An evergreen fund is a pooled investment vehicle with no fixed end date: it continuously accepts new subscriptions, recycles proceeds from realized investments back into new deals, and offers investors periodic redemption windows instead of a single liquidation at the end of a set term. That structure is the mirror image of a traditional closed-end private equity fund, which raises capital once, invests over several years, and winds down after roughly a decade. Evergreen funds have grown in private credit, real estate, and infrastructure, where assets throw off steady income and reward long holding periods.
How the Perpetual Structure Works
The defining feature is that the fund has no termination date. A traditional private equity fund runs on a fixed clock, commonly ten years with optional one-year extensions, after which the manager sells remaining assets and distributes the proceeds. An evergreen fund faces no such deadline. The manager can hold investments as long as they remain productive rather than selling to meet a contractual wind-down.
Permanence enables continuous capital recycling. When the fund sells a position or collects income, those proceeds flow back into new investments instead of being distributed. Over time, recycling compounds: returns generate additional returns without ever leaving the portfolio. A fully invested evergreen fund with a 12% compound annual return can grow to roughly 3.7 times its original value, while a traditional drawdown fund at the same rate of return produces a lower multiple on committed capital because much of the money sits uninvested at various points in the fund’s life.
Continuous capital raising is the other pillar. Instead of opening for subscriptions once and closing, an evergreen fund accepts new money on a rolling basis, often monthly or quarterly.1Charles Schwab. What to Know About Evergreen Alts Funds New investors subscribe at the fund’s most recently calculated net asset value per share and gain immediate exposure to an already-deployed portfolio, rather than waiting years for capital calls to draw down their commitment.
How It Differs from a Closed-End Fund
The two structures diverge on almost every dimension that matters to an investor:
- Fund life. Closed-end funds run ten to twelve years. Evergreen funds are perpetual.
- Capital deployment. Closed-end funds draw capital through periodic capital calls over several years, so committed money sits idle early on. Evergreen funds deploy capital immediately upon subscription.
- Realized gains. A closed-end fund distributes exit proceeds. An evergreen fund recycles them into new deals.
- Liquidity. Closed-end funds offer essentially no liquidity until the harvest period. Evergreen funds provide periodic redemption windows, typically quarterly, which is why they are described as “semi-liquid.”
- Investor commitment. A closed-end fund requires a binding commitment that may be called over years. An evergreen fund takes a single upfront subscription, and the investor can seek to exit through the redemption process.
The liquidity difference is the most practically significant. Being able to request a partial or full exit every quarter, even with restrictions, is a fundamentally different proposition from locking up capital for a decade.
Three Legal Wrappers
Not all evergreen funds are built the same way. The legal wrapper determines who can invest, how liquid the fund actually is, and what tax forms the investor receives. Three structures dominate.
Interval Funds
Interval funds are registered with the SEC under the Investment Company Act of 1940. Under SEC Rule 23c-3, an interval fund must offer to repurchase between 5% and 25% of its outstanding shares at net asset value on a periodic schedule of every three, six, or twelve months. The repurchase is mandatory absent extraordinary circumstances, and the fund may charge a repurchase fee of up to 2% of the proceeds to cover transaction costs.2eCFR. 17 CFR 270.23c-3 – Repurchase Offers by Closed-End Companies If investors submit more shares than the fund is offering to buy back, the excess is handled pro rata, with unprocessed requests typically rolling into the next repurchase period.
Because interval funds are registered investment companies, they can be marketed broadly and are available to non-accredited investors in many cases. They must value their portfolios at least weekly, with daily valuations required during open repurchase windows.
Tender Offer Funds
Tender offer funds are also registered investment companies, but the manager retains discretion over whether and when to offer repurchases. Where an interval fund must buy back shares on schedule, a tender offer fund can choose to make an offer, skip a quarter, or adjust the amount. Subscriptions are typically accepted monthly or quarterly. This gives the manager more control over cash management and gives investors less certainty about when they can exit.
Unregistered Private Funds
Many evergreen funds targeting institutions or high-net-worth individuals are structured as unregistered limited partnerships or LLCs. These rely on exemptions from the Investment Company Act to avoid SEC registration. The two main exemptions are Section 3(c)(1), which limits the fund to no more than 100 beneficial owners, and Section 3(c)(7), which requires all investors to be qualified purchasers but permits a broader investor base.3Office of the Law Revision Counsel. 15 US Code 80a-3 – Definition of Investment Company A qualified purchaser is an individual who owns at least $5 million in investments, or an entity that owns and invests at least $25 million on a discretionary basis.4Legal Information Institute. Definition: Qualified Purchaser From 15 USC 80a-2(a)(51)
Unregistered funds set their own liquidity terms in the partnership agreement. Redemption frequency, gate limits, lock-up periods, and notice requirements are all negotiated rather than mandated by regulation, which makes the specific terms of the fund documents far more important than with registered structures.
Who Can Invest
Eligibility follows directly from the legal wrapper. Registered interval and tender offer funds can often accept retail investors, though many still impose minimum investment thresholds that effectively limit the pool.
Unregistered funds require investors to meet specific financial thresholds. For a Section 3(c)(1) fund, investors must generally qualify as accredited investors. Under current SEC rules, an individual qualifies as accredited with a net worth exceeding $1 million (excluding a primary residence), individual income above $200,000 in each of the two most recent years, or joint income with a spouse above $300,000 on the same basis. Holders of certain professional licenses, including the Series 65, also qualify.5U.S. Securities and Exchange Commission. Exploring Accredited Investors and Private Market Securities
For a Section 3(c)(7) fund, the bar is higher: every investor must be a qualified purchaser, which requires at least $5 million in investments for individuals.4Legal Information Institute. Definition: Qualified Purchaser From 15 USC 80a-2(a)(51) The gap between accredited and qualified purchaser is large in practice. Someone with a $1.2 million net worth can access a 3(c)(1) fund but is nowhere close to the 3(c)(7) threshold.
Getting In and Getting Out
The capital-flow mechanics manage a fundamental tension: the underlying assets are illiquid, but investors expect periodic access to their money.
Subscriptions
New subscriptions are accepted on a regular schedule, commonly monthly or quarterly. Investors buy in at the most recently calculated NAV per share. Because the portfolio is already fully invested, new subscribers get immediate exposure to the entire asset base rather than waiting through a multi-year deployment period. The trade-off is that the entry price depends on the accuracy of the NAV calculation.
Redemption Windows and Lock-Ups
Redemption windows are typically quarterly, with an advance notice period that gives the manager time to prepare for outflows. Many funds also impose an initial lock-up, restricting redemptions for a set time after subscription. Lock-ups can be “hard,” meaning no redemption is permitted at all during the period, or “soft,” meaning the investor can redeem early but pays a penalty fee.
Gates
Gates are the critical safety mechanism. A redemption gate caps the total capital that can leave the fund in any single period, usually expressed as a percentage of NAV per quarter. Most funds set gates at around 5% of NAV, though some go higher. If redemption requests exceed the gate, the fund processes them pro rata, and the unfilled portion rolls into a queue for the next redemption period.
Gates protect the remaining investors. Without them, a rush of redemption requests would force the manager to sell illiquid assets at distressed prices, hurting everyone still in the fund. From the perspective of an investor trying to exit, though, gates mean your money can be stuck longer than expected. In a downturn, when many investors want out at once, the queue can extend for multiple quarters. This is where the “semi-liquid” label gets tested: liquidity is available in normal conditions and contracts precisely when you want it most.
Why Valuation Matters
Frequent and accurate valuation is the operational backbone of any evergreen fund. Every subscription and every redemption depends on the NAV being right. If NAV is overstated, new investors pay too much and existing investors who redeem get a windfall. If NAV is understated, the reverse happens. Either way, an inaccurate NAV creates winners and losers among the investor base.
The challenge is that the underlying assets are private, so there is no market price to look up. Valuations rely on discounted cash flow models, comparable transaction analysis, and third-party appraisals. These are published monthly or quarterly, but the inputs can be significantly stale. Underlying portfolio companies report on a quarterly basis, and that data takes time to finalize. Without specific adjustments, the valuations feeding into an evergreen fund’s NAV can be five to six months old.6Scientific Infra and Private Assets. Is Your NAV Fair? Addressing Valuation Lag and Investor Fairness in Monthly-Priced Funds
There is no industry standard for how funds bridge the gap between stale quarterly data and monthly NAV publications. Practices are often ad hoc and are not always disclosed in detail. Sophisticated investors who understand the valuation cycle may time subscriptions or redemptions to exploit the lag, entering before an expected upward revaluation or exiting before a downward one.
Fees Over a Perpetual Timeline
Evergreen fund fees follow the general private fund model, but the perpetual timeline changes how they accumulate. Because the fund never liquidates, fees compound year after year for as long as the investor holds a position.
Management Fees
Management fees run 1% to 2% of NAV annually, paid monthly or quarterly. In a closed-end fund, the fee base declines as capital is returned. In an evergreen fund, the fee base tends to grow over time as NAV increases through appreciation and new subscriptions. That is a meaningful advantage for the manager and a cost investors should model over long holding periods.
Performance Fees
Performance fees, often 20% of profits, need adapting for a perpetual structure. In a closed-end fund, carried interest is calculated at liquidation when the final profit is known. An evergreen fund has no final liquidation, so performance fees are calculated on a rolling basis, typically annually or quarterly, using two protective mechanisms.
A high-water mark ensures the manager earns performance fees only on new net profits. If the fund’s NAV drops from $110 to $95 and then recovers to $105, the manager collects no performance fee on the recovery, because NAV has not surpassed the previous peak of $110.
A hurdle rate sets a minimum return the fund must exceed before performance fees kick in. If the hurdle is 8%, the manager collects no incentive fee on the first 8% of annual returns. Only profits above that threshold trigger the fee. Hurdle rates in private funds commonly fall between 7% and 10%, though terms vary by strategy.
Tax Treatment
The tax treatment of an evergreen fund investment depends heavily on the legal structure and the types of income the portfolio generates.
Registered interval and tender offer funds structured as regulated investment companies generally issue Form 1099s to investors, similar to mutual funds. Unregistered funds structured as partnerships issue Schedule K-1s, which pass through the character of income (capital gains, ordinary income, interest, dividends) to each partner. K-1s are notoriously late, often arriving well after the standard tax filing deadline, which can force investors to file extensions.
Capital recycling creates a subtle consequence. In a closed-end fund, the investor receives distributions and controls when to reinvest, giving them some ability to manage the timing of taxable events. In an evergreen fund, the manager reinvests proceeds automatically, and the tax consequences flow through regardless. Depending on the portfolio’s activity, an investor may owe taxes on gains they never received in cash.
UBTI for Tax-Exempt Investors
Tax-exempt investors like endowments, foundations, and IRAs face a specific risk: unrelated business taxable income. UBTI is triggered when a tax-exempt entity earns income from an active business or from debt-financed property. If an evergreen fund uses leverage to acquire assets, a proportional share of the income becomes UBTI. For example, if half the purchase price of an asset is financed with debt, roughly half the income from that asset may be treated as UBTI. Income flowing through from portfolio companies structured as partnerships can create the same problem. Many funds address this through “blocker” entities that absorb the UBTI at the corporate level, but not all funds offer them. Tax-exempt investors should confirm how the fund handles UBTI before committing capital.
Wash Sale Risk
Investors who redeem shares at a loss and then resubscribe within 30 days before or after the sale may trigger the wash sale rule, which disallows the loss for tax purposes. The disallowed loss gets added to the cost basis of the new shares rather than deducted in the current year. Because evergreen funds accept subscriptions on a rolling basis, an investor who exits and quickly re-enters the same fund could inadvertently trigger this rule.7Charles Schwab. Watch Out for Wash Sales
Risks Worth Understanding
The evergreen structure solves real problems and introduces others that do not exist in traditional closed-end funds.
- Liquidity illusion. Quarterly redemption windows make evergreen funds feel more liquid than they are. When market stress hits, gates activate, queues build, and actual liquidity shrinks. An investor who planned around quarterly access may find themselves waiting several quarters to exit fully.
- Valuation lag and fairness. Stale NAVs create uneven treatment among investors. Subscribers, holders, and redeemers may all be transacting at a price that does not reflect reality.
- Perpetual fee drag. In a closed-end fund, the management fee ends when the fund terminates. In an evergreen fund, a 1.5% annual management fee compounds indefinitely. Over 20 years, cumulative fees can consume a significant portion of gross returns.
- Manager entrenchment. A closed-end fund’s termination date acts as a natural accountability mechanism. An evergreen fund has no such forcing function. Investors can redeem, but gates and lock-ups limit how quickly they can walk away.
- Dilution from new subscriptions. When new investors subscribe during a period where NAV understates the true portfolio value, they effectively buy in at a discount, diluting existing investors. The reverse can also occur, where new investors overpay when NAV is overstated.
None of these risks are fatal. Evergreen funds offer genuine advantages in compounding, immediate deployment, and avoiding the forced selling that can plague closed-end funds at the end of their term. But treating the structure as a substitute for public market liquidity sets an investor up for an unpleasant surprise the first time a gate activates. The fund documents, particularly the sections on redemption mechanics, valuation methodology, and fee calculations, deserve more scrutiny here than in almost any other type of private fund investment.