As institutional investors, private wealth managers, and retail investors continue to seek new avenues for investment, evergreen funds are becoming an increasingly popular choice.
JP Morgan Asset Management, one of the world’s largest asset managers, has over 35 years of experience managing evergreen funds globally.
Brandon Robinson, a leading figure in the company’s alternative investments division, says that evergreen funds have seen an upswing in demand in recent years and attributes this rising interest to investor demand for greater flexibility and the ability to maintain long-term investments without the liquidity constraints of traditional closed-end funds.
Robinson explains that evergreen funds are often structured to allow frequent inflows and outflows of capital, a design that resonates with investors who value liquidity. Although, Robinson says that private market investments, even in evergreen funds, should be viewed as long-term asset allocations and not based on frequent outflow opportunities.
“Considering three-quarters of respondents to the survey are General Partners (GPs) who currently have evergreen funds on their platform, it doesn’t come as a surprise that nearly 90% anticipate growth in the adoption of evergreen funds,” he says. “They are seeing that growth in real-time.”
“Investors are looking for structures that can grow and adapt alongside their portfolio needs.”
However, he adds that “the ongoing evolution of regulatory frameworks globally has also been a significant factor,” noting that, as regulators introduce more comprehensive guidelines, evergreen funds are becoming more accessible and attractive options in a variety of portfolios.
Liquidity management remains one of the biggest pain points in the evergreen model, something that nearly half of GP respondents in our survey have pointed out.
“Evergreen structures are designed to offer more flexibility, but with that flexibility comes the challenge of maintaining liquidity,” he says.
“And it’s not just the GPs feeling the strain: two in five LPs mentioned the lag between redemption requests and actual receipt of cash as a significant challenge.”
Despite these challenges, Robinson sees evergreen funds as offering significant value, particularly in creating diversified private asset portfolios that are less correlated with public markets.
“While they are less liquid, the benefits of a low-correlation asset mix, potential alpha, and steady income make evergreen funds appealing, especially as part of a long-term investment strategy,” he says.
With private wealth and retail investors showing more interest in private markets, how is J.P. Morgan Asset Management responding?
“There’s a clear demand for more accessible private market funds,” Robinson observes. He notes that many GPs have responded to this demand by launching European Long-Term Investment Funds (ELTIFs), which are tailored to meet the needs of private wealth and retail investors.
“Investing in evergreen structures has several advantages for LPs: they gain access to pre-existing portfolios, they have more control over redemption timing, and, crucially, they can compound returns over the long-term.”
According to Robinson, the key to successfully managing these funds is in their careful design, especially around the subscription and redemption processes.
With half of the GPs surveyed saying that launching an evergreen fund is more challenging, particularly with cash drag and liquidity risks, Robinson says that J.P. Morgan Asset Management has seen this firsthand.
The recent revision of so-called “ELTIF 2.0” rules by EU regulators has offered clearer guidance, which Robinson believes will benefit investors.
With over 85% of LPs in the survey expressing an interest in evergreen funds, Robinson says he is optimistic about the future for evergreen funds.
For retail and private wealth investors in particular, he believes that evergreen funds will dominate capital allocations due to their liquidity and the immediate deployment of capital.
“As evergreen funds grow in appeal, we anticipate a significant shift away from the closed-ended majority to a more balanced mix, if not a majority in favour of evergreen,” Robinson predicts.
While some LPs are drawn to evergreen funds for better capital deployment and a lower risk profile but this does “not necessarily” mean they should expect lower returns, says Robinson.
“Faster capital deployment and a lower risk profile don’t have to come at the expense of returns.”
He points out that evergreen funds, especially those focusing on income-oriented alternative assets, if held as a long-term investment, can deliver comparable multiples on invested capital (MOICs) to median-manager closed-end private equity funds.
Robinson is confident that evergreen structures offer valuable solutions for today’s investors, especially as demand for alternatives grows.
“Our goal,” he concludes, “is to provide education and insights to help investors understand the role of evergreen funds in a balanced portfolio.”
This interview was first published as part of a major Evergreen Funds Industry Survey, produced as a collaboration between Funds Europe and Citco. The full report may be viewed here.
