Private markets face some 'recalibration' but evergreen funds set to lead growth

Evergreen funds are set to be a shining star in the private markets space in the coming years, taking a larger slice of the market over the next five to ten years.

That’s one of the key predictions in the 2025 Market Overview from alternative investment management firm Hamilton Lane which predicts that evergreen funds will grow faster than the overall rate of public markets over the next five years, while fees will begin to reduce.

Currently, evergreen funds account for roughly 5% of the overall private markets, about $700 billion, but the report calls for exponential growth that would see them account for around 20% within 10 years.

For investors in these open-ended funds, their increased importance in the market comes as the broader global private markets are in neutral territory as fundraising, valuations, and short-term performance trend lower, with private equity and hedge funds among the segments that are dealing with significant headwinds.

The growth of evergreen funds will result in the largest private markets firms getting larger and smaller private markets firms struggling to get any market share.

Meanwhile, the overview suggests that closed-end funds in some strategies will decline and largely disappear.

Recently, infrastructure and real estate have done very well compared to their public counterparts and private credit has remained stable, but private equity has underperformed.

However, the firm notes that long-term trends show that private credit has outperformed public markets for 23 years and infrastructure and real estate have done so for 12-13 years. It also believes the dip in performance for private equity is an anomaly.

Hamilton Lane’s co-executive chairman, Mario Giannini, is upbeat about the outlook for private markets overall, but says a reality check is required.

“We believe that investors deserve high-quality data, actual transparency and continued education around this long-term asset class. And as we look at the year ahead, investors need to come to terms with the reality that there appears to be a recalibration in certain pockets of the global private markets, despite the fact that overall, the private markets are neutral right now,” he said. “Longer term, we continue to have high conviction in the value of this asset class, and we urge investors to read, study and think carefully about portfolio construction and the diversification benefits that private markets have consistently demonstrated.”  

PORTFOLIO CONSTRUCTION

For investors and advisors considering what to include in private markets portfolios, Hamilton Lane’s overview includes some areas that are expected to perform.

• Credit, infrastructure and secondaries: Each of these sectors is set up for success.
• Venture and growth: Investors should have exposure to these areas. AI applications will likely sweep the business landscape and many of those companies will be incubated and developed in the private markets sphere.
• Equity: In particular, the co-investment side where investors can be selective.
• US: The US market is expected to be relatively more attractive than all other geographies over the next 4-5 years.
• Data and technology: Invest in portfolio analytics, whether for construction or analysis.

The full report is available on the firm's website.