How Schroders Capital Is Bringing Flexibility and Simplicity to Private Markets Through Semi-Liquid Evergreen Funds
With rising interest rates and tighter liquidity conditions, Limited Partners (LPs) are rethinking how they access and manage their exposure to private markets. Rather than a shift in expectations, what’s emerging is an evolution—toward more flexible structures that allow for efficient capital deployment and greater control over liquidity.
In this interview, Luigi Croce, Investment Manager at Schroders Capital, explains how semi-liquid and evergreen fund models are gaining traction among sophisticated investors. Drawing on Schroders Capital’s early experience with these vehicles, Luigi highlights the drivers behind their growing popularity, from regulatory evolution and proof of concept to the increasing demand from private wealth and institutional investors seeking smoother capital management and continuous compounding.
With interest rates elevated and liquidity tighter, how do you see LPs’ expectations shifting when it comes to accessing private markets?
LPs expectations are not necessarily shifting but evolving and making use of the tools available to them. With an increased cost of capital, LPs are paying attention to efficient use of capital, and this includes deployment speed and how to put capital to work quickly but in a controlled, diversified way.
Additionally, with the tightening of liquidity in the broader private equity landscape, LPs are more sensitive to exits and, in some cases, seek to have more control over the liquidity they can generate from their holdings if necessary.
All these points are pushing sophisticated LPs to look at semi-liquid evergreen funds as a viable addition to their private equity allocations. These funds allow immediate capital deployment into diversified portfolios and provide them with flexibility to adjust their exposure on a quarterly basis (typically).
From your vantage point at Schroders Capital, what is driving the shift from traditional drawdown funds to semi-liquid and evergreen vehicles, and why is this momentum stronger now than in past cycles?
At Schroders Capital, we have been one of the early providers of semi-liquid evergreen private equity funds, with our first offering launched in 2019 already. With over 6 years of experience with these types of funds, we have observed this trend firsthand. For the last 4 years, we have observed a strong fundraising moment for our semi-liquid evergreen vehicles. This trend comes from several factors:
1. Proof of concept: while 6 years ago these types of funds were less common and felt unproven to some LPs, they have now become a proven structure that delivered on both performance and liquidity in what has been a volatile market since the COVID pandemic. The fact that more and more private equity providers are offering these structures is only further proof of that.
2. Regulation. Regulation has played a role in making those vehicles eligible to a wider range of investors, with the European ELTIF regulation and the UK LATF regulation for example, allowing retail investors to access the asset class via evergreen funds.
3. Structural market reasons explained above.
What do semi-liquid or evergreen funds solve for LPs that traditional closed-end funds cannot?
As mentioned above, the main advantage of these funds is the flexibility they provide LPs with. They allow to deploy capital quickly in a diversified, controlled way and adjust exposure when needed. This is very beneficial for a number of LPs who seek to manage their exposure to the asset class.
What is also not to be underestimated is the ease of operation that comes with these funds; they have an ISIN and can essentially be traded like any other mutual fund commonly used in listed markets. The operational burden is almost eliminated. The subscription is very simple. The single capital call/immediate capital deployment means no complicated cash flow management. The evergreen nature and reinvestment of underlying distributions embedded in the product also mean continuous compounding with no more commitment planning and complicated modelling to estimate long-term NAV exposures.
In summary, they provide increased flexibility and are easy to operate.
How do these structures balance the promise of periodic liquidity with the need to preserve the long-term nature of private equity investing?
The key to this balance is sound liquidity management on how the portfolio is constructed, what liquidity is offered under what conditions.
For example, at Schroders Capital, we keep 10-20% of our evergreen portfolios in cash/Money market funds. This means that we always have at least 10% of the portfolio that can be used to serve redemptions at any point in time.
It is also worth noting that these funds don’t offer unlimited liquidity. Typically, net outflows are limited to 5% of a total fund’s size on a quarterly basis. This means that if subscriptions outpace redemption, there is no problem for the fund to provide the liquidity, but if redemptions are larger than subscriptions received, then they are limited to 5% of the fund size. This rule ensures that these funds can deploy capital into private equity investments, knowing that the liquidity they have to provide is limited and controlled.
The global market for indefinite-life funds is already around $2.7 trillion, projected to grow to $4.4 trillion by 2029. What’s fueling this momentum?
It has been widely reported that the main driver is private wealth seeking to get exposure to the asset class, and with appropriate vehicles and regulations in place to allow for that, this is now starting to happen and is expected to continue as financial advisors and private banks are adopting it. On our end, we also see about 20-25% of that growth coming from sophisticated institutional LPs that choose these funds on top of their traditional closed-ended funds for all the reasons mentioned above.
Evergreen funds offer immediate exposure and continuous compounding, while drawdown funds take years to deploy capital. How should LPs think about incorporating evergreen structures into their broader allocation strategies alongside vintaged funds?
What we observe is that sophisticated LPs use evergreen funds to manage their exposure. For example, we see a number of our LPs using these funds to ramp up their exposure to the asset or even catch up if the deployment of their classic drawdown was slower than expected. Some also use it as an overlay, providing them with more liquidity and flexibility. Essentially, allowing them to reduce their exposure to the asset class if their drawdown funds outperform their NAV target, and in some cases, may take longer to return capital. In summary, many of our LPs see it as a valuable addition to their portfolio management toolkit.
Looking ahead, do you see evergreen funds as a complementary tool to traditional drawdown vehicles, or could they eventually reshape the private equity model entirely?
As just mentioned, we see these funds as complementary. We believe both structures have a good reason to exist and be used. With drawdown funds being perfectly appropriate to the long-term nature of the asset class, and evergreen funds adding a layer of flexibility.
Luigi Croce, will join 0100 International as a speaker on the panel “The Rise of Semi-Liquid & Evergreen Funds — Growing Benefits and Flexibility for Private Markets”, along with Senia Rapisarda (Managing Director, HarbourVest Partners), Shaha Miah (Principal, Pantheon), and Federico Pavoncelli (Principal, StepStone Group). The session will be moderated by Diego Braguglia, Managing Partner at Vi Partners,