The Hidden Costs of Comfort

A Deeper Look at Evergreen Private Equity Relative to Traditional Drawdown

Humans are wired for comfort. Evolution favored those who sought shelter, warmth, food, and social bonds — instincts that boosted survival. But in an age of abundance, this once-helpful tendency may be working against us.

Psychology confirms this bias. We consistently favor short-term relief over long-term reward. Walter Mischel’s “marshmallow test”¹ famously showed most children opted for one treat now rather than two later. A recent popular airport read, The Comfort Crisis² argues that modern life is engineered to eliminate friction — in how we eat, move, and even handle boredom. Yet despite all these comforts, we’re often more anxious, distracted, and physically unwell than ever.

Comfort, it turns out, may carry a cost: it can dull performance and weaken resilience and undermine results.

Nowhere is this more apparent than in fitness. Effective workouts are uncomfortable, but some pain signals adaptation. Gimmicks like the vibrating belt machines of the 1950s — promising fat loss via passive jiggling — sold well but delivered nothing. They were marketed as a more “comfortable” alternative to actual exercise – unsurprisingly, they didn’t work as intended.

We see a potentially similar pattern emerging in private equity.

The Allure of Comfortable Private Equity

Evergreen private equity funds are gaining momentum. A number of well-known investment firms are introducing new vehicles, and advisors are embracing them. These structures promise simplicity: immediate investment, no capital calls, 1099 tax forms, quarterly liquidity, and access for a broader investor base.

But that’s precisely the issue.

Historically, private equity in traditional drawdown vehicles has outperformed public equity by several hundred basis points annually, compounding into a substantial long-term advantage.³  That’s a meaningful gap widened by disciplined, illiquidity-enabled execution.

Private equity, at its core, has long required some elements of discomfort in pursuit of excellent results: illiquidity, lockups, capital calls, and the discipline to wait. These “frictions” weren’t flaws—they were features. They created space for value creation and aligned incentives around long-term results.

In our view, Evergreen funds seek to make private equity more like public equity — liquid, clean, and convenient. But this comfort-first model can dilute the elements that make private equity effective.

This paper explores the tradeoffs behind that shift. Evergreen funds may be easier to use — but easier doesn’t mean better. Like those vintage vibrating belts, their appeal may reflect what feels good more than what truly works.

For advisors, the appeal of Evergreen funds is obvious:

• Immediate investment = No multi-year ramp-up
• Single allocation = No need to build portfolios of drawdown funds
• Optional liquidity = Quarterly redemptions, typically with 5% gates
• No capital calls = “Set it and forget it”
• 1099 tax reporting = “No more K-1s”
• Broader investor eligibility = Including non-Qualified Purchasers

These attributes reduce complexity for advisors and investors. But the structure introduces tradeoffs, many of which are underdiscussed. We believe evergreen designs can narrow the investment universe, distort manager incentives, obscure performance clarity, and potentially create valuation and liquidity mismatches.

Evergreen funds are not inherently flawed. Many serve real purposes — as complements to drawdown portfolios, bridges during fundraising, or entry points for new investors. Thoughtfully built evergreen funds can serve a purpose — but we believe they shouldn’t be the centerpiece.

We explore eight key concerns, grouped into four themes, where evergreen structures merit deeper scrutiny:

Theme 1 | Strategy Dilution and Access Erosion: A Narrower Slice of Private Equity

1. Strategy purity – do holdings reflect true private equity or a narrower subset?
2. Manager access – are investors gaining access to top-tier managers?

Theme 2 | Distorted Incentives: Deployment Pressure and Early Performance

3. Incentive structures – are managers pressured to deploy too quickly?
4. Performance visibility – are early gains reliable or inflated by accounting optics?
5. Fee mechanics – are fees aligned with long-term outcomes?

Theme 3 | Valuation and Liquidity: A Fragile Illusion

6. Valuation precision – How accurate are NAVs in illiquid markets?
7. Liquidity mismatch – can redemptions truly be honored during market stress?

