Drawdown vs Evergreen Funds
June 2025
In the simplest of investment models, a diversified portfolio is made up of just two asset classes – equity and fixed income. Fixed income is meant to mute and counteract the swings in the stock market by providing relative price stability and a steady stream of interest payments, while equity provides price appreciation alongside of greater volatility.
In practice, modern portfolios look a little different, particularly as interest rates have declined; many investors have turned to “alternative” asset classes to enhance their risk-adjusted returns through greater returns and/or lower correlations with the existing portfolio. As an example, the graphic below shows how endowments’ asset allocations have shifted over the last two decades to include a greater allocation to alternatives, which can encompass a broad array of strategies.

For large investors, alternative asset classes are often implemented through private (i.e. non-publicly traded) investments. The traditional vehicle for a private investment is a limited partnership, which gathers investor commitments until reaching a specified level of capital. At that point, the fund is closed to new investors. The lifespan of a private fund is typically 7-10 years. Early in the fund’s life, the investor provides capital when ‘called’ by the manager, which is used to purchase portfolio holdings. At the end of the fund’s life, any holdings that have not previously been monetized are liquidated, