By Justin Partington, Global Head of Fund and Asset Managers
Alternative asset managers have traditionally been segmented into distinct, specialised categories such as hedge funds, private equity, private credit and real assets. Today, however, this segmentation is giving way to a more holistic framework.
As market dynamics evolve and investor preferences change, investors and managers alike are seeking new, innovative structures that offer flexibility, access and resilience. This has led to the rise of hybrid, evergreen and semi-liquid funds, which blur the lines between traditional categories and offer new pathways for capital deployment.
Fund definitions at a glance
- Hybrid funds: Hybrid funds blend the characteristics of traditional closed-ended and open-ended structures, offering investors exposure to both liquid and illiquid assets along with periodic subscriptions and redemptions at specified intervals. By combining the liquidity of listed instruments with the potential returns of alternative investments, managers can meet investor needs across multiple asset classes through a single structure
- Evergreen funds: A subset of hybrid funds, evergreen funds are open-ended structures with no fixed termination dates. Investors can enter or exit the funds at regular intervals, and managers can continuously raise capital without having to launch new vehicles
- Semi-liquid funds: These funds strike a balance between investor accessibility and the illiquid nature of their holdings by offering limited redemption windows (e.g. quarterly or annually). With these products, managers can avoid fire-sale exits and maintain portfolio integrity, while investors gain predictable access to their capital
The rapid growth of new alternatives structures
In recent years, the growth of these new structures has been staggering. Yet the prevailing view within the industry is that this market expansion is only the start of a long-term growth story.
Take evergreen funds, for example. Today, this is one of the fastest-growing segments in the entire private markets industry. As of late 2024, there was approximately $700 billion in assets under management (AUM) in these funds – versus around $200 billion in 2020 – accounting for roughly 5% of overall private markets AUM. Looking ahead, these funds are expected to account for 20% of total private markets AUM within the next decade, with growth expected to outpace that of traditional closed-end funds by a factor of three.
Turning to semi-liquid funds, the number of these products almost doubled between 2020 and 2024 according to Deloitte, with AUM nearly tripling over the period to $349 billion. Yet by 2030, AUM is projected to reach $4.1 trillion as retail investors increase their exposure to private markets. Note that in 2024, alternatives powerhouse Blackstone saw inflows of $23 billion into its semi-liquid products aimed at retail investors. This accounted for approximately 13% of its total inflows for the year.
What’s driving this growth?
One driver of this shift toward hybrid, evergreen and semi-liquid funds is investor demand for liquidity and access. A major disadvantage of traditional closed-ended funds is that they typically lock capital up for 10+ years. This means that liquidity is non-existent until the fund is fully wound down or an investor finds a buyer in the secondary market. Hybrid and semi-liquid funds – with their quarterly or annual redemption windows – solve this problem, unlocking a vast new pool of capital.
Another key driver is manager demand for operational efficiency. Managers operating closed-ended funds often face long fundraising cycles. Meanwhile, those operating open-ended funds often struggle to match liquidity with asset duration. Evergreen products allow for continuous fundraising and deployment, smoothing out capital inflows and reducing timing pressure on managers.
Regulatory reform is also playing a dominant role in the growth of these products as changes to regulations have significantly lowered barriers for launching flexible fund structures. For example, the European Long-Term Investment Fund (ELTIF) 2.0 framework – which came into force in January 2024 – removed minimum investment thresholds while also broadening eligible asset classes and relaxing marketing and investment rules, making it far easier for managers to diversify portfolios and attract retail investors. Similarly, the UK’s Long-Term Asset Fund (LTAF) has opened up private markets to investors by creating a regulated, open-ended structure specifically designed to hold illiquid assets while offering retail and defined contribution pension investors managed, periodic access. In the U.S., recent Securities and Exchange Commission (SEC) initiatives such as amendments to the Liquidity Risk Management Rule (Rule 22e-4) have made it more challenging and costly for traditional open-ended funds to hold certain types of illiquid assets, making evergreen, semi-liquid and interval funds increasingly popular. Together, these regulatory changes are changing the landscape for alternatives managers and accelerating adoption of new, more flexible structures.
Advantages for investors
While hybrid, evergreen and semi-liquid funds vary in design, they share common advantages that appeal to modern investors. These include:
- Liquidity: Relative to traditional closed-ended vehicles, these structures are far superior from a liquidity perspective. Hybrid funds allow periodic subscriptions and redemptions, evergreen funds offer continuous entry and exit without fixed termination dates, and semi-liquid funds provide scheduled redemption windows. This access to capital can be particularly attractive during periods of economic uncertainty
- Performance potential: These funds can invest in a range of asset classes including equities (publicly listed, unlisted or over-the-counter), private equity and venture capital, real estate, infrastructure, derivatives (swaps, options, futures), distressed debt, private debt/credit, and CLOs, meaning that managers have the opportunity to generate attractive returns for investors. The StepStone Private Markets Fund (SPRIM) exemplifies this potential – it has delivered a 21% annual return since its inception in October 2020
- Diversification: The broad investment universe also allows managers to provide investors with a high degree of diversification. This can mitigate risk for investors and help to generate more consistent returns across market cycles
- Flexibility: All three structures allow for customisation of risk exposure, liquidity terms and fee arrangements, enabling managers to meet investors’ needs. Evergreen funds avoid forced exits, hybrid funds combine liquid and illiquid strategies, and semi-liquid funds balance access with portfolio integrity – creating adaptable solutions for a wide range of investors
Advantages for managers
For managers, shared advantages include:
- The ability to offer more customised solutions: With these structures, managers can blend strategies and assets that previously required separate funds (e.g. combining listed equities with private equity). This can allow them to create bespoke solutions for large investors and grow AUM faster
- Wider investor bases: Periodic, controlled liquidity can attract smaller institutional investors, family offices and high-net-worth individuals who need access to capital and are deterred by 10-year lock-up periods. So, these funds can help managers expand their investor bases
- Efficiency: Unlike closed-ended funds, which must raise a new pool of capital every few years, evergreen funds continuously accept new subscriptions. This smooths out capital inflows and reduces the time and cost associated with intensive, multi-year fundraising cycles
Challenges for managers to navigate
It’s worth pointing out that while these fund structures offer several advantages for managers, operating them can introduce challenges. Key challenges that managers often experience include:
- Accounting complexity: The accounting for hybrid, evergreen and semi-liquid funds is significantly more complex than that of traditional closed-ended or daily-dealing open-ended funds, primarily because they blend features of both
- Compliance: As managers launch these funds, they must navigate different regulatory regimes, each requiring different risk management processes and disclosures
- Cashflow matching: When operating these funds, managers must ensure that redemption terms align with asset liquidity
- Expense allocation: This must be transparent and equitable across share classes and side pockets
Given these challenges, an expert fund administrator is crucial. A good fund administrator will be able to provide the specialised infrastructure and expertise necessary to navigate the complexities of these structures, allowing managers to focus exclusively on investment strategies.
How we can help
As investors demand more from alternative investment managers, hybrid, evergreen and semi-liquid funds are emerging as the go-to structures for modern managers. These products offer a compelling alternative to rigid fund formats and unlock new possibilities for capital formation and portfolio design.
If you’re considering launching this type of product, IQ-EQ is equipped to guide you through every step – from structuring to administration – across liquid and illiquid strategies. To learn more, please get in touch today.
