Evergreen Funds Gain Traction for Flexibility in Investing
Evergreen funds, investment vehicles with no fixed term or redemption schedule, are gaining traction. These funds offer flexibility to both investors and sponsors, but they also come with unique challenges.
Evergreen funds, unlike closed-end funds with finite terms, allow investors to subscribe and exit over time. Managers tackle liquidity issues by structuring funds with less frequent redemptions and lower gates, or using interval funds. This approach suits strategies like private lending, real estate, and leasing, which provide continuous income streams and structured repayments or secondary market sales.
Evergreen funds facilitate various strategies. Private credit, especially shorter-maturity loans, fits well. Real estate, private equity, and venture capital can also be accommodated through interval funds or series limited partnerships/LLCs. However, these funds face regulatory hurdles such as valuation concerns and conflicts of interest.
Evergreen funds offer investors flexibility and sponsors the ability to focus on dealmaking. However, they also present challenges like liquidity risks and preferential side letter rights. Despite these concerns, evergreen funds continue to be an attractive option for investors and sponsors alike.
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