Updated · Part of the CRE investment glossary
How an evergreen fund works
A closed-end fund raises capital once, invests it, sells the assets and ends. An evergreen fund keeps going. New investors subscribe at regular intervals, existing investors can ask to redeem at set windows, and the fund recycles capital from sales into new assets. Investors enter and leave at the fund’s NAV per unit on the dealing date.
Because real estate cannot be sold quickly to meet redemptions, the documents limit liquidity: a lock-up before a new investor may redeem, notice periods, and a gate that caps total redemptions in a period, with the excess carried forward or cancelled. When requests exceed the gate, they are usually filled pro rata.
Evergreen vs closed-end
The two structures answer different investor needs:
| Feature | Evergreen (open-end) | Closed-end |
|---|---|---|
| Life | No end date | Fixed term, often with extensions |
| New capital | Accepted periodically | Raised during a fundraising period |
| Exit for investors | Redemptions at NAV, subject to gates | Distributions as assets sell; secondary sale |
| Valuation | Drives every entry and exit price | Reported, but cash returns decide results |
| Usual measures | NAV per unit, total return | IRR, equity multiple, TVPI |
Worked example: a redemption gate
A fund has a NAV of $200,000,000 and a quarterly gate of 5% of NAV, or $10,000,000. The gate is an example, not a market figure. Investors ask to redeem $14,000,000 this quarter, so each request is filled at $10,000,000 ÷ $14,000,000 = 71.4%.
An investor who asked for $700,000 receives $500,000. Under these documents the remaining $200,000 joins the queue for next quarter, at next quarter’s NAV.
| Line | Arithmetic | Amount |
|---|---|---|
| Gate | 5% × $200,000,000 | $10,000,000 |
| Requests received | $14,000,000 | |
| Fill rate | $10,000,000 ÷ $14,000,000 | 71.4% |
| One investor’s request | $700,000 | |
| Paid this quarter | $700,000 × 10/14 | $500,000 |
| Carried to next quarter | $700,000 − $500,000 | $200,000 |
Why valuation matters more
In a closed-end fund, a stale valuation changes a report. In an evergreen fund it changes money: if NAV is too high, redeeming investors are overpaid by those who stay, and new investors overpay to enter; if it is too low, the reverse. That is why evergreen funds set valuation policies — appraisal schedules, independent valuers, adjustments between appraisals — and apply them on every dealing date.
An evergreen fund that keeps taking subscriptions is also continuously offering securities. For a Regulation D offering, Rule 503 requires the Form D notice to be amended at least annually while the offering continues.
What investors check
Before committing to an evergreen fund, investors read:
- Redemption terms: lock-up, notice period, frequency, gate size and how queued requests are treated.
- Valuation policy: who values the assets, how often, and how NAV moves between appraisals.
- Fees: whether management fees are charged on NAV and how any performance fee is measured over time.
- Leverage and liquidity: how much cash and credit the fund keeps to meet redemptions without selling assets at the wrong time.
Primary sources
General information, not legal, tax or investment advice. Your operating agreement, offering documents, counsel and CPA govern your deal.