Evergreen funds

Evergreen funds

Creating efficient access to private markets

The evergreen label is broadly applied to funds that are perpetually offered and allow investors to purchase or redeem shares on a periodic basis — typically monthly or quarterly (Figure 1). Evergreen fund assets under management are estimated to be over $400 billion today.1

The emergence of evergreen funds over the last several years has helped address many of the historical challenges individuals have faced investing in private markets such as private debt, private equity and real estate.

Figure 1: Number of evergreen funds

Source: Prequin. Includes business development companies, interval funds, non-traded REITs, European long-term funds and long-term asset funds.

An evolution of private market access

Private market investing has historically been the domain of large institutional investors due to the high investment minimums and strict suitability requirements of the private drawdown funds commonly employed by investment managers in these markets. In addition, drawdown funds require a long-term investment horizon (10 years or more) with investors’ capital committed at a point in time but invested, or drawn down, over several years.

While drawdown funds have useful applications for large, institutional investors based on their long-term investment horizons and investment objections, individuals are accustomed to lower investment minimums, more frequent liquidity options and immediate deployment of their investment into return-generating assets (Figure 2).

Many evergreen fund offerings are registered with the U.S. Securities and Exchange Commission (SEC) and, therefore, provide enhanced investor oversight compared to closed-end drawdown funds.

Figure 2: Key differences between closed-end drawdown funds and evergreen funds

Evergreen fundsClosed-end drawdown fund
Fund structurePerpetual offeringClosed-end, limited partnerships
TermNo fixed end dateTypically 10 years
Investor suitabilityAccredited investor/Qualified clientQualified purchaser ($5 million net worth)
Tax reporting1099K-1
Capital callsNoYes
Minimum investmentAs low as $25,000Typically $5 million or greater
RedemptionsTypically monthly or quarterlyNone until maturity

Addressing investment challenges

In addition to more user-friendly terms and liquidity options, evergreen funds help address some of the operational complexity inherent in drawdown funds.

  • Immediate deployment of capital: Evergreen funds are perpetually offered with investor capital immediately deployed into return-generating investments compared to closed-end drawdown funds in which committed capital is drawn down over several years (Figure 3). Evergreen fund managers typically allocate a portion of capital to cash or other liquid securities to ensure the fund has liquidity to meet investor redemption requests at the stated intervals.
  • Reduction of the J-curve effect: The J-curve effect is used to describe the return profile of drawdown funds where returns are typically negative in the first few years of the fund’s life cycle as the initial capital is invested and fees are paid to the managers. Returns begin to increase in the later years when investments are exited and distributions are paid to investors. As discussed above, evergreen funds help investors get and stay invested compared to drawdown funds.
  • Mitigates blind pool risk: Given the perpetual nature of evergreen offerings, investors can allocate to a funded portfolio compared to drawdown funds, which often do not own any investments at the time that investor’s capital is committed to the fund.

Figure 3: Illustrative example of the investment cycle for private equity evergreen funds vs. drawdown funds2,3

For illustrative purposes only. There are many factors that could result in an investment not achieving these results, including market conditions, the illiquid nature of private equity investing, strategy risks, interest rate risk, and the use of leverage, among others.”


Evergreen funds may help deliver many of the historical challenges for individuals to access the yield, return and diversification potential of private market investing.

As with any investment decision, investors should consider the investment risks, expertise of managers and their ability to execute their strategy using different investment structures.

  • Source: iCapital. The Future is Evergreen. The Next Generation of Private Market Funds.

  • Assumes 90% of principal is invested in the core growth strategy and 10% of principal is invested in liquid assets to fund portfolio investments and redemption requests.

  • Assumes investment commitments are increasingly deployed through the end of the investment period, before harvesting and distribution of investment proceeds ramps up in year 7.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.


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