Is the Closed-End Private Fund Structure a Dying Breed?

A mere decade ago, the primary way to access a private equity or private credit fund was through a closed-end, privately placed fund with a finite life that called capital from limited partners (LPs) generally over a period of 3 to 4 years and then locked up those LPs capital for 10-15 years.   These funds produced a consistent premium return over public equities. For example, according to Pitchbook data, the average gross IRR for a private equity fund established 10 years ago (vintage year 2015) and through Q3 2024 was 16.69%.  Verus reports that the 10-year median quartile return for private equity funds as of Q2 2024 was 13.1% as compared to the cash flow adjusted return of 8.9% for the MSCI World index during the same time period.  In fact, according to the Verus report, 10-year average returns for private equity outperformed public equities by at least 300 basis points 94% of the time since 1999.    Historically, private market funds were available only to the privileged few. Because most private funds claim what is known as a 3c-7 exemption from the Investment Company Act of 1940, each fund is limited to a maximum of 1,999 LPs.  Therefore, GPs need to be selective, allowing entry only to high dollar LPs, e.g., institutional investors and high net worth investors connected with an FA from a large private wealth bank platform or a strategically important family office or RIA.   The game changed in 2017 when Blackstone launched its HNW / retail fund solutions – notably BREIT and BCRED - and the alternative asset management industry woke up to the massive opportunity in the retail space. These new funds were primarily various forms of SEC-registered products and therefore not subject to rule 3c-7. According to Pitchbook, the private wealth channel has an estimated $450 trillion in net assets, with about 90% held by those investors with at least $100K to invest.  Bain & Co.’s Global Private Equity Report from 2023 notes that Blackstone sees the potential to expand retail capital from $200 billion to $500 billion, while KKR expects between 30% and 50% of new capital raised over the next few years to come from the private wealth channel. However, these investors have different requirements compared to traditional investors in private market funds – e.g., a strong preference for funding 100% of their commitments upfront as opposed to capital being called over time and a shorter investment time horizon with a need for periodic liquidity. This new breed of funds was designed to appeal to the unique requirements of high net worth investors.  Typical evergreen structures, open-ended funds with no fixed end date, allow for 100% of the investor’s committed capital to be called upfront as opposed to capital calls over time, as well as some built-in periodic liquidity. iCapital notes that AUM in evergreen funds has quadrupled to $430B in the past 10 years. Other than the differences in the fund terms between funds designed for institutional investors versus funds designed for HNW investors, is there a case to be made that an evergreen structure may also provide an investment advantage?  We think so.    The advantages of an evergreen fund versus a closed-end, limited life fund are set out below. 

1. More flexible investment program.  In a limited life, closed-end fund structure, the GP typically sets out the portfolio architecture at the outset, sometimes even printing it in the fund’s PPM and marketing materials.  While changes can, to an extent, be made, GPs are more locked in.  Given initial investment parameters, there is only limited ability to change course mid-stream.  In contrast, an evergreen fund allows for significantly greater flexibility to capture changing market dynamics and new opportunities. 

2. Vintage year diversification.  The returns for private markets funds can vary dramatically by vintage year and are impacted by such factors including the public equity markets (for private equity), the interest rate environment (for substantially all private markets strategies and most significantly for private debt funds) and commercial property and housing prices (real estate strategies).  The table below highlights vintage year discrepancies for the 10 years from the 2011 to the 2020 vintages for private equity, private debt, and private real estate: 

(From Pitchbook Data)  An evergreen fund is not tied to a particular vintage and as a result, should experience a better smoothing of returns with less volatility.  

1. More patient capital.  Despite the need to provide LPs with liquidity, an evergreen fund allows for ongoing new subscriptions.  So long as the fund is not in an extended period of significant net outflows, the continuous flow of incoming capital, combined with the lack of a need to wind the fund up by the end of the stated fund term, should allow the GP to be more patient with investment opportunities.  The GP can slow down investment activity during adverse market conditions and increase the pace in a benign market environment.  

On the other side of the coin, evergreen funds generally hold some amount of capital in cash, money market instruments or other liquid investments to help ensure periodic liquidity.   The increased stability from holding a cash reserve may result in slightly reduced yields.  This highlights the need for top-tier asset managers, without which returns in evergreen funds may still lag those of closed-end fund structures.  Asset managers have been laser-focused in recent years on the so-called democratization of alternatives and capturing the huge potential HNW and mass affluent client base.  While these managers are focused on building the right structure that attracts this target market, we believe that an additional benefit of the evergreen fund structure, when combined with a skilled asset manager, may be enhanced returns vis-à-vis the traditional closed-end limited life fund structure. It is possible that in several years, the majority of private market funds will be evergreen, and the traditional fund structure may eventually fade into oblivion.  

Sources: 

• Verus Investments (2019) – “Private Equity Portfolios for Small Plan Sponsors.” This consulting whitepaper provides data on private equity performance for smaller institutions. It notes a 3–4% annual outperformance of private equity over public markets over 20 years but also warns that without top-tier managers, results may lag a public index. 

• Cliffwater/CAIA (2024) – “Long-Term Private Equity Performance: 2000 to 2023.” An analysis by Cliffwater’s Stephen Nesbitt (published via CAIA Association) found 11.0% net returns for PE vs 6.2% for public equities over 23 years​. This yields a 4.8% excess return, illustrating the illiquidity premium.  

• Harris, Jenkinson, Kaplan (2014) – “Private Equity Performance: What Do We Know?” (Academic paper, Journal of Finance). This is a seminal study on private equity returns. It finds that on average, buyout funds have outperformed the S&P 500 by ~3% per year (net of fees)​. 

• McKinsey Global Private Markets Report 2025. This industry report gives context on fundraising and product structure trends. It notes the rise of alternative fundraising channels and vehicles outside traditional closed-end funds, including separately managed accounts and open-ended funds targeting high-net-worth investors. 

• iCapital,  The Future is Evergreen: The Next Generation of Private Market Funds (Jan. 11, 2024) 

• Bain & Co., Global Private Equity Report 2023 

• Pitchbook, The Evergreen Evolution, 2024 notes that there is an estimated $450 trillion in the private wealth channel.