Evergreen funds grow in popularity
Evergreen funds are becoming more popular, in a sign that investors are deprioritising liquidity in the search for higher yields.
According to a recent report from Novantigo, evergreen funds have been attracting around 10 times more investment than European Long- Term Investment Funds (ELTIFs) to date, and evergreen AUM is growing.
The research found that during the first quarter of 2024, approximately €7.3bn (£6.08bn) was invested into private debt evergreen funds, but by the second quarter this had risen to €7.8bn. This appears to be in response to demand from wealth managers and their clients, who are comfortable accepting a little less liquidity in exchange for higher returns.
Evergreen funds are investment vehicles that continuously accept capital, without fixed maturity dates. Liquidity in evergreen funds is generally limited. While investors can typically redeem shares at set intervals, withdrawals may be restricted to maintain stable funding for investments.
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There have been a number of high profile evergreen fund launches in the past few months. In October, Apollo launched a new suite of evergreen secondaries products for global wealth investors, and Russell Investments rolled out an evergreen fund aimed at providing professional investors in the UK with exposure to global private credit markets. Around the same time, Canyon Partners launched an evergreen strategy following investor requests for drawdown funds that typically last seven to 12 years.
Brett Hillard, chief investment officer at GLASfunds, believes that the rise of evergreen funds proves that investors are not seeking out liquidity when looking at private market funds, rather they are “prioritising where they can get the relative best return”.
“Yes, liquidity is always an issue, but let’s put things in context,” he said.
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“US equity markets are at all-time highs. Bonds have stopped losing money on a full return basis, and have actually generated some returns. So there are a lot of investors whose public books are doing very, very well. The cost of liquidity goes down as liquidity supply goes up.”
Evergreen private credit funds typically offer returns ranging from six to 12 per cent, depending on the risk profile and underlying assets. By contrast, more liquid strategies such as ELTIFs currently offer returns of approximately six to eight per cent. The relative popularity of evergreen strategies suggests that investors are happy to lock their money away for a period of time if it means boosting their gains.
One private credit manager told Alternative Credit Investor recently: “People used to think illiquidity was a bug. Now it seems to be a feature.” This same asset manager is planning to launch an evergreen fund in the near future.
However, Novantigo warned that the gold rush for evergreen funds may be tailing off.
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“Not all asset management firms may prioritise the private wealth channel,” said Justina Deveikyte, co-founder and managing partner at Novantigo. “The growing momentum in this sector emphasises the urgency for those who are interested in tapping into this market to swiftly define their engagement strategies.
“The early entrants, who have introduced multiple evergreen funds for private wealth, are quickly taking up the available shelf space.
“This window of opportunity will not remain open indefinitely.”
