Born to Run: Evergreen Private Markets Funds
How liquidity engineering, performance dynamics, and competitive diseconomies of scale create severe run risk
“On your left you can see a run on a bank. The people in line are men and women who have lost all their savings.”1
—UNNAMED TOUR OPERATOR (October 24, 1907)
In 2026, few Americans appreciate the terror of a systemic run on the banking system. Depositors at Silicon Valley Bank got a brief taste of it on March 10, 2023, but even that episode was quickly extinguished and failed to metastasize into a systemic crisis.2
Nearly all Americans today are fortunate to have been spared such experiences, because when bank runs are allowed to cascade without intervention—as they did in the 1810s, 1830s, and 1930s—economic depressions are almost inevitable. Yet this good fortune carries a quiet cost. Lacking first-hand experience with systemic runs, Americans no longer fear them. That amnesia breeds complacency, allowing similar vulnerabilities to accumulate in the shadows.
The Growing Danger in Private Markets
Over the past several years, the investment industry has embraced the “democratization” of private markets. As part of this effort, many firms have launched a new class of vehicles offering private-market exposure in a semi-liquid format. The stated value proposition is faster exposure to private assets than traditional drawdown funds, combined with the option for periodic redemption, typically on a quarterly basis.
But when one examines the mechanics of evergreen funds, an alarming conclusion emerges. These vehicles have never been tested under adverse conditions. Their track records were established almost entirely in calm markets, reinforced by steady asset growth. The absence of genuine stress obscures a fundamental vulnerability. Evergreen funds are not merely exposed to run dynamics—they are structurally more vulnerable to runs than traditional banks.
This does not imply that a run is imminent. Crises often take far longer to develop than observers expect. Structural fragility can be visible years in advance. The moment of collapse, by contrast, is typically triggered by something trivial and unpredictable. In 1905, Hetty Green warned of impending trouble more than two years before the onset of the Panic of 1907. Otto Heinze’s attempted corner of United Copper was merely the spark.
The remainder of this newsletter outlines three flaws that explain why a similar vulnerability is present today, why it is intensifying, and why it poses acute risks to investors.
Flaw #1: Fair-Weather Liquidity
“These customers can redeem [from evergreen funds]. I find it paradoxical that when customers can vote with their feet, I am seen to be doing something that is not market competitive. Whereas that’s not the discussion about locked-up structures where customers have a harder time leaving.”3
—JUAN DELGADO-MOREIRA, Co-CEO of Hamilton Lane
The signature attribute of an evergreen private markets fund is its liquidity feature. Unlike traditional drawdown funds, evergreen structures allow investors to enter the fund and establish immediate exposure to private markets. They also offer the option to redeem, although the conditions under which redemptions are permitted are far more limited than many investors assume.
Typical liquidity terms permit redemptions of up to 5% of a fund’s assets per quarter, subject to multiple constraints. In practice, honoring those requests depends on the fund’s cash on hand, access to credit lines, and the manager’s ability to sell portfolio assets at acceptable prices. Liquidity therefore depends on favorable conditions—steady inflows of new capital, calm markets, and functioning short-term credit. It may be ubiquitous in marketing materials, but it is largely a fair-weather feature in operation.
The distorted perception of liquidity is precisely what makes the architecture so dangerous. Investors are conditioned to treat liquidity as a structural feature rather than a highly contingent option exercised at the manager’s discretion. Once investors begin to doubt that liquidity will be available when needed, the incentive to redeem early rises sharply, creating the classic coordination problem that underpins bank runs. When a critical mass of investors fears that delay may mean forfeiting the ability to exit at current values, redemptions become self-reinforcing.
The opening quote is striking because it reinforces the illusion that liquidity is a durable feature of these products. Far less emphasis is placed on the legal reality. For example, despite the Co-CEO’s public remarks, the Hamilton Lane Private Assets Fund’s own prospectus states—in bold type—that investors have “No Right of Redemption” and that “The Fund is not a liquid investment.” The marketing narrative and the legal reality point in opposite directions, but when redemption pressure rises, investors should assume that the legal reality will prevail.
Figure 1: Excerpt from Hamilton Lane Private Assets Fund Prospectus
Source: Hamilton Lane Private Assets Fund, *Prospectus*, Form 424B-3, U.S. Securities and Exchange Commission, March 28, 2025, accessed [August 17, 2025], https://www.sec.gov/ix?doc=/Archives/edgar/data/1803491/000101376225004230/ea0236008-01_424b3.htm.
