Is the future evergreen for private markets?

bfinance insight from:

Julien Barral
Director, Private Equity

Umang Rajbhandari
Director, Private Credit

Anish Butani
Head of Infrastructure

Ishan Issadeen
Head of Real Estate

bfinance advisor Kathryn Saklatvala and co-host Bradley Budd (Head of Wealth) discussed this key industry theme in a recent Allocator Briefing podcast, joined by senior experts from across the bfinance private market research teams: Julien Barral (private equity), Umang Rajbhandari (private credit), Anish Butani (infrastructure) and Ishan Issadeen (real estate). While some of these asset classes may appear to have a long-established open-ended segment, analysis shows that the product landscape has changed substantially during this decade. In other asset classes, such as private equity, the proposition is even more nascent.

“The assumption that you hear time and time again is: big brand name – it’s a safe bet,” says Budd, warning that the opposite may often be true. In this rapidly evolving sector, investors must apply deeper due diligence to identify GPs with better practices and steer clear of potential traps. Early-stage performance inflation, backward-looking liquidity assumptions and premium price-points should all be scrutinised with care.

To watch this Allocator Briefing episode in full, click here.

Semi-liquid private equity shifts from FoF to ‘direct’

In private equity, the semi-liquid or open-ended story is a very recent one. Yet even within this short period of time, there has been a notable change in the types of product on offer. Initially, fund-of-fund or ‘allocator’ models emerged in the early 2020s, promising immediate deployment and diversification with a heavy reliance on secondaries. Today, an even newer breed is emerging.

“The second wave is more recent, probably within the last 18 months, where it’s the more direct private equity managers launching evergreen or semi-liquid products using their own platform,” Barral explains. “They tend to be larger GPs with larger deal-flows.”

Both Barral and Budd hone in on the problem of over-inflated return figures in the early years of a fund’s existence (“an early strong performance eroding over time,” in Barral’s words) and the relevance of secondary transactions in that dynamic.

Bradley Budd: “You generate very high returns for the first couple of years and naturally there’ll be a tail-away. …if the question is: does every single person in the value chain understand that challenge? Probably not.”

Barral extends this theme even further, asking whether the in-built incentive to deploy assets as quickly as possible – to provide market exposure with no J-curve (and, of course, boost fees) – may drive a lack of discipline in how investments are being made.

Julien Barral: “There is a convergence to a model which is basically charge on NAV from day one and then some kind of performance fees on the NAV, which is unrealised return.”

Liquidity tests underway in semi-liquid private credit

2026 signalled a turning point for the open-ended private credit sector, with extremely large net inflows reversing to produce net redemptions in the first three quarters of the year, with the US market being particularly affected. Naturally, negative press headlines and industry debates ensued. Investors, meanwhile, have turned towards slow-pay fund models with a more institutional client-base versus US business development company (BDC) structures.

Umang Rajbhandari: “Definitely the last year has been quite revealing for private credit as an asset class …over the last year you’ve seen redemption requests really spike [over 10% for Q1, Q2 and Q3 2026] and so you’re seeing managers having to pro-rate distributions. They’re hitting those 5% gates that you hear a lot on the news.”

Discussion turned to a core tenet of the sector: the concept that private credit portfolios should enjoy a ‘natural liquidity’ of 5% that can help to support both redemption requests and re-investment activity over time. How robust does this presumption seem today? Rajbhandari points to some backward-looking assumptions, such as the premise of an average five-year holding period: “I think that, a few years ago, that would have been prudent,” he explains, but perhaps not today. Reduced overpayment levels, amend-and-extend activity and greater use of payment in kind (PIK) can dampen the natural liquidity level.

The 5% assumption was also founded on a relatively mature portfolio with balanced deployment; whereas the cashflow profile can be more volatile after a period of dramatic inflows. This naturally raises the question of sustainable growth: was there an irresponsible approach, a sort of asset-gathering mentality, that should have been more disciplined in that boom period?

Rajbhandari responds that different managers have behaved in different ways. Some raised much lower levels of capital at the peak of fundraising, he argues, not because they couldn’t have gathered more assets but because they chose to be prudent.

Finally, the private credit portion of the discussion closed with a call for the industry to focus more on the broader benefits that perpetual vehicles can theoretically provide beyond liquidity and a reminder that liquidity, if not well handled, can undermine some of those other advantages.

Umang Rajbhandari: “The way that it’s been advertised, where it’s a semi-liquid vehicle with quarterly liquidity, has forgotten about some of the best parts of being in a perpetual vehicle: the lower governance burden, compounding returns, everything like that. It’s tricky to be able to [deliver those benefits] when you’re promising quarterly liquidity.”

Bradley Budd: “Speaking for the wealth management community, the ability to have liquidity was one of the key selling points. …clearly the last year or so has been tricky to navigate from that perspective, but I do think that’s what come out of it is that mindsets will shift towards the broader benefits of a perpetual structure.”

Are infrastructure GPs managing conflicts of interest?

