As the popularity of evergreen funds continues to grow, the past 12 months have also highlighted the challenges the semiliquid structures present for both financial advisors and investors. As worries spread about the underlying assets in the portfolios of private credit BDCs in late 2025, multiple fund managers faced redemption requests that outpaced their stated quarterly caps, typically 5% of NAV.
Managers responded to the issue in varying ways. Some chose to temporarily meet higher redemption levels. In another case, Blue Owl Corp. halted quarterly redemptions and replaced them with periodic distributions funded by asset sales and loan repayments. The pace of redemption requests has also subsided. Overall, private placement BDCs have been able to meet most redemption requests, but the episode exposed the tension between private investors’ desire to participate in evergreen funds and the limited liquidity inherent to these fund structures. Now, there might be a new mechanism that could allow investors to cash out without facing redemption caps or accepting deep discounts on their shares if an evergreen fund goes into proration.
Ways for private investors to cash out of evergreen funds outside regularly scheduled redemption periods have existed for some time, most notably for NAV REITs, which faced heightened redemption requests in 2023. These included platforms such as Realto Inc.—now LODAS Markets—that enabled non-traded REIT investors to participate in secondary liquidity events.
In addition, some private investment firms, most notably Cox Capital Partners and Saba Capital Management, often pop up when a semiliquid vehicle appears to be facing redemption issues, making unsolicited offers to buy oversubscribed shares at a discount. For most investors, these discounts are too large to make the deals worthwhile, according to analysts across the industry. For example, when Cox and Saba launched an unsolicited tender offer to buy 6.9% of shares in Blue Owl Capital Corporation II (OBDC II), a non-traded private credit BDC, this March, they did so at a proposed discount of 34.9%. That offer, along with similar ones for non-traded private credit BDCs managed by HPS Investment Partners, Apollo Global Management and Ares Management, which together featured an average discount of 26%, received little investor interest.
“When investors can get redemptions at NAV, they generally do not view liquidity with large discounts to NAV as attractive versus waiting,” wrote Michael S. Covello, executive managing director at research firm Robert A. Stanger & Co., in an email. “Even in periods of heightened redemptions, they are getting redeemed, just not in full.”
There have been further attempts by industry players, such as iCapital, to integrate secondary liquidity capabilities into their alternative investment ecosystems. Last year, the firm invested in Tangible Markets Ltd., a U.K.-based liquidity solutions provider for private-market positions, with a promise to create an automated marketplace where financial advisors could trade illiquid holdings. So far, however, the marketplace has not built a mass following in the industry.
Some of the biggest challenges in trying to create a secondary market for evergreen fund shares are that, given their private holdings, it’s hard to determine what a “premium” or a “discount” to their NAV would be, noted Kimberly Flynn, president of XA Investments, which specializes in tracking interval and tender offer funds. Meanwhile, eligible investors could still enter and exit the funds at their stated NAV.
“Where there is perceived demand, financial markets have a tendency to find a way to provide liquidity,” said Chris Osmond, CIO of Fifth Third Wealth Advisors, an RIA that has $7.8 billion in AUM and whose firm invests in evergreen funds along with more traditional drawdown structures. He cited the example of continuation funds, which have allowed private equity managers facing tough exit conditions to hold on to their best assets for an extended period. But introducing a secondary market for evergreen funds can create a new layer of uncertainty about the accuracy of their NAVs, which are often perceived to be less than transparent to begin with.
“Given the headlines and proration we have seen [in the evergreen space], I am not surprised to see the rise of this market,” Osmond noted. “I see where providing some investor liquidity makes sense. But I also think that there would be some unintended consequences. Where I kind of struggle with this is the valuation aspect. Based off what valuation [is the secondary market operating]? Is it truly going to be NAV-based going forward? Is NAV truly accurate to what the value is?”
This August brought an event that could serve as a template for how evergreen fund investors might access secondary liquidity if a fund goes into proration that works out to the benefit of all parties involved. The event was a secondaries auction for shares of Harrison Street Real Estate Fund Class I (VCMIX), an interval fund with $1.35 billion in total assets. After the fund’s manager, Harrison Street Asset Management, had to cap redemptions for 15 consecutive quarters, it approached Nasdaq Private Markets’ subsidiary Nasdaq Fund Secondaries and LODAS to run an auction to allow the “loud minority of investors” who wanted out to exit the fund to do so, said Flynn.
According to Brian King, co-founder and CEO of LODAS, evergreen funds have been a “fantastic” innovation, but when redemption requests exceed the funds’ caps, it can quickly become a self-perpetuating PR headache for fund managers. Meanwhile, institutions with billions of dollars at their disposal are interested in participating in evergreen vehicles as LPs.
“It’s not a problem of lack of buyers and sellers; it’s how you get those two different parties to interact with each other,” King noted. “What’s unique about what we built for this is we built an auction structure that helps find price discovery, but it allows [us] to do it in kind of a timed way, so everybody gets the same price; it all happens at the same time. Price discovery is incredibly important in this particular environment, and that’s what we were trying to solve for.”
Flynn pointed out that Nasdaq Private Markets has been experimenting with creating auction funds—non-listed, closed-end, continuously offered funds that would allow their shareholders to sell shares through Nasdaq—for at least five years, but has never quite taken them to market. Before it partnered with LODAS, it also had no way to work directly with the wealth channel.
In a 2019 paper, Andrew Kroculick, principal of strategic initiatives, and Julia Brezing, director of private transactions at the company, outlined the benefits of an auction format for accessing secondary liquidity in the private markets. These included an existing process familiar to many legal counsels and a more linear approach to setting an offer price, while drawbacks centered on a lack of transparency around price discovery and difficulty forecasting a successful auction. (Earlier this month, Nasdaq Private Markets completed its acquisition of Nasdaq Fund Secondaries, first announced in July. The acquisition brings direct company shares and secondary fund shares onto a single platform serving both investors looking for liquidity and fund managers.)
The Harrison Street auction, which was the first intra-period one in the evergreen fund industry, concluded on Sept. 23, with 91% of the shares sold and 41% receiving a higher price than requested. The seller side included at least 10 RIA firms and 60 individual investors, according to King.
Interest was high enough that LODAS had to build a new tool mid-process to allow advisors to initiate bulk account openings on an expedited basis. The participants judged the first venture so successful that they initiated a second auction for the fund starting on Oct. 2, which brought in “ten times the amount of interest we had for the first auction” on the buyer side, King noted.
What enabled the auction to proceed and achieve a successful outcome was the combination of Nasdaq’s auction expertise and the community of potential buyers that LODAS brought to the table, Flynn said. After all, the firm already built a reputation by establishing a secondary market for non-traded REIT, including Blackstone’s BREIT and Starwood’s SREIT.
“You can have an auction, but if nobody is there to buy the funds at a discount, it’s kind of pointless,” Flynn noted.
Last October, LODAS also struck a partnership with alternative investment platform CAIS to launch a secondary marketplace for private funds. CAIS claims over 2,500 wealth management firms and approximately 65,000 financial advisors as clients. CAIS clients did not participate in the Harrison Street auction because its interval fund is not approved on the CAIS platform, according to King.
But during future auctions, CAIS users will be able to participate if the funds are platform-approved. LODAS and Nasdaq anticipate that between now and the end of the year, they might hold auctions for another six interval funds, which together are facing redemption queues totaling approximately $13 billion, King said.
A big advantage of auction pricing is that it gives sellers a better chance at getting “fair pricing,” according to Flynn. “It’s not an arbitrage opportunity like you would find in the public equity markets because of the time and the risks involved, but there are reasonable secondary market buyers that would be willing to buy at a 10% or 15% discount.”
While discounts are a built-in feature of secondary markets, “there is a possibility that an increase in competition to provide liquidity could cause discounts to lessen,” agreed Craig Kilgallen, relationship manager at FUSE Research Network, in an email.
According to King, for the first interval fund auction, LODAS emphasized keeping the process as simple as possible to make it easy for buyers and sellers to understand. But he anticipates working on further innovations as feedback from participants comes in. Eventually, a viable secondary market should significantly compress discounts on evergreen shares traded outside redemption windows, he noted.
“Once people understand the process and how it works, I do believe we’ll be able to make them even better from a price discovery perspective, and overtime, build more transparency,” he said.
Giving evergreen fund investors the power to decide what kind of a discount they would be willing to accept in exchange for the ability to cash out was a prudent move on Harrison Street’s part, according to Max Curtin, senior analyst, fixed income strategies, at Morningstar. In the future, a secondaries auction between scheduled redemption periods could serve as a sort of insurance policy for the asset manager if a fund comes under proration stress, he noted.
However, Curtin does not believe that fund managers who have not experienced heightened redemption requests for multiple quarters will be lining up to create a secondaries market for their shares. Redemption caps in evergreen funds are in place for the very reason that these funds hold illiquid assets and are not a “negative” in themselves, he said.
“I think the most important thing is for investors to have clarity and understanding before they are entering into these vehicles in the first place that having an expectation of getting your money back whenever you want is unrealistic,” Curtin said.
Still, Flynn said that creating an auction format for the 20% or so of evergreen funds that can’t meet investors’ liquidity demands is in everyone’s best interest. That’s because, sooner or later, every semiliquid vehicle will face a market slump or negative headlines about the asset class it holds, sending a subset of its investors in search of an exit.
“By creating a viable secondary market, it is a base to build on for future auctions, meaning broader participation and improved price discovery,” she wrote in an email after the first Harrison Street auction closed. “The timetable for future auctions might also be faster to be announced and tighter to be executed, and would facilitate liquidity on an expedited basis. It is great to have a workable blueprint for providing increased liquidity for investors in private market funds.”