Theme 4 | Apples to Oranges: Misleading Comparisons

8. Are evergreen funds being fairly compared to drawdown structures when it comes to performance?

Not all products are equally affected by these, as some evergreen funds are better constructed than others. But these issues are common — and material — enough to merit real caution in our view.

Before comfort becomes the guiding principle of private equity fund design, the industry should pause and ask: what are we sacrificing for simplicity?

Theme 1 | Strategy Dilution and Access Erosion: A Narrower Slice of Private Equity

Evergreen funds aim to “democratize” access to private equity. But beneath the surface, they often offer a narrower, and arguably less compelling, slice of the private equity landscape.

Many evergreen funds avoid primary commitments in early-stage, high-growth, and longer-duration strategies—not due to investment views, but because the liquidity structure can’t support them. This liquidity mismatch is well documented: semi-liquid evergreen vehicles must routinely meet redemption requests (typically quarterly limits of ~2.5–5% of NAV), which constrains their ability to commit capital to long-duration private equity deals⁴. That’s a meaningful tradeoff. Primary fund commitments, which represent the majority of global private equity deal flow and where top-tier alpha is most concentrated, are especially difficult to access through evergreen structures. In their place, evergreen funds often lean heavily on secondaries, co-investments, and semi-liquid credit. These strategies align better with the continuous inflows and periodic liquidity demands of the evergreen model. While secondaries can be smart tactical tools, they typically deliver lower dispersion than primary funds and often anchor evergreen
portfolios by necessity rather than design⁵.

Compounding the issue is broader portfolio dilution. To meet liquidity requirements, many evergreen funds include meaningful allocations to private credit, public equities, or even cash. These elements further erode the purity of the private equity experience and may reduce the long-term return potential investors are seeking.

Manager access also tends to suffer.

While evergreen funds often feature well-known sponsors, they rarely provide exposure to top-tier performers. Top-tier managers, often oversubscribed, don’t typically accept evergreen constraints like quarterly pricing or forced liquidity. As Morgan Stanley recently noted, many of the best-performing GPs “explicitly avoid” these structures due to philosophical misalignment⁵.

Convenience may be expanding technical access, but often at the cost of quality exposure. What’s missing from the portfolio may matter more than what’s included.

For investors considering evergreen private equity structures, it is also worth emphasizing that asset selection and the potential for sustainable long-term returns may be stronger in strategies that prioritize direct investments. In our view, direct-focused approaches offer greater control over portfolio construction, deeper alignment with value creation, and improved selectivity. These advantages can be harder to fully capture in other types of evergreen formats. In addition, we suggest that evergreen strategies could benefit from lowering secondary exposure and instead emphasizing high-conviction primaries and co-investments. Achieving this may require sacrificing some liquidity, for example by shifting from quarterly to annual, but we believe the tradeoff could be worthwhile given the potential for stronger returns. This reinforces our belief that a thoughtfully designed evergreen structure can be especially effective in maximizing long-term value.

Theme 2 | Distorted Incentives: Deployment Pressure and Early Performance

One of traditional private equity’s greatest strengths is the flexibility it affords managers: to be patient, opportunistic, and selective. The drawdown model gives them time — to raise capital, deploy thoughtfully, build value, and exit strategically. That timeline isn’t just a structural detail; it’s a core driver of long-term outperformance.

Evergreen structures compress that timeline — and quietly reshape incentives in ways that may undermine investment discipline.

At the heart of this is deployment pressure. In a drawdown fund, capital is called gradually over years, aligned with opportunity. In an evergreen fund, inflows are continuous — and like all open-ended funds every new dollar drags on returns until deployed. Uninvested cash becomes a performance blemish, pushing managers to put money to work quickly, often at the expense of selectivity.

That urgency can distort pricing discipline. In hot markets, when caution is most warranted, evergreen funds may feel compelled to chase deals merely to keep up with inflows. Market commentary has indicated that these vehicles sometimes pay premiums—on average around 4% above traditional secondary buyers—when acquiring LP stakes, not necessarily out of conviction but to absorb capital quickly⁶. The risk: managers become hammers looking for nails.

Somewhat ironically, this rapid deployment is often marketed as a benefit: “immediate investment.” But in private markets, immediacy isn’t usually an advantage. The ability to wait for potentially better vintages or stronger companies is a foundational feature of the strategy.

This pressure intersects with another design quirk: “optical” initial performance via secondary purchases.

To ramp exposure quickly, many evergreen funds rely on secondaries — buying existing fund interests at a discount. This can be smart. But it also creates a subtle accounting illusion. A fund that buys an asset at 80 cents on the dollar and marks it to 100 shows a 25% paper gain — instantly — without any fundamental change in value. These unrealized gains create strong early returns on paper for a new investor looking at the fund.

The result: eye-catching performance that may owe more to timing and markups than actual success. These assets might turn out great — but we won’t know until realized. Yet many evergreen funds charge performance fees on these unrealized gains — sometimes monthly or quarterly. Often, there’s no clawback or catch-up if values later decline. The result: managers get paid based on paper returns, even if outcomes disappoint. Investors who bought in at marked-up NAVs after the secondary deals can miss out on the performance bump.

By contrast, drawdown funds structure their incentives more conservatively. Capital is deployed deliberately, based on opportunity. Performance fees are tied to actual distributions — real dollars returned to investors — not accounting marks. Hurdles, clawbacks, and multi-year evaluation windows help to increase the likelihood managers win only when investors do.

Fees for evergreen structures are often more complex than they initially appear. It’s important for investors to understand how performance fees are calculated—whether there are catch-ups, if incentive fees are based on NAV, and how frequently fees are crystallized are all critical considerations. Additional layers, such as acquired fund fees (i.e., indirect costs from investments in other funds), leverage expenses, and potential redemption fees, further add to the complexity. These fees can be justified by strong investment performance, but when applied to average-performing portfolios, they prompt a necessary evaluation of whether the cost aligns with the quality of returns.

Theme 3 | Valuation and Liquidity: A Fragile Illusion

One of the most appealing promises of evergreen private equity funds is clarity — NAVs updated quarterly, redemption schedules suggesting public-market-like liquidity, and a sense of control over private equity exposure.

But this polish masks two fundamental issues: valuation imprecision and liquidity mismatch.

First, valuation.

In public markets, prices emerge from continuous trades — offering transparency, real-time discovery, and market-based accuracy. Evergreen private equity funds, by contrast, rely on internal or third-party estimates to determine NAV, typically updated quarterly. Valuations in private markets are typically model-based and informed by internal estimates or third-party appraisals. As a result, they often reflect inputs that trail public market volatility.

This lag is more than cosmetic. A company may stumble in March, but its NAV might not reflect that until June — if at all. In volatile markets, this delay becomes risky. Investors may buy in at inflated NAVs or redeem at depressed ones, making consequential decisions based on stale or distorted figures.

Regulators have taken notice. The UK’s Financial Conduct Authority and the U.S. SEC have flagged concerns about valuation methodologies in open-ended private market funds — especially when managers earn fees based on NAV⁷. Even with good intentions, there’s a natural incentive to lean optimistic — and given the opacity of assumptions, investors have limited ability to assess whether valuations reflect underlying reality or hopeful projections.

That risk deepens when NAV-based liquidity is layered on top.

Evergreen funds typically offer “quarterly liquidity,” often allowing redemptions of up to 5% of NAV per quarter, subject to gates. But that liquidity isn’t guaranteed. Private equity assets are illiquid by definition. They can’t be quickly or cleanly sold without price concessions. So how do evergreen funds meet redemptions?

They have several tools:

1. Cash Buffers
   Which may dampen returns
2. New Inflows
   Which could fund redemptions, like a liquidity daisy chain
3. Line of Credit
   Which adds interest expense to the fund
4. Secondary Sales
   Which may require discounted sales but can be mitigated by aligning with portfolio cash flows

In stable conditions and in conjunction with realizations on existing investments—which may be episodic and are often long duration—these work. In stressed markets, they break down — redemptions rise, inflows slow, credit is constrained, secondaries trade at discounts and portfolio realizations slow down. At that point, managers must face hard choices: sell at losses, or gate redemptions.

