By Romain Mifsud, Chief Commercial Officer, France
Evergreen funds are among the fastest-growing segments in the private markets today. As of late 2024, there was approximately $700 billion in assets under management (AUM) in these funds globally – more than three times the AUM in 2020.
Personally, I’ve worked on the launch of eight different evergreen funds at IQ-EQ, so I’ve seen first-hand how successful they can be. Here are some insights into how these investment vehicles add value, and a look at how Europe – and France in particular – is at the forefront of the evergreen revolution.
Evergreen funds: a game-changer for private markets
Evergreen funds are alternative investment vehicles that have a perpetual or indefinite lifespan. Designed to bridge the gap between traditional, illiquid alternatives structures and liquid public investment funds, they offer flexibility, liquidity and accessibility, making them ideal for modern-day investors.
One thing that has struck me about these investment vehicles is that they can deliver both strong returns and measurable impact. Not only can investors gain exposure to growth-focused asset classes such as private equity, infrastructure and real estate, but they can also help to finance real economic progress by directing capital towards projects and businesses that address critical societal or environmental challenges.
What is driving the growth of evergreen funds?
A major attraction of evergreen funds is the periodic liquidity they offer. Unlike traditional alternatives funds where capital is locked up for 10+ years, evergreen funds offer scheduled redemption windows (often quarterly or annually), providing the opportunity to access capital when needed, which is crucial for many investors. Another key benefit is their more stable returns. Traditional private equity funds often show negative returns early in their life (this is known as the ‘J-curve’) due to initial fees and slow deployment of capital; however, evergreen funds solve this issue by offering investors immediate exposure to a diversified portfolio, and by constantly investing and reinvesting capital.
Evergreen funds are also well suited to ESG and impact strategies. With their perpetual lifespans, managers can commit to the long investment horizons required to achieve genuine, measurable social or environmental change.
Regulatory reform has been a powerful force in Europe
While their advantages have no doubt attracted investors, regulatory reform over the last few years has also been a key growth driver, in my view. This has been a particularly powerful force across Europe, as new regulations have changed the landscape significantly. Take the European Long-Term Investment Fund (ELTIF) 2.0 framework, for example. This has removed barriers for both investors and managers across Europe by lowering minimum investment thresholds and making it easier for managers to build broad, diversified alternatives portfolios.
One country that has been at the forefront of the evergreen ELTIF trend is France. In 2024, it passed Ordinance No. 2024-662 in an effort to modernise its alternative investment fund (AIF) framework and align with ELTIF 2.0. This reform – part of the Green Industry Law – made adjustments to French law to enable AIFs to obtain the ELTIF label. It also enabled French employee savings funds (known as ‘Fonds Commun de Placement d’Entreprise’ or FCPE) to invest in ELTIF products.
Additionally, it introduced a new legal structure known as the special limited partnership company (SLPS). This is a flexible, non-legal-entity fund vehicle designed to make French fund structures more competitive with those in Luxembourg and other leading jurisdictions.
Note that at the end of 2024, French investors had around €7.5 billion invested in ELTIF vehicles – significantly more than investors in Italy (€3.5 billion), Germany (€2.8 billion) and Spain (€1.4 billion).
The challenges for managers
For investment managers, evergreen funds offer several benefits. Not only can they reduce investment timing risk, but they can also eliminate repetitive, costly fundraising cycles. At the same time, however, they may introduce a number of challenges for managers. Some common challenges I’ve observed include:
- Valuations: Evergreen funds must provide periodic NAV updates for investors; however, alternative investments are typically illiquid and not marked to market regularly
- Liquidity management:
- Withdrawal safeguards: Because most alternative assets are illiquid, general partners (GPs) must implement robust liquidity management tools such as gating mechanisms to prevent forced asset sales during redemption periods
- Liquidity mismatch during market stress: In times of market or macroeconomic stress, funds can face a structural mismatch between investor redemption requests and the illiquidity of underlying assets. This situation may compel managers to delay redemptions (using gates), temporarily suspend withdrawals or resort to distressed “fire sales”
- Liquidity buffer and performance trade-off: Evergreen and ELTIF 2.0 funds typically maintain a liquidity sleeve – holding liquid or semi-liquid assets – to meet redemption obligations. However, these assets generally yield lower returns than core illiquid investments, creating a “cash drag” that reduces overall performance. Managers must carefully balance liquidity needs with long-term return objectives
- Slow-pay scenarios: When an investor exits an evergreen fund with illiquid holdings, delayed payments can occur due to:
- Excessive redemption requests: Requests exceeding gate or cap limits, resulting in queuing and deferred processing
- Insufficient liquidity: Limited liquid assets or cash reserves, requiring reliance on liquidity sleeves or future cash flows
- Run-off class conversion: Shares converted into a run-off class, with payouts made in tranches as assets are gradually liquidated
- Market stress: Extended valuation lags, restricted redemptions, or even suspension of withdrawals during adverse conditions
- Fee calculations: In traditional closed-end funds, performance fees are realised after exits. In evergreen structures, however, fees are calculated on an ongoing basis, which can be complicated
- Scalability and operational costs: Continuous fundraising, investor onboarding, and redemption management can increase administrative complexity and costs for managers
Given these challenges, managers need to work closely with a fund administrator that has experience in this space. A good fund administrator will be able to provide sophisticated valuation and reconciliation services, accurate investor reporting across various global regulatory regimes, and cutting-edge technology solutions designed to handle the complexities of redemptions and gating.
Our experience in evergreen funds
At IQ-EQ, our success in securing mandates for complex evergreen fund structures is a testament to the deep expertise of our talented colleagues and our continued investment in cutting-edge technology. In particular, our use of Paxus enables us to efficiently process a wide range of fund structures and complexities, offering the flexibility to support diverse investment strategies and deliver NAVs as frequently as daily.
This combination of human and technological excellence has been instrumental in recent wins. For example, in July 2024, IQ-EQ France was appointed as third-party Alternative Investment Fund Manager (AIFM) and central administrator for an open-ended evergreen debt fund managed by a global top-three private credit GP. We were also separately appointed as third-party AIFM and central administrator for both an open-ended evergreen master fund managed by a global top-three bank and an open-ended evergreen feeder fund managed by a global top-five bank.
If you’re looking to launch an evergreen product and would like to learn more about our fund administration and AIFM services, please get in touch today:
