Liquidity of funds

Key takeaways

• Structures of private equity funds may vary in how and when investors can access their capital.

• Closed-end funds are illiquid, while semi-liquid and evergreen funds typically offer periodic or flexible liquidity.

• Liquidity can affect the risk-return profile and investor suitability.

• Understanding this spectrum may help investors align their portfolios with their liquidity needs.

Why liquidity structure matters

Private equity funds have historically been illiquid, reflecting the long-term nature of investing in unlisted companies. Traditional funds require investors to commit capital for a decade or longer with returns realised only once portfolio companies are sold. However, as private markets have expanded beyond institutions into private wealth, investor demand for greater flexibility has led to the growth of alternative fund types.

Each liquidity structure, spanning closed-end, semi-liquid and evergreen, strikes a different balance between accessibility, return potential and fund manager discretion. While closed-end funds maximise long-term value creation by locking in capital, semi-liquid and evergreen funds offer varying degrees of redemption flexibility, often at the cost of reduced return potential or higher liquidity management risk. Understanding these distinctions is critical for investors as liquidity design affects how capital is called, when redemptions are possible and how performance is reported.

Closed-end funds (locked-up structures)

Closed-end private equity funds remain the most established and widespread model in the market. Their underlying assets typically include buyout, venture to growth, credit and infrastructure investments, each of which requires time to execute a long-term value-creation strategy.

In this structure, investors commit capital upfront, which the general partner (GP) then draws down in stages via capital calls as investment opportunities arise. Funds usually have a fixed lifespan of around 10–12 years, encompassing an investment phase, a value-creation period and a realisation phase. Because the capital is locked in for the fund’s duration, investors cannot redeem early. Returns are distributed through the sale or exit of portfolio companies, typically towards the latter half of the fund’s life. In some cases, successful managers may establish a continuation vehicle – a follow-on fund that enables them to retain ownership of strong portfolio assets or provide existing limited partners (LPs) with a liquidity option.

This structure ensures the manager has stable, committed capital to pursue their strategy without the added pressure of managing continuous subscriptions or redemptions. However, the trade-off is illiquidity: investors must be prepared to hold their position until the fund winds down.

Semi-liquid funds

The growing appeal of private markets among wealth managers, family offices and individual investors has accelerated the proliferation of open-ended private market vehicles. Two common forms, semi-liquid and evergreen funds, aim to make private equity more accessible without fully abandoning its long-term nature.

Semi-liquid funds are designed for investors seeking partial liquidity while retaining exposure to illiquid assets. Examples include interval funds and tender offer funds, both of which enable investors to subscribe at NAV (Net Asset Value) and redeem at pre-defined intervals such as quarterly.

Typically, redemptions are capped at 5–25% of NAV per period, allowing the manager to control liquidity and avoid forced asset sales. These vehicles often focus on private credit, secondaries or diversified private market portfolios, where cash flows are more predictable and asset turnover is higher.

Because they operate on a NAV-based pricing model rather than capital commitments and drawdowns, semi-liquid funds provide investors with more frequent valuation updates and periodic access to capital, although the underlying assets remain largely illiquid just like in closed-end funds.

Evergreen funds

Evergreen funds represent the most flexible end of the private equity liquidity spectrum. Unlike traditional closed-end structures, evergreen funds have no fixed term and allow for ongoing or periodic subscriptions. Investors may enter the fund at NAV and, subject to conditions, request redemptions with sufficient notice, typically 60-90 days.

While semi-liquid funds offer limited redemption windows tied to pre-set intervals, evergreen funds are designed for continuous operation, with capital entering and exiting on a rolling basis rather than through periodic tender offers.

Capital is generally invested upfront rather than drawn down over time, meaning investors’ money is immediately put to work. Many evergreen structures also reinvest distributions automatically, supporting long-term compounding and maintaining continuous exposure to private markets.

These vehicles are often employed for core, lower-volatility strategies such as secondaries or mature cash-yielding assets. They are commonly used by investors seeking steady long-duration exposure without the vintage risk and reinvestment challenges of closed-end funds. However, liquidity remains constrained by notice periods, fund-level redemption gates and the manager’s discretion to preserve portfolio stability.

Comparing fund structures by liquidity

This comparison table shows how greater liquidity typically comes with trade-offs in potential return and portfolio control. The most illiquid structures often allow managers to pursue higher-conviction, longer-term strategies, while more liquid vehicles emphasise accessibility and smoother cash flow management.

The evolution of fund structures in private equity reflects a broader shift towards making private markets accessible to a wider range of investors. From fully locked-up closed-end funds that have served institutional investors for decades to the growing popularity of flexible evergreen vehicles, each structure carries distinct implications for liquidity, return potential and operational complexity.

For investors, understanding where a fund sits on this liquidity spectrum is essential. Those comfortable with long lock-ups may benefit from higher potential returns and deeper manager engagement, while others may prioritise periodic liquidity and smoother compounding through semi-liquid or evergreen designs. Aligning fund structure with personal liquidity needs, and understanding the trade-offs that come with each, is fundamental to building a resilient private markets portfolio.