The fundamental architecture of evergreen private market funds renders them vulnerable to classic bank-run-like mechanics—except that, in this case, fund managers retain the discretion to lock the doors for as long as they see fit. This alone should alarm allocators. When combined with the next two flaws, however, the probability of a run becomes not merely plausible, but constitutes the base-case expectation over time.
Flaw #2: Inflated Asset Values
“Human nature being what it is, small loopholes are likely to be exploited until they become big ones, and big ones until they turn into financial disasters.”4
—SETH KLARMAN, owner of Baupost Group
Many evergreen private markets funds build their portfolios primarily through secondary purchases rather than direct origination. This provides immediate exposure to private assets and, more consequentially, enables managers to report strong early returns through valuation mechanics that are not available in traditional drawdown structures.
The apparent return advantage reflects a simple accounting choice. Evergreen fund managers often acquire secondary positions at discounts to GPs’ most recently reported NAVs. Under the practical expedient in ASC 820, funds may (though are not required to) mark these positions to GP-reported NAVs, producing an immediate increase in reported value—a “one-day gain.” This practice has been documented by independent analysts such as Tim McGlinn (Altview) and Leyla Kunimoto (Accredited Investor Insights), as well as journalists such as Jason Zweig and Jonathan Weil of The Wall Street Journal. The cases cited are not anomalies; this practice appears to be the norm. In an October 2025 report, EDHEC found that roughly 70% of reported gains for evergreen funds launched since 2021 came from unrealized gains, many likely recorded at or near inception. For the newest funds, the share exceeded 90%.5
There are three structural problems with this practice.
Systemic Inflation of Returns — Reported fund returns are mechanically inflated by this accounting choice. What appears to be strong early performance is, in many cases, a function of accounting rather than economic value creation. This distorts the signal to prospective investors, who reasonably infer manager skill from reported performance.
Amplified Downside Risk — Early gains on paper embed future downside risk. If GP-reported NAVs ultimately prove optimistic—or if realized exit prices converge toward secondary purchase prices rather than marked-up values—later investors bear the cost of that reversion. Early paper gains pull forward performance that may later be unwound, magnifying subsequent drawdowns.
Distorted Perception of Stability — Smooth early returns train investors to expect stability, obscuring the buildup of liquidity and valuation risk. When marks eventually flatten or reverse, sentiment can shift abruptly from confidence to doubt. In structures offering periodic redemption windows, that psychological regime change turns valuation disappointment into redemption pressure.
Together, these mechanisms recreate several of the classic preconditions for a run: inflated apparent solvency, confidence shaped by calm conditions, and vulnerability to sudden loss of faith when valuations disappoint. These dynamics increase both the probability of a run and the damage it would inflict. But one additional flaw materially amplifies both the risk and the potential severity.
That distinction brings us to the final—and most structurally dangerous—flaw.
Flaw #3: Competitive Diseconomies of Scale
“An investment trust should be good and large because this tends to make the expenses of running it a negligible percentage of the whole. But when the trust is big in size, the investing problem becomes increasingly difficult.”6
—FRED SCHWED, JR., author of Where are the Customers’ Yachts?
The most troubling side effect of the one-day gain is that it creates two structural competitive disadvantages that intensify as evergreen funds scale.
Competitive Disadvantage #1: Diminishing Returns from NAV Mark-Ups
The first disadvantage is arithmetic. Early in a fund’s life, valuation adjustments on new investments can materially boost reported performance, which helps explain why strong early returns are common. As assets under management grow, the same adjustments contribute progressively less to total performance because they are diluted across a much larger capital base. The mechanical result is unavoidable: the larger the fund becomes, the harder it is to sustain competitive headline returns. This pattern is already visible in the relative performance of maturing evergreen funds versus newer vehicles. For example, Figure 2 illustrates this dynamic using the Ares Private Markets Fund.
Figure 2: Ares Private Markets Fund Performance and Assets (2023-2025)
Sources: Asset values are based on N-PORT filings with the SEC as of the periods ending September 30, 2023, September 2024, and September 2025 [accessed February 16, 2026]; Annual performance is based on the D-share as reported by Ares at https://www.areswms.com/solutions/apmf/performance [accessed February 16, 2026].
A 13.10% return in 2025 does not look alarming in isolation. But what matters is not the headline number—it is the source of the return. In this case, the most important two sentences in the entire filing appear in the footnote to the Form N-CSR.
Figure 3: Ares Private Markets Fund Performance Disclosure
Source: Ares Private Markets Fund. Form N-CSR: Certified Shareholder Report of Registered Management Investment Companies for the Period Ending September 30, 2025. Washington, DC: U.S. Securities and Exchange Commission, 2025.
