5 Questions to Ask Managers about Evergreen Private Equity

Not all evergreen products have the right to win. The market of evergreen private equity vehicles continues to expand, meaning it is more important than ever that investors have the right information and transparency to distinguish between offerings, from investing approach to structure and alignment.

This article is a follow-up to our previous piece What’s in Your Evergreen Private Equity Strategy? and revisits a few of the most important questions advisors and investors should ask managers as they evaluate the landscape.

The key focus areas driving the questions that follow are:

1. Performance: Some managers have strong track records in the strategies they are pursuing in their evergreen vehicles, while others are pursuing new investment strategies for the first time. As we have discussed in prior articles, performance dispersion is greater in the private markets than in the public markets. Investors need to trust the manager has the capabilities to deliver repeatable performance versus trusting they will be able to do something new. To say it plainly, the risk is potentially far greater in the latter scenario.
2. Deal Flow: For an evergreen vehicle to successfully scale, it must have a strong investment foundation, which depends on robust, continuous deal flow over which the manager has control and parameters in place that give the evergreen vehicle access to that deal flow alongside institutional strategies and investors.
3. Liquidity Management: Different approaches variably impact the amount of liquidity available to investors and the mix of liquid assets held within the portfolio, which may also impact performance.
4. Operational Complexity: A number of highly complex factors are at play in managing open-ended vehicles. This requires a breadth and depth of resources and experience to successfully manage in balance with portfolio outcomes.
5. Alignment: Investors should consider the degree of alignment between themselves, the manager, and the investors in other funds across the same manager’s platform. Important indicators of alignment are incentive structures and manager participation in its own investments and strategies. 

Key Questions to ask Managers

1. Do you have a strong track record in the strategy you are pursuing in your evergreen product or are you trying something new? 

Why it matters: Evergreen private equity strategies are sometimes viewed as “watered down” versions of a manager’s institutional business. It is important to identify whether a manager is providing institutional-quality access to private equity backed by a proven track record through their evergreen vehicle or if the vehicle is getting “leftovers,” lower-returning assets, or something entirely novel.

Importantly, the dispersion of returns between top-performing private equity managers and bottom-performing managers is nearly 1,500 basis points, in contrast to the only 300 basis point disparity among public market managers.¹ So, it follows that the “who” of private equity is just as important, if not more so, than the “what.” It is critical to invest alongside a cycle-tested manager that has proven it can achieve its target returns.

Ultimately, private equity returns depend on whether managers can make companies more valuable than when they bought them.

What to look for: Investors should assess the underlying portfolio of a manager’s evergreen vehicle. In some instances, managers aim to replicate their institutional private equity strategies in their evergreen vehicles and in others, managers may incorporate additional asset classes or completely new strategies to accommodate the evergreen vehicle. In the latter case, the manager may not have a track record proving their ability to achieve the deployment and performance levels necessary to maintain an open-ended vehicle. This may raise questions about a manager’s ability to achieve their target returns.

These questions may include:

• Are the investments included in the evergreen vehicle consistent with the manager’s institutional strategies?
• Are the target returns consistent with the manager’s historical long-term institutional track record?
• If the target returns diverge from that manager’s historical long-term institutional track record, what factors are driving the difference?
• Do you have to trust the manager to be good at something they have not tried before?

As stated above, how the manager achieves their target returns depends on their ability to create value in their investments. Investors who choose a single-manager strategy with control over the underlying investments are placing trust in the skill and expertise of the manager’s investment teams. By taking controlling positions of investments, managers can drive sustainable value creation through repeatable playbooks from operational optimization and product development to accretive M&A and digital transformation, to name a few.

2. Does your evergreen private equity strategy have robust, consistent, and priority deal flow?

Why it matters: A private equity strategy is only as strong as its underlying investments. Maintaining an “always on” vehicle requires a robust sourcing engine to align inflows with deployment, manage deployment effectively, and source and size allocations appropriately. Some managers have access to deal flow across their own platforms, while other managers rely on third-party deals through co-investments or secondaries.

What to look for: Single-manager evergreen strategies typically participate in transactions at their own firms. As a result, single-manager vehicles tend to have the best possible information about which companies are in their pipeline, the timing of those deals, when exits are on the horizon, and when distributions might occur. Single-manager vehicles focused on investing in controlled positions have even more information regarding their underlying portfolios, including real-time operational metrics, strategic progress, and risk factors. These attributes can allow for more efficient portfolio management, superior portfolio construction, proactive risk management, and more predictable cash flow generation, all of which provide structural advantages for a scaled evergreen strategy.

Not all single-manager strategies are created equally, however. Some aim to replicate the institutional experience by investing in the same deals at the same time and at the same price as the manager’s drawdown vehicles. Conversely, some evergreen vehicles acquire companies the manager’s institutional funds turned down, invest through any capital “left over” after institutional pools have participated, or execute entirely separate “whitespace deals” outside of the manager’s other strategies. The breadth of a manager’s platform also determines the scale of available deal flow—for example, sector-specific managers may have less robust sourcing engines than managers investing across a wide range of sectors and/or geographies. In some cases, where managers have limited breadth, their evergreen vehicle is investing behind novel, untested strategies.

On the other hand, multi-manager strategies typically have access to a wide swath of investment opportunities because they invest across other managers beyond their own platforms. While this broad approach can provide a potentially larger investment universe, it also presents challenges related to not having control over deal flow. For example, co-investors typically cannot access all deals originated by third-party firms and are often presented with opportunities only after these firms’ own funds and clients have been accommodated. Additionally, co-investors can find it difficult to manage the sizing of their allocations, as they generally cannot control the amount available to them. Similarly, secondary and fund of fund strategies depend on market availability and the capacity of other managers and allocators to execute transactions. Multi-manager strategies and strategies without guaranteed deal flow rely on third parties for capital deployment and information access, which can limit visibility into pipeline, valuations, and exits, making efficient portfolio management more challenging, in our view. 

3. How do you manage liquidity?

Why it matters: Evergreen private equity vehicles typically maintain a liquidity sleeve to enable consistent capital deployment and to meet redemption requests. Thoughtfully managing the risk-return profile of this sleeve is a critical component of operating a scaled evergreen strategy.

What to look for: Some managers may seek to compensate for lower returning assets with higher risk allocations in their liquidity sleeves. It is important to understand the way a manager thinks about risk management because it is key to their overall approach to liquidity.

Questions to ask may include:

• Is the liquidity sleeve used as “sleep well at night money” or as a return driver?
• Is the liquidity sleeve truly liquid?
• How susceptible are the sleeve’s investments to market fluctuations?

Since part of the purpose of the sleeve is to help facilitate redemption requests, investors should evaluate the pros and cons of a liquidity management strategy carefully, in our view. Additionally, managers must be able to balance the amount of capital they receive from investors with deal activity in order to deploy that capital and avoid inflating the liquidity sleeve. Investors should look for managers with thoughtful approaches to this balancing act and well-fueled deployment engines to match inflows. 

4. How do you manage the operational complexities of your evergreen strategy?

Why it matters: Evergreen private equity products require scaled platforms, robust operational resources, and deep experience to manage effectively given the operational complexity of maintaining an “always on” vehicle.

What to look for: Evergreen vehicles necessitate continuous operational coordination across cash management, liquidity, hedging, valuations, risk management, etc. Regular subscriptions and redemptions must be balanced against the flow of new portfolio investments and exits, while liquidity sleeves are actively calibrated to support investor activity without disrupting portfolio objectives. For globally invested portfolios, this complexity is further compounded by foreign exchange hedging considerations, in addition to regular-way accounting and reporting processes. Taken together, these moving parts demand constant precision and thoughtful execution.

It follows that operational capability becomes a critical driver of investor experience and outcomes. Successfully managing these complexities requires depth in the form of specialized and scaled resources (i.e., people and processes) across functions. Experience also matters, particularly cycle-tested managers with know-how in evergreen strategy management. As the landscape of evergreen strategies evolves and vehicles grow in size and adoption, the ability to manage complexity consistently becomes less about structure and more about resources, infrastructure, scale, and experience. 

5. How do you ensure alignment between you, your evergreen investors, and your other investing vehicles and clients?

Why it matters: Alignment among a manager’s stakeholders ensures all investors receive fair treatment.

What to look for: Incentives are an important area of alignment.

• Does an evergreen vehicle have similar fee structures and capital support as a drawdown vehicle?
• How often does the evergreen manager crystallize profit sharing, and are they paid in cash or in shares?
• Does the manager have skin in the game?

Managers typically charge performance-related economics as a percentage of excess returns paid to the manager only if they deliver performance above a set hurdle or benchmark. These are generally in addition to the management-related economics that compensate for the general partner’s active management of the portfolio.

Most single-manager strategies have one layer of economics, and a manager’s incentives are generally easy to understand. In multi-manager vehicles, investors may indirectly pay management and performance economics to third-party firms managing the underlying positions, in addition to any fees charged by the evergreen manager. This double layer may mean each underlying investment needs to perform even better for clients to receive the same net performance, which may be challenging given other structural components, as noted earlier. Additionally, these structures may mean investors are paying active-management-level economics on secondary or co-investment assets that are actually managed by a third party.

Another important determinant of alignment is the manager's direct participation in its own investments (i.e., “skin in the game”). This includes examining whether the manager invests its own capital alongside clients in portfolio companies and understanding the extent of that commitment. Additionally, it's important to consider whether the manager participates not only in its institutional strategies but also in its evergreen vehicles or in all deals directly, as this demonstrates a consistent alignment of interests across different fund structures.

Conclusion

As noted at the beginning of this article, not all evergreen strategies are created equally and will win across all of the dimensions discussed in this article. Going through this list of questions with managers should help investors navigate the nuances and understand which manager and evergreen solution is best suited for a client’s needs.

REFERENCES

¹ eVestment Alliance database for 15-year period through December 31, 2024. US Equities include large and small cap indexes. Source: Preqin online database, performance as of December 2024 (includes vintages for the 15 years to 2022), top quartile, median, and bottom quartile boundary net IRRs. Performance for later vintage funds not available/meaningful. Preqin’s database is continually updated and subject to change. You cannot invest directly in an index. Index results assume the re-investment of all dividends and capital gains. There is no assurance that the trends described or depicted above will continue.