Evergreen funds have become one of the most recent innovations in private markets. They offer investors a simpler way to access the asset class: no capital calls, immediate exposure to an existing portfolio, periodic subscriptions and redemption windows.
But the recent wave of redemption limits across evergreen vehicles has reminded investors of a basic truth: evergreen funds may be open-ended, but the assets they hold are not.
Illiquidity is not a constraint, it is part of the investment thesis
Private equity creates value not through rapid exits, but through the discipline and patience of long-term capital.
At its core, private equity is about giving a business plan the time to be fully executed; supporting companies through phases of growth, operational improvement, and transformation until optimal exit conditions emerge.
Illiquidity is therefore not a weakness of private equity. In many respects, it is one of the conditions that allows the asset class to pursue long-term value creation away from the short-term sentiment of public markets.
The problem starts when illiquidity is packaged as liquidity without the structural safeguards needed to manage liquidity risk.
Evergreen structures introduce flexibility, not instant liquidity
Evergreen funds solve several real challenges in traditional private markets. According to us, they reduce the administrative burden, facilitate portfolio allocation decisions, improve vintage diversification. They also make private markets more accessible to wealth investors who cannot easily build a diversified programme of closed-end funds.
But an evergreen structure does not change the nature of the underlying assets. A private company cannot be sold overnight without potentially destroying value.
The concept of ‘semi-illiquidity’ can be a useful reminder of the long-term nature of the asset class, typically with a recommended investment horizon of at least five years and periodic redemption opportunities, often including a notice period.
Gates should not be seen as a red flag
Recent gating episodes have attracted media attention and are often portrayed as unequivocally negative. Yet in many cases, these mechanisms have worked precisely as intended. A gate is, first and foremost, an investor protection tool.
Without gates, early redeemers may force a manager to sell the most promising assets first. This can leave remaining investors exposed to a portfolio that is less diversified, less liquid and potentially of lower quality. In stressed market conditions, the manager may even be pushed to dispose of strong assets at unattractive prices simply to meet redemption requests.
A well-designed gate helps protect the collective interest of the investor base. It gives the manager time to deploy a broader liquidity toolkit, including cash reserves, distributions, new subscriptions, credit facilities, secondary market transactions, selective asset disposals and portfolio-level liquidity planning.
The question, therefore, is not whether gates exist. It is whether investors understand, before subscribing, why they exist, how they work and under what circumstances they may be activated.
Portfolio construction: the real liquidity test for evergreen funds
Recent pressure on some evergreen vehicles does not call the model itself into question. It highlights a more important point: in an evergreen fund, the quality of the fund depends first on the quality of the portfolio construction.
Managing an evergreen fund differs fundamentally from managing a closed-ended vehicle. Fund size evolves continuously through subscriptions, redemptions, distributions and reinvestments. Allocation, duration, liquidity reserves and reinvestment pace must be adjusted constantly.
Successfully managing an evergreen strategy requires capabilities that have long been associated with open-ended portfolio management: liquidity planning, cash management, portfolio constructions and risk control. At Carmignac, we believe these disciplines have been central to our investment approach for decades.
- Choosing an asset class suited to the evergreen format
Not all private asset classes are equally suited to the evergreen structure.
In our view, secondary private equity offers a more balanced profile, bringing several characteristics that are particularly relevant for an evergreen fund: shorter duration, greater diversification, exposure to more mature assets and the potential to capture significant upside from performing companies in the underlying portfolios.
- Maintaining an appropriate level of diversification
In an evergreen structure, diversification is not only a risk-management tool. It is also a liquidity-management tool.
A well-diversified portfolio across vintages, managers, sectors, geographies and underlying companies can help create a more regular pattern of distributions. These distributions are central to the model: they generate a recurring liquidity waterfall that can be used to meet redemptions, reinvest into new opportunities, or maintain an appropriate liquidity buffer.
- Optimising liquidity across the portfolio
Cash can be perceived as a drag on performance. In an evergreen fund, however, liquidity is not simply idle cash waiting to meet redemptions. Managed properly, it becomes a strategic allocation: a source of resilience, flexibility and potential incremental return.
The challenge is to strike the right balance. Too much uninvested cash can dilute private-market exposure and weigh on long-term performance. Too little liquidity can make the fund vulnerable in periods of higher redemptions or market stress.
The objective is not to dilute private equity exposure, but to ensure that liquidity reserves contribute to portfolio efficiency while supporting the fund's redemption framework.
At Carmignac, the sleeve of liquid assets includes investments in fixed income and credit strategies. As a result, liquidity is not treated as a passive buffer. It is managed as an integral part of the portfolio, helping to meet redemption windows, avoid forced asset sales and contribute to overall portfolio resilience.
Ultimately, the strength of an evergreen fund does not come from promising daily liquidity on illiquid assets. It comes from designing a portfolio capable of accommodating investor flows over time. Liquidity is not a feature added at the end of the process: it is embedded from day one in the way the portfolio is built, diversified and managed.
CARMIGNAC'S PRIVATE ASSET EXPERTISE
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