This disclosure confirms that a material portion of reported performance is driven by the mechanics of secondary discount capture rather than by operating improvement or realized exits—precisely the dynamic that diminishes as funds scale and secondary discounts compress.
Competitive Disadvantage #2: Erosion of Underwriting Discipline
The second disadvantage is operational. As evergreen portfolios scale, managers have an incentive to favor volume over selectivity. Using the Hamilton Lane Private Assets Fund as an illustration, as of September 30, 2025, the portfolio held 273 positions across private equity and private credit, including 20 direct credit positions, 71 direct equity positions, and 182 secondary equity interests. Ninety-eight positions were added in the prior 18 months alone. Put differently, this implies that the Hamilton Lane Private Assets team is, on average, making a new private-markets investment every four business days. Complicating matters further, those investments were dispersed across six continents and more than twenty industry categories, ranging from software to veterinary services.
In private markets, information is sparse and rigorous underwriting quality is essential to gaining an edge. The pace and breadth of this fund’s underwriting is fundamentally incompatible with sustained selectivity. Continued asset growth only compounds the problem. As the number of positions rises, underwriting faces mounting pressures to become even less discriminating, reducing the ability to exercise meaningful underwriting discipline.7
Escalating Competitive Pressures
These two structural disadvantages would be destabilizing in any market. They become materially more dangerous in a market flooded with new entrants (Figure 2). Newly launched funds can deploy fresh capital into discounted assets and immediately benefit from the optics of one-day gains. Before scale dilutes that advantage, they can also afford to be more selective, placing additional pressure on larger, more mature vehicles that must deploy at volume.
Figure 4: Cumulative New Private Equity Evergreen Fund Launches (2009-2025)
Source: Cliffwater, “Evergreen Private Equity for the Long Run,” Cliffwater, September 24, 2025, https://www.cliffwater.com/ResourceArticle/evergreen-private-equity-for-the-long-run?docId=29441
In summary, as performance optics deteriorate with scale, large evergreen funds face two unfavorable paths: accept relative underperformance and risk outflows, or relax underwriting discipline to preserve performance optics. The first invites near-term redemption pressure. The second compounds structural instability, raising both the probability and potential severity of stress events over time.
Neither path is attractive for long-term investors.
Conclusion
Evergreen funds combine an implicit promise of liquidity with a structural dependence on continuous inflows. As assets scale, both sides of that equation become harder to sustain. Liquidity windows require ever larger inflows to remain credible, while performance optics deteriorate as the mechanical benefits of one-day gains fade and underwriting discipline erodes under volume pressure. The paradox is that scale weakens competitiveness. The largest vehicles become the most exposed.
The analogy to banking is instructive. A bank that must offer progressively worse terms as it grows eventually invites depositor flight. The difference, of course, is that banks operate with access to a lender of last resort. Evergreen private-market funds do not.
When inflows eventually slow or reverse across the evergreen category, the largest funds will be the most exposed and the latent failure modes embedded in these designs will activate. Managers then face an unavoidable tradeoff: gate withdrawals or permit exits at steep discounts through secondary or public-market channels. Several funds, including the Bluerock Private Real Estate Fund, have already encountered this dilemma. Similar open-ended vehicles in Canada have experienced investor gating at a systemic level. A January 12, 2026 Bloomberg report noted that redemption requests had been submitted on roughly 40% of the $80 billion of invested capital in these funds8
In more adverse scenarios, funds may be forced to liquidate assets into markets that lack natural buyers—an especially acute risk in private markets already saturated with capital. In such cases, recent reported prices can sit far above market-clearing levels—if a clearing price exists at all.
The financial historian Robert Sobel once observed that “generally speaking, inevitability appears only in retrospect.”9 This is true of many financial disasters, but evergreen private market funds present a rare case in which the failure modes are clearly visible in advance. It is not an exaggeration to say that these funds are structurally more vulnerable to runs than banks. They combine multiple mechanisms that do not merely permit runs—they make runs more likely as the product grows. The precise timing of the reckoning is unknowable, but the mechanics underpinning it are not.
A Solemn Warning from Wall Street’s Queen
“If you have any money in that place [the Knickerbocker Trust] get it out the first thing tomorrow…the men in that bank are too good-looking. You mark my words.”10
—HETTY GREEN, the Queen of Wall Street (March 1907)
In closing, as an observer of financial history, I confess to a kind of grim awe at the financial monstrosity the liquidity engineers of the 21st century have assembled. They appear to have revived abandoned machinery and added a feature that makes it even more vulnerable to a run than an unregulated bank. After more than 200 years spent trying to prevent such calamities, this is no small achievement in financial folly.
