Evergreen funds: What every private equity investor should know

Open-ended fund structures have democratised private equity, allowing private wealth investors access to an asset class that was once the preserve of large institutional investors. This article explains what evergreen funds are, why they are growing rapidly, and the role they could play in your portfolio.

What are evergreen funds?

For decades, private equity was targeted at institutional investors and came in one flavour – closed-ended drawdown funds, which typically have a 10-15-year lifespan. Investors commit a significant amount of capital that is drawn down over several years and invested in attractive target companies (often via leveraged buyouts). While the traditional model continues to deliver attractive long-term returns overall, recent years have seen the evolution of private equity with the growth of open-ended ‘evergreen’ funds.

Evergreen funds offer a perpetual structure, enabling ongoing investment and potential redemptions. Evergreen funds cater to new and individual investors by offering lower investment minimums and periodic liquidity. This provides an efficient solution for portfolio and cash flow management without the need to manage capital calls and distributions.

Private equity evergreen funds have proliferated significantly in recent years. As an indication, net assets in the largest US SEC-Registered private equity evergreen funds have grown six-fold in the last four years.

Figure 1: Net assets for largest 16 SEC-registered private equity-focused evergreen funds (2021-2025)

Source: Scientific Infra & Private Assets (2025). Data as at 31 March of each year.

This growth has been driven by the evolution of a diverse array of fund wrappers and platforms. These include tender-offer funds, interval funds, non-listed business development companies (BDCs), undertakings for collective investment (UCI) investment funds, and newer structures – the European Long-Term Investment Fund (ELTIF) and UK Long-Term Asset Fund (LTAF).

While the growth of evergreen funds has historically come from income-driven strategies (notably private credit and real estate), the evolution of the secondaries market and co-investment relationships has driven the expansion of evergreen private equity offerings. Recent years have seen a clear industry shift towards large managers launching dedicated evergreen fund products offering clients perpetual exposure and access.

The chart below shows the expected growth in assets under management of evergreen funds over the next four years.

Figure 2: Evergreen fund AUM forecast (2024-2029)

Source: Pitchbook (2025).

According to Pitchbook, around USD 2.7tn was managed in various indefinite life formats globally at the end of 2024. This is projected to increase to USD 4.4tn by the end of 2029, with the proportion of wealth-focused evergreen AUM projected to increase from USD 0.4tn to USD 1.1tn, a compound annual growth rate of 22.4 per cent¹.

The chart below breaks down evergreen vehicle activity by investment strategy over H1 2025.

Figure 3: Evergreen transaction volume by strategy (H1 2025)

Source: Campbell Lutyens (2025).

Buyout strategies remain dominant representing 70 per cent of evergreen fund allocations in H1 2025, with venture and growth equity at 12 per cent, and other private asset classes making up the remainder.

Evergreen funds come in two broad types²:

• Multi-manager funds: which include multi-strategy funds that allocate to a diversified pool of LP-led secondaries (~50 per cent), with the remainder to LP primaries, direct/co-investments, and GP-led secondaries. The underlying portfolio companies are sponsored by a wide array of carefully selected private equity managers. This category also includes pure play funds that pursue a focused strategy. This can either be a pure play on private equity LP-led secondaries or direct/co-investment funds that invest most assets (70 per cent+) in underlying private equities directly. GP-led transactions can also be part of the asset mix
• Single-manager funds: including in-house multi-strategy funds, that direct investments across internal investment products and asset classes. The asset mix will largely depend on the strategies of the underlying manager

Increasing access

How should evergreen structures be evaluated in the context of the existing drawdown model of private equity?

Let’s use an analogy – a closed-ended drawdown fund as a vineyard. A vineyard has a vintage – there is a set timeline over which new vines are carefully planted, cultivated, and harvested, after which the (hopefully high-quality) wine is bottled and sold to a buyer. This is a time-tested model that has delivered for clients.

In contrast, an open-ended evergreen fund can be viewed as an orchard. Trees are planted once and then tended to periodically. Fruit is harvested in different seasons and sometimes held back to fully mature. The aim is to earn steady yields and provide ongoing stewardship.

Just as consumers can benefit from having fine wine from a vineyard and cider from an apple orchard, investors can reap the benefits of both drawdown and evergreen private equity funds.

Previously, if an investor wanted diversified exposure to private equity they would have had to invest in multiple fund vintages. Evergreen funds provide a way for investors to acquire private equity exposure with a single commitment and lower operational complexity. However, they do not replace the time-tested drawdown fund model. Ultimately, investors should choose how they want to access private equity based on their capabilities, timelines, goals, and preferences.