We’ve already seen funds gate redemptions during moderate stress⁸ — even in asset classes with more liquidity than private equity. And because NAVs are soft, neither remaining nor redeeming investors can know whether they’re getting fair value.

Drawdown funds avoid this dynamic. They make no promises of interim liquidity — freeing managers to navigate dislocations without being forced sellers. NAVs are still estimated during the life of the fund, but they’re likely less impactful as investors aren’t entering and exiting at interim NAVs, plus fees and performance are ultimately tied to realized distributions. Reality, not optics, drives outcomes.

These are not minor differences. Evergreen structures rely on two fragile assumptions: that NAVs are timely and accurate, and that liquidity will be there when needed. History, structure, and human behavior all suggest otherwise.

Theme 4 | Apples to Oranges: Misleading Marketing Comparisons

Many evergreen funds are marketed with performance comparisons that, while technically correct, are misleading. Numerous whitepapers and pitch decks claim evergreen structures outperform traditional drawdown funds — and on the surface, the math checks out.

A common example: comparing a 10% annualized evergreen return to a 10% IRR from a drawdown fund. Since evergreen funds are fully deployed from day one, they show higher terminal values in simple models.

But this isn’t really an investment insight, it’s more like a math truism. If you let $100 compound uninterrupted for a decade while only gradually deploying that same $100 in another strategy, the former will almost always look better in a linear model. The framing ignores context — and the underlying assets.

• Evergreen funds typically maintain larger cash buffers and lean on secondaries
  and liquid credit — all of which tend to yield lower returns than primary private
  equity investments⁹
• Drawdown funds focus on primary deals, growth equity, and small buyouts —
  typically higher upside
• Real-world portfolios invest across drawdown vintages, reducing the impact of
  assumptions that model uncalled capital as passively invested in a 60/40 portfolio

The result? A set of comparisons that imply evergreen funds are inherently more effective,  when in fact they’re simply structured differently — and often designed around more conservative assets.

It is important to note, most evergreen funds are still in their early days, with only a handful having track records longer than three years. As a result, most comparisons are based on unrealized performance, and the structural risks outlined here have not yet had time to fully play out.

So, What’s the Better Approach?

This isn’t a binary debate. We don’t believe evergreen funds are inherently bad — or that drawdown funds are always better in every situation. Both structures have their place when thoughtfully designed and executed.

Evergreen funds can also serve a valuable supporting role alongside drawdown vehicles. Their continuous deployment structure helps address the timing challenges that many investors face when entering private equity. For clients still building their exposure, evergreen funds can act as a “holding pattern” — a way to stay invested while awaiting capital calls or new drawdown opportunities. Similarly, they can absorb liquidity as distributions come in, helping clients maintain their target allocation more effectively over time. When used thoughtfully, evergreen structures can provide tactical flexibility that enhances overall portfolio construction.

But for investors serious about long-term outperformance in private equity, we believe drawdown structures should remain the foundation as they:

• Can structurally target broader access to high-performing, capacity constrained
  managers
• Allow deeper exposure to core strategies like growth equity, small buyouts and
  venture capital
• Align fees more transparently with actual outcomes
• Better avoid valuation and liquidity illusions
• Encourage investor patience and thoughtful deployment

Yes, they’re less convenient. They require more education and introduce some discomfort. But those very traits are often what support outperformance. They’re potentially harder to sell, require more client education, and introduce some discomfort. But that discomfort supports many factors that are core to what makes them effective. Like a difficult workout, they yield better results because they ask more of the participant.

Private equity has never been about ease. In our view, its strength lies in selectivity, alignment, and long-term orientation — traits that don’t translate well to comfort-first design.

Evergreen funds aren’t a fad or a scam. Some are thoughtfully built, and some may perform well. But as they gain industry traction, we shouldn’t let convenience cloud critical judgment. Not everything that feels easier is actually better.

For advisors and clients aiming to build lasting wealth through private equity, discomfort isn’t a flaw — it’s a feature. And drawdown structures, with all their frictions, remain the more disciplined, aligned, and effective path forward.