies.

Secondaries do not eliminate illiquidity. However, when managed carefully, they can reshape the timing of cash flows in a way that aligns more naturally with the operational needs of evergreen portfolios.

Evergreen funds and secondaries both represent meaningful developments in the evolution of private markets. Their effectiveness, however, depends on a clear understanding of what liquidity means and what it does not, as well as the role these investments play within a broader portfolio. For financial advisers and their clients, the objective should not be to avoid illiquidity or complexity, but to understand it well enough to incorporate it deliberately into portfolio construction.