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Introducing David and Emma

Let’s imagine two hypothetical investors, who are interested in allocating to private equity.

David is a 55-year-old patent lawyer who has worked all his life and accumulated a large amount of savings. He plans to retire in 12 years and wants to invest 10 per cent of his savings in a private equity buyout fund to boost the returns of his pension fund upon retirement. He is an experienced investor and has profited handsomely from prior vintages. He understands that his money will remain ‘locked up’ for five or more years but expects to earn attractive returns when the fund is fully distributed, and he retires.

Emma is a 26-year-old junior doctor with a young daughter who has recently received an inheritance. Emma and her partner would like to withdraw some money in two years to pay for childcare. She is new to investing and has read that private equity offers attractive long-term returns. She likes the liquidity and flexibility offered by evergreen funds, and given her relatively short-time horizon, she can gain exposure quickly with a relatively modest investment. She considers investing some of her savings in an evergreen fund.

Keep David and Emma in mind; we’ll return to them later.

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Exploring evergreen funds and drawdown funds

The rise of evergreen funds means investors with different goals, preferences, and investable amounts can gain access to private equity in the way they desire. They can even be utilised together to build a private equity portfolio allocation based on an investor’s desired characteristics.

Below is a summary of key features of evergreen and drawdown funds.

Figure 4: Features of closed-and open-ended funds

Six key benefits that evergreen funds can offer are:

• Continuous reinvestment: Given the perpetual nature of funds, there is potential for significant long-term gains from compounding. This aligns with long-term value creation because businesses in many sectors can require more than a decade to unlock full value. Evergreen funds enable GPs to preserve and grow enterprise value and avoid time-pressured exits
• Potential liquidity: For individual investors, this is a significant benefit over traditional funds. Well-run evergreen funds offer periodic liquidity options or NAV-based redemptions, allowing investors to gain private market exposure without their money being locked away for several years
• Enhanced portfolio diversification (for multi-manager funds): Because multi-manager evergreen funds invest in a mix of primary, secondary, and co-investment deals from the outset, they provide greater and faster diversification than a typical primary fund
• Ease of management: Investors contribute capital upfront and transfer the handling future capital calls to the GP. In some cases, evergreen structures can also reduce the financial impact of paying high carried interest in a year, smoothing tax and cashflow implications
• Dynamic asset allocation: The flexibility of being able to shift allocations to the most attractive areas quickly where the investment thesis is more compelling can potentially boost risk-adjusted returns over time
• J-curve mitigation: There are no capital calls over the initial months or years. Instead, the manager aims to fully deploy capital in private markets from the outset. In a multi-manager fund, secondaries and co-investments can be utilised to gain exposure more quickly

The chart below illustrates the evolution of private equity exposure over time for an evergreen fund versus a single drawdown commitment and a diversified drawdown programme.

Figure 5: Private equity exposure for evergreen and drawdown funds

Source: HarbourVest Partners (2025).

Typically, evergreen funds provide immediate and significant private equity exposure from the outset. Exposure is maintained perpetually as distributions from company exits are recycled into new deals, compounding returns over time. The GP retains a liquidity sleeve such as cash and yielding liquidity instruments to meet client redemptions. The liquidity sleeve can create cash drag over time, impacting the performance of evergreen funds versus equivalent drawdown funds.

A single drawdown commitment or vintage and a diversified drawdown PE programme both invest predominantly in primary deals. In a single commitment, capital is deployed and exposure gained over around five years, while a diversified drawdown PE programme can take 15 years to gain 100 per cent exposure. Distributions are made to the investor as investments are exited and are not usually recycled.

Secondaries and co-investments

Multi-manager evergreen funds can provide immediate exposure and partial liquidity because of their sizeable allocation to secondary investments. As we saw, primary investments can take five or more years to start distributing, but because secondaries purchase existing assets, distributions tend to come in earlier. They provide greater liquidity and allow quicker exits as the assets are more mature. With secondaries, investors can also invest in proven assets that have a track record and history, helping to avoid the blind pool risk associated with primary investments. Finally, acquiring multiple secondary stakes across sectors and geographies allows for greater diversification than single primary investments.

These multiple benefits explain why investors have been drawn to GP-led and LP-led secondaries. There has been a significant rise in secondaries volume over the last two years, particularly as exits and distributions from traditional drawdown funds have remain subdued. Secondary transaction volumes reached USD 110bn in H1 2025, a 59 per cent increase from H1 2024, and are expected to reach USD 200bn by the end of 2025.

Figure 6: Annual secondary market volume (2021-2025)

Source: Campbell Lutyens (2025).

The rise of evergreen funds has been enabled by the growth of secondaries fundraising and dealmaking, as well as GP- and LP-led exits. We expect this trend to continue as the primary market remains subdued amid an uncertain market environment.

An added benefit of evergreen funds is that they commonly invest in co-investment deals. In co-investments, the fund manager selectively participates in deals sourced by other fund managers. This provides LPs with much-needed diversification, stronger relationships with GPs, and potential fee savings.

Evaluating evergreen fund returns

With traditional drawdown funds, the key performance metric is internal rate of return (IRR). This is a money-weighted rate of return that captures the impact of the GP’s active decisions regarding the timing of capital calls, exits, and distributions over multiple years.

In contrast, evergreen funds are open-ended funds that have continuous calls and distributions. Cashflows are not under the GP’s control, making IRR an unsuitable measure. A total, or time-weighted, rate of return provides a more accurate reflection of a GP’s skill – and a fund’s performance – because it is not skewed by factors such as large investor deposits during bullish markets or withdrawals during bearish markets. This is why a time-weighted approach is also used to calculate the performance of traditional equities and bond funds.

Care is warranted when comparing the performance of evergreen and drawdown funds because IRR and total return are not directly comparable. Instead, multiple on invested capital (MOIC) can be used as a common measure to calculate the return generated on capital invested, irrespective of cashflow timing.

However, even using this measure, there are many assumptions inherent in calculating evergreen fund returns that make direct comparisons problematic. These include cost of capital for uncalled amounts; the operational cost to manage liquidity; the timing of reinvestment; structural differences in the administration of fees and carry; and investor behaviour through recessionary periods³.

Overall, research shows that the long-term return differences between drawdown and evergreen funds is largely a factor of the timing of cashflows and reinvestment⁴. An investor in an existing private equity programme that is capital-efficient in its cash management may want to maintain a programme with continuous commitments, which may generate higher returns over time. However, an investor considering building a new private equity portfolio may want to utilise an evergreen fund to enable immediate and continuous deployment, allowing for compounding of returns over time.

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Returning to David and Emma

As retirement approaches, David wants to spend more time managing his investments. He would like control over how and whether he reinvests distributions. Being a patent lawyer, he has a long-held interest in technology.

Consequently, David decides to invest the core of his private markets’ allocation to a multi-manager technology-focused drawdown fund that is agnostic to geography and sector. He aims to reinvest some of the distributions from the drawdown funds into a single-manager evergreen fund over time to maintain his desired NAV and to provide liquidity to fund expenditures in retirement.

Meanwhile, Emma has been busy working as a doctor and has little time to research investments. She likes that evergreen funds are less burdensome, and that the manager is responsible for managing cashflows and reinvestment. Equally, she thinks traditional drawdown funds suit her long-term investment horizon. She’s also passionate about the potential for healthcare to save lives and would like to express this in her portfolio.

She opts for a core-satellite approach, the core being a multi-manager evergreen fund and a satellite investment in a healthcare-focused single-manager drawdown fund through a feeder vehicle. Using this approach, she plans to use a portion of the redemptions to pay for childcare expenses and the rest to meet capital calls of the drawdown fund over time.

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Adding to the investor toolkit

These hypothetical investors illustrate how open-ended evergreen funds complement closed-ended drawdown funds by offering alternative portfolio solutions to investors with different goals, requirements, and time horizons.

Consequently, we expect evergreen funds to continue to gain in popularity and become increasingly mainstreamed as a core component of the private markets landscape.

1. These figures apply to all evergreen funds, not just private equity.
Any forecast, projection or target where provided is indicative only, and is not guaranteed in any way. HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target.

2. Rise of private equity evergreens: Moving from IRRs to time-weighted returns - Scientific Infra & Private Assets (SIPA) – SIPA (2025).

3. Three common questions about when and how to use evergreen and drawdowns in private equity programs - HarbourVest (HarbourVest, 2025).

4. Z0564_0824_Comparing_evergreen_and_traditional_fund_returns_posting (7).pdf (Neuberger Berman, 2024).
Any forecast, projection or target where provided is indicative only, and is not guaranteed in any way.
HSBC Asset Management accepts no liability for any failure to meet such forecast, projection or target.