Observing bank runs is a deeply unpleasant experience, regardless of one’s vantage point. But history shows repeatedly that it is far less disturbing to witness such episodes of panic as an observer than as a participant. There is no reason to believe the same principle fails to apply to fund runs.
The Queen of Wall Street has long since passed, but her wisdom remains relevant. I cannot speak for her, but I can imagine what she would say to those who have money in evergreen private markets funds.
If I had my money in one of those places, I would be reassessing my exposure first thing tomorrow.
Disclaimer: This is a personal newsletter written by Mark J. Higgins, CFA, CFP, in his individual capacity. The views expressed herein are solely those of the author and do not necessarily reflect the views, opinions, or practices of IFA or any other organization or entity with which the author is affiliated. This content is intended for informational and educational purposes only; it does not constitute professional investment advice, an offer, solicitation, or endorsement of any specific financial strategy, product, or service. The discussion contains the author’s opinions based on publicly available information and should not be interpreted as factual or predictive of future events. Nothing herein should be construed as individualized advice, a prediction of future events, or a call to take immediate action of any kind.
Nothing in this newsletter should be construed as a guarantee of investment results, nor should past performance discussed herein be taken as indicative of future outcomes. Investing involves risks, including the potential loss of principal, and investors should consult their financial adviser or other qualified professional before making investment decisions. Additionally, every effort has been made to ensure an accurate portrayal of market practices and conditions, but the author disclaims responsibility for errors, oversimplifications, or omissions. By publishing this newsletter, the author aims to foster dialogue and education and does not intend to disparage any individual, organization, or investment strategy. Readers are encouraged to consider differing viewpoints and conduct their own research before forming opinions or investment strategies.
Any references to future economic or monetary outcomes in this newsletter are speculative and based on historical analysis and public information. Comparisons to past events, like the Great Inflation or post–World War I inflation, are meant to provide context, not predict the future. Readers should view these discussions as hypothetical and not rely on them for financial decisions. Always consult a qualified professional for advice.
Sources
Tuchman, Barbara W. The Proud Tower: A Portrait of the World Before the War, 1890–1914. New York: Open Road Integrated Media, 2012.
Chambers, Elliot, and Mark Higgins. The Panic of 1819, Silicon Valley Bank, and the Danger of Bank Runs. Financial History, Summer 2023. Museum of American Finance.
Eden, Joseph, Olivia Bybel, John Schaffer, and Selin Bucak. 2025. “Hamilton Lane Co‑CEO: We Do NAV Uplifts Because It’s ‘Market Standard.’” Citywire Wealth Manager, August 4, 2025. Accessed [August 15, 2025].
Seth A. Klarman, “Blundering Down Wall Street,” The Washington Post, November 24, 1990.
Clark, Evan. 2025. Evergreens: The Tree That Never Sheds – A Closer Look at Performance, Risk, and Valuation Practices in Private Equity Evergreens. EDHEC Infra & Private Assets Research Institute, October 2025. https://edhecinfraprivateassets.com/paper/private-equity-evergreens/.
Schwed, Fred Jr. Where Are the Customers’ Yachts?: Or a Good Hard Look at Wall Street. New York: Simon & Schuster, 1940.
Hamilton Lane Private Assets Fund, Form N-CSR (Certified Shareholder Report), filed with the U.S. Securities and Exchange Commission, for the reporting period ended September 30, 2025, U.S. Securities and Exchange Commission EDGAR, https://www.sec.gov/Archives/edgar/data/1803491/000121390025118831/ea0265698-01_ncsrs.htm.
Sambo, Paula. “Canadians Are Furious After Real Estate Funds Lock Up Their Money.” Bloomberg, January 12, 2026.
Sobel, Robert. The Great Bull Market: Wall Street in the 1920s. New York: W. W. Norton & Company, 1968.
Sparkes, Boyden, and Moore, Samuel Taylor. The Witch of Wall Street: Hetty Green. New York: Doubleday, Doran, and Company, 1930.
Very good overview of an eternally recurrent pattern. The magic of exotic, illiquid assets always proceeds in the same general form. 1873, 1907, 1929-32, 1973-4, and the next 6 episodes (which I witnessed) were all marked by liquidity seizures. Econometric models miss them because their common thread is form, not specific content. There are no statistical inputs from the subprime meltdown that carry directly into private credit and financial risk models maintained at the Fed, ECB or any of the other pods of Ph.d economists assigned to the watchtowers. Scenery and costumes change, but the play remains the same.
I would like to thank you for your most excellent thinking and writing. I purchased your book when it came out and proceeded to make it my top priority for study. My copy is thoroughly marked with notes to remind me of things to keep reviewing. Again, thank you.