Gating isn’t a betrayal; it’s a foreseeable mismatch

Many investors and their advisors navigating the current stress in private evergreen funds feel betrayed. Redemptions are being restricted. Liquidity windows are tightening. The very feature that attracted investors to these structures (i.e., you can get your money out when you want to) is now being paused, with no clear resolution in sight. The harsh truth is that this isn’t a betrayal, it’s a foreseeable structure-to-asset mismatch.

Let’s be clear. This isn’t a rare event. The recent wave of gating in evergreen funds is natural and will happen again. It is the result of combining illiquid private assets in a liquid or semi-liquid wrapper. While these funds transform illiquid investments into liquid investments during good times, the structure breaks down when investors all want out at once.

In private credit, private equity, real assets and other longer-horizon strategies, even the best underlying investments simply can’t be liquidated quickly without value destruction. Yet, evergreen structures offer monthly, quarterly or other periodic liquidity. Consider this: the best assets take the least time to sell, so if there is a need for immediate liquidity, chances are it’s the best assets that would be sold first, leaving the rest behind. All investors end up equally unhappy, receiving discounted valuations on the best assets to achieve liquidity and are thereafter left with a lower quality portfolio.

Liquidity isn’t free, but it’s also not always necessary. Many evergreen funds use tools like liquid sleeves, pacing mechanisms or holdbacks to manage redemptions, but each comes with trade-offs. Holding too much cash can drag on returns, while mechanisms like gates can infuriate investors. There is nothing nefarious about these terms, they are simply trade-offs, and investors should remind themselves why they were attracted to private assets in the first place: to seek higher returns that require patience.

As investors get wise to fund terms they previously overlooked, they should scrutinize leverage that is often applied at the fund level in evergreen structures. In cases where the fund has taken on debt itself, usually with the objective of enhancing returns through leverage, this further exacerbates stress. The fund’s debtholders may demand repayment ahead of gates getting lifted.

Some clients genuinely need periodic access to capital. But many don’t. For those with longer horizons, evergreen isn’t the only option and might not be the best one. They should be mindful of being co-mingled with investors with shorter timeframes that could cause managers to take misaligned actions to preserve unnecessary liquidity.

Fixed-term, closed-end structures may lack the appeal of evergreen funds, but they offer durability. Investors commit capital for the life of the fund, allowing managers to stay focused on strategy, not liquidity management. Distributions occur naturally, and compensation typically aligns with actual outcomes, not paper valuations.

That clarity and alignment benefits both sides but isn’t typically well suited for the retail investor. The concerns regarding evergreen fund governance, valuation practices and performance fee timing stem from the stress of trying to be all things at once: accessible, at least semi-liquid, but high-performing and private-market anchored. That’s a tough balancing act.

Hybrid structures

Fund managers are innovating and bringing forward hybrid structures that blend the concepts of traditional closed- and open-ended models. These include committed capital and initial lock-up periods, so capital can be patiently invested, and liquidity off-ramps that allow assets to be sold over time, while offering investors the choice of when to start getting liquid.

We’re not here to pick sides, and we believe evergreen funds have a role, as do fixed-term, closed-end funds. But we also believe that structure matters. Advisors should be asking the hard questions.

What is the actual liquidity and duration of the underlying assets? Is there a significant amount of debt at the fund level, which sits ahead of investors if liquidity becomes an issue? How is redemption demand likely to play out amongst the different types of investors in a fund? What mechanisms are in place to protect remaining investors during a run? Does my client truly need access every quarter, or are we paying for flexibility we won’t use?

These are alignment questions. Asking them upfront can prevent real pain later. Helping clients navigate these nuances is up to the advisor. They must understand how funds might behave under pressure.

There is a shift taking place in the industry right now. Evergreen launches are slowing. Bad actors are being exposed. Stress testing, valuations and disclosure are being closely scrutinized. We expect more thoughtful conversations between managers and advisors about structure fit.

That’s a good thing. Evergreen funds are not broken. But they’re not bulletproof either. And they work best when the liquidity promise is both clear and credible.

Malfeasance aside, gating is not betrayal, it’s a foreseeable byproduct of ignoring structure-to-asset mismatch. Let’s stop framing gating of evergreen funds as a failure when they falter for the right reasons. Instead, let’s have honest conversations about how private investing really works, and have better communication and alignment before the next time the market tests our collective patience.

Randy Garg is the founder and managing partner of Vistara Growth, where he leads the firm’s investment strategy and long-term vision. Noah Shipman is a partner at Vistara Growth and helps oversee the portfolio and manage the firm.

This article appears in the November 2025 issue of Investment Executive. Read the digital edition or read the articles online.