At a Glance
- Semi-liquid evergreen funds have become a powerful way for investors to access illiquid private market assets.
- These structures typically invest in the same assets and seek to deliver similar outcomes as traditional closed-end drawdown funds, while offering additional benefits like continuous compounding, operational simplicity and some degree of flexibility.
- Rules-based liquidity programs—often quarterly, up to 5% of NAV—are an important feature of these vehicles, designed to preserve the longer-duration nature of private market assets and provide opportunity for measured investor liquidity.
Periods of market volatility and macroeconomic uncertainty often remind investors to revisit the fundamentals of portfolio construction. Diversification across the financial marketplace—stocks, bonds, commodities, hedge funds, and private markets—has long been central to that process. When combined thoughtfully, each can play an important role in achieving portfolio objectives.
Ares has been investing in private markets for over 25 years, managing capital across multiple cycles and regimes. Albeit on a bigger scale, we largely invest in the same markets today that we did all those years ago. What has evolved are the options available to investors to access the opportunity set.
For most of the private markets’ history, access was dominated by closed-end “drawdown” funds in which investors—typically institutional and high-net-worth individuals—committed capital. Managers deployed that capital over time and provided terminal liquidity through realizations. This structure reflects the assets themselves: patient, deliberate, and largely indifferent to short-term market noise.
As private markets grew and investor participation broadened, product innovation was a necessary step for widespread adoption. Semi-liquid “evergreen” fund structures emerged in the late 2000s, offering investors a different experience of the same underlying markets. These vehicles were not a response to new assets, but instead a response to a wider investor base—one that valued continuity, simpler administration, and some measure of flexibility, even when investing in inherently illiquid strategies.
Understanding these structures begins with an appreciation for how liquidity functions across markets. Recall that liquidity refers to the ability to convert an investment to cash.
In public markets, liquidity is readily available. Investors can usually buy or sell quickly, at transparent prices, with minimal friction. Private markets operate differently. Trades are less frequent, there are fewer participants, and pricing is established through negotiated transactions rather than constant market activity.
This difference has always determined how investment products are structured. And if we have learned anything from the 2008 Great Financial Crisis, it is that liquidity, when mismatched with assets, can introduce pressure at precisely the wrong moments. Forced selling, accelerated exits, and capital misalignment tend to surface not during calm periods, but during stress—when patience is most valuable—ultimately impacting price.
Closed-end funds address this reality by design. Their timelines create a shared horizon among investors and managers, allowing capital to remain invested through cycles and execute the value creation plan. For institutions with long-dated liabilities or investment objectives, the model has worked, and continues to work, well.
Semi-liquid funds are designed to do the same thing, but take a different approach. Typically perpetual in nature, these vehicles provide periodic opportunities for investor liquidity, often on a quarterly basis and subject to predefined limits. Many operate under the Investment Company Act of 1940, as is the case with private BDCs and NAV REITs, and are governed by regulatory frameworks that emphasize transparency and consistency.
What is often overlooked is how similar these funds can be to their closed-end counterparts beneath the surface. In many cases, semi-liquid and closed-end vehicles invest side by side, with the ability to participate in the same transactions on comparable terms. The distinction lies not in what is owned, but in how capital flows into and out of the portfolio over time.
Liquidity in semi-liquid funds is therefore orderly and rules-based rather than delivered at the terminal end of a fund's life. Periodic tender offers or share repurchase programs—commonly capped at a percentage of net asset value—introduce a measure of flexibility while preserving the pacing required for long-term investing. These constraints are not incidental. They are designed to ensure that portfolio construction, investment timing, and asset management remain aligned, particularly in delivering the illiquid private market exposures an investor is seeking. Liquidity, then, is a managed feature in service of long-term investment outcomes—not a promise of immediacy.
Supporting this balance requires active liquidity management. Managers employ a combination of cash or liquid public market allocations, leverage facilities, and the natural turnover of the portfolio as investments repay, mature, or are realized. Together, these elements allow fund managers to accommodate investor subscriptions and redemptions without altering the fundamental character of the strategy.
This is a key distinction between closed-end drawdown funds and semi-liquid evergreens, and one we find individual investors greatly appreciate. In closed-end funds, investors are responsible for overseeing uncalled commitments and redeploying distributions as they are received.
In semi-liquid structures, investors are fully invested on day one, with the manager overseeing liquidity and cash positioning within the fund. This shift not only reduces operational complexity and the burden associated with reinvestment decisions, but also allows for continuous compounding in a private markets’ allocation—a very powerful tool for long-term wealth creation. We have noticed that many investors who utilize semi-liquid funds are often seeking to establish a core, long-term strategic allocation to private markets, while opportunistically using closed-end funds to gain complementary exposures.*
Viewed in this light, semi-liquid funds are neither a replacement for traditional private market structures nor a departure from them. They represent an adaptation to a broadening investor base—one that preserves the long-term nature of private market investing while offering a different interface for accessing it.
*This material is for informational purposes only and does not constitute investment advice or a recommendation. Private fund investments are speculative, involve significant risk, and are not suitable for all investors.