Duration is the engine of private market returns, but for open-ended evergreen funds, it can create a structural liquidity problem. Secondaries compress that duration, turning the promise of liquidity into more predictable tools for recycling and compounding.
Duration makes up a significant source of returns for private markets investments. The long-dated horizons of these asset classes are the engine of compounding and the driver of the illiquidity premium, allowing patient capital to ride out volatility rather than being forced into a sale. This is true across all private market asset classes, including private equity, private credit, and infrastructure.
But while duration is an attractive feature for closed-end investors with a defined horizon, it can create a fundamental structural tension inside an open-ended evergreen vehicle that promises periodic liquidity. An evergreen fund must be able to meet redemptions, support NAV stability, and recycle capital into new opportunities, none of which are well served by assets whose cash flows are heavily back-ended and whose hold periods extend far beyond a fund’s liquidity windows.
The result for some evergreen funds may be a portfolio that can appear liquid on the surface while being functionally illiquid underneath – reliant on new investor inflows rather than portfolio cash flows to meet redemption requests or provide deployment budget.
This is not a theoretical risk. It is the defining structural vulnerability of any evergreen vehicle that takes on excessive long-duration primary exposure without a counterbalancing liquidity mechanism.
Click below to read the full article.
