The popularity of evergreen fund structures, which offer private market investment options with periodic liquidity and lower fees than traditional funds, has been surging in recent years. According to PitchBook, evergreen funds now boast assets of nearly $500 billion — more than double the amount in 2022 — and could hit $1 trillion by the end of the decade.
Given the promise of liquidity that a traditional private equity or credit fund cannot offer, evergreen funds are particularly geared to individual investors. They began taking off as many institutional investors got close to their maximum allocations to private equity, with some investors even pulling back from PE in recent years. Donald Trump’s recent executive order to allow 401(k) plans to offer private funds is expected to drive their growth further.
PitchBook defines evergreen funds as “interval, tender offer funds, unlisted BDCs, unlisted REITs and other perpetual-life vehicles” that “offer continuous subscriptions at NAV, periodic liquidity, and streamlined tax reporting.”
But evergreen funds may be “too good to be true,” said Evan Clark, a senior private market analyst at the EDHEC Infrastructure and Private Assets Research Institute.
Take the case of the Bluerock Private Real Estate Fund, which debuted on the New York Stock Exchange last month at a nearly 40 percent discount to net asset value. That amounted to an “instant $1.5 billion wealth destruction,” Saba Capital founder Boaz Weinstein wrote on X the day of the offering. Instead of the 5 percent quarterly liquidity the original fund promised, he said, “Bluerock management chose to enrich themselves in a closed-end conversion. Shareholders approved, not realizing the disaster that awaited them. From $24 to $15 in the blink of a greedy eye.”
This Bluerock fund faced what may be the strategy’s biggest flaw: a promise of liquidity that cannot be met. As the Bluerock fund incurred several quarters of losses, investors wanted out, but the fund did not have the cash to meet redemptions that grew to almost 25 percent of its stated NAV — a valuation that the stock market ultimately deemed illusory.
According to private markets’ investor Leyla Kunimoto, this fund was particularly unsuited to its promise. “The underlying assets are the absolute worst type of asset you can put into an evergreen vehicle,” said Kunimoto, who writes the Substack Accredited Investor Insights. “They are stakes in underlying funds, and the underlying funds are commercial real estate properties — super illiquid.” As soon as commercial property valuations in the U.S. began declining in 2022, she said, the fund began having problems.
A Bluerock spokeswoman did not provide a comment by press time.
As the Bluerock fund illustrates, commercial real estate is turning out to be one of the worst performing sectors for evergreen funds.
According to PitchBook, real estate evergreen vehicles have had a loss incidence of about 12.5 percent, in line with the 12.3 percent of global closed-end real estate funds between 2010 and 2019. But real estate is not the only problem area. PitchBook wrote that due to the “limited history” of evergreen private equity, venture capital, and multi-asset strategies, “we expect there to be more losers as we track returns over the medium-to-long term.”
“The potential for liquidity mismatch is high,” PitchBook added.
The research firm pointed to another example to make its point: the Wildermuth Fund, which it said was the worst performer in an analysis of evergreen funds in a five-year time frame. The fund “illustrates how evergreen wrappers can break down when liquidity dries up, investor flows reverse, and underlying portfolios prove difficult to monetize,” according to PitchBook.
Wildermuth, launched in 2017 as an interval fund invested in private equity, was placed into liquidation in 2023 “after sustained outflows, a string of negative returns, and the loss of its regulated investment company status,” according to PitchBook.
Even when evergreen fund returns look good, the reality may be something else. More than 70 percent of the gains across SEC-registered evergreen funds since 2021 have not been realized, said Clark. “For newer funds, that figure can exceed 90 percent,” he said. Clark added that reported returns are often inflated by purchases of secondaries at a discount, which are then quickly marked up. Evergreen funds are also big investors in continuation funds.
“Investors risk overpaying for returns that rely heavily on accounting practices rather than underlying operational performance,” he explained. “A single high-profile failure could undermine confidence in the entire market.”
As Kunimoto put it, “the fundamental problem with allowing retail access to private markets is that retail investors like liquidity.” Of course, evergreen funds appear to offer that. “On paper, it's a wonderful structure because it allows periodic redemptions, typically up to 5 percent of the investment quarterly,” she said.”
The problem starts when there isn’t enough new money to pay redeeming investors — which inevitably occurs when the fund starts showing losses. “This is going to continue popping up in different segments,” Kunimoto predicted. “And when that starts happening, when you have a huge portion of your fund in a redemption queue, the fund manager has an existential threat. They have to liquidate assets in a fire sale.”
Investors are likely to be disappointed. Said Weinstein: “It’s going to get ugly.”
