Evergreen funds have been around for a few years, but they were in the spotlight again at SuperReturn East in Boston this week. The structure works like this: whenever the fund’s investments mature, the proceeds are reinvested, rather than paid out to investors. Investors can enter and exit evergreen funds just as they would a traditional fund, but if they have a long-term investment horizon, reinvesting the proceeds means that they don’t have to worry about re-allocating cash each year.
Unlike other continuous offerings, evergreen funds tend to target more illiquid strategies like private equity, private credit, or venture capital. Limited partners (LPs) have started to focus in on evergreen structures, as investments in these asset classes have paid out at record levels, leaving investors in a scramble about where to re-deploy capital. “Distributions have been an issue, but quite frankly, our investor base was also tired of seeing us every quarter, hat in hand asking for capital,” Revere Capital’s Jim Christian said from the stage during a panel on evergreen funds.
Dallas-based Revere Capital is a direct real estate lender, with a significant bridge loan business. Those loans tend to run on terms of three years or less, and are often paid off within months, leading to a high rate of capital calls and distributions. By offering an evergreen structure, Revere can simply reinvest those payments into other loans without having to go back to LPs each time.
According to panelists, evergreen funds have also become more popular with investors as they start to make more allocations to private credit. “Direct lending strategies that are operating on an 18- to 36-month timeline don’t necessarily need a closed-end structure,” explained Chris Gizzard, senior investment analyst at London and Tampa, Florida-based, Bayshore Capital Advisors. “With the evergreen fund, we can invest in a pool of performing assets and get a consistent return on cash.”
Evergreen funds can also give LPs access to traditional private equity managers that may be out of reach for them and in such a way that they have quarterly liquidity instead of a five or 10-year lock-up. “We are quarterly in, quarterly out,” said Ryan Levitt, a partner at Pomona Capital. New York-based Pomona is an affiliate of Voya Investment Management and operates an evergreen fund that invests in secondary private equity stakes. The fund has stakes in top-tier firms that are often closed to all but the largest institutions, including Bain Capital, Cerberus Institutional Partners, Providence Equity Partners, Silver Lake Partners. and others.
“Investors are looking for yield,” said Revere’s Christian. “If you can come into a vehicle and see income in month one and still have the ability to get out if you need to, that’s a positive for a lot of folks in this environment.”