While core open-ended infrastructure is a well-established space, today’s funds – particularly the newer semi-liquid strategies seeking private wealth capital – are migrating up the risk curve in search of higher returns. Anish Butani talks through the transition and the differences between the ‘old breed’ and the ‘new breed’, not just in terms of liquidity provisions but also when it comes to portfolio construction.

Anish Butani: “There was a recognition in the 2010s, as investors were receiving capital back from certain funds (especially those invested in very long-term assets like utilities or toll roads) that they wanted to remain invested in these for the long term. A combination of that desire to be invested for the long-term and a low interest rate environment really drove the market for open-ended core/core-plus funds. … The second evolution is much more recent: the advent of semi-liquid strategies with the needs of private wealth in mind. …what’s very interesting is how much non-core infrastructure is really the key driver of those strategies.”

On the subject of discipline in deal-making, Butani drew attention to both allocation policies and related-party transactions. In the latter case, a GP will sell a portion of an asset to a third party and the rest of the asset to its semi-liquid wealth vehicle. This practice, Butani notes, is rarely observed in institutional open-ended deal sourcing. Yet does it present a conflict of interest?

Real estate upheaval delivers lessons in misalignment risk

Turning to real estate – the asset class where open-ended structures are perhaps most firmly established – the key topic on the agenda was fairness. How should alignment of interest be supported in a model that can, if managed poorly, particularly vulnerable to misalignment risks?

Valuation practices came under scrutiny first, given their importance in defining how investors enter, redeem from and pay fees on these vehicles. Ishan Issadeen points out some key differences between institutional and retail vehicles, both in terms of valuation frequency and the level of transparency provided by the industry.

Ishan Issadeen: “One of the main ways it [fairness] plays out is in valuation practices. … In the [US] institutional framework they all report under the NCREIF framework. All of that data goes up and it’s aggregated at the benchmark level so an investor in any fund can look at: what is this fund assuming for its valuation (cap rates, etc…) versus the benchmark? If it’s deviating, they can probe that with the manager. But when it comes to the wealth space there is no centralised source of data …and investors aren’t really picking it up in the same way.”

Fee structures represent another key area where alignment challenges can become stark. While classic core open-ended real estate funds do not typically use performance fees, they are commonplace among wealth vehicles as well as institutional funds with more aggressive risk/return profiles. Yet are they being applied fairly?

Ishan Issadeen: “What we do see is that, even if you’re looking at core-plus institutional versus wealth funds, they both have a performance fee but on the wealth side you often see lower hurdle rates.”

Bradley Budd: “How is that rationalised by the GPs”

Ishan Issadeen: “It might more a question of what can they get away with …we’ve seen examples of 5% hurdle rates in core-plus (on the wealth side) versus 7-8% on the institutional side.”

For the full version of the Allocator Briefing click here.

Glossary

• Amend and extend: Renegotiating a loan’s terms to extend maturity, often in exchange for additional economics to lenders.
• Business development company (BDC): A US listed or non-listed investment vehicle that lends to or invests in private mid-sized companies and is popular with wealth investors.
• Cap rates (capitalisation rates): A real estate valuation measure, calculated as a property’s annual net income divided by its value. A higher cap rate implies a lower valuation.
• Core / core-plus: Lower-risk real estate and infrastructure strategies focused on stable, income-producing assets. Core-plus takes on modestly more risk in search of higher returns.
• Evergreen / open-ended: A fund structure with no fixed end date; investors may subscribe/redeem based on fund terms.
• Fund-of-funds (FoF): A fund that invests in other funds rather than directly in companies or assets.
• Gates: Limits on the proportion of a fund’s assets that can be redeemed in a given period, for example 5% per quarter. When requests exceed the gate, payouts are scaled back pro rata.
• General Partners (GP): the private markets investment manager responsible for raising and managing a fund, selecting investments and ultimately realising them on behalf of investors.
• Hurdle rate: The minimum return a fund must achieve before the manager can earn a performance fee.
• J-curve: Early negative returns often seen in private funds due to fees and delayed value creation.
• Natural liquidity: The cash a portfolio generates by itself through repayments and asset sales, which can be used to meet redemption requests without selling holdings early.
• NCREIF framework: refers to the standardised indices, data and performance-measurement methodology developed by the National Council of Real Estate Investment Fiduciaries to benchmark institutional US commercial real estate.
• NAV (net asset value): The reported value of a fund’s assets minus liabilities; used as a reference point for pricing secondary transactions.
• Payment in kind (PIK): Interest on a loan that is paid by adding to the amount owed rather than in cash, which delays cash returning to the lender.
• Performance fees: Fees paid to the manager when returns exceed an agreed level, often calculated on unrealised gains in open-ended funds.
• Related-party transactions: Deals in which the manager, or an affiliate, is on more than one side of the transaction, for example by selling part of an asset to a third party and the remainder to its own fund.
• Semi-liquid: A structure offering periodic (but limited) redemption features, more liquid than classic closed-end funds, less liquid than daily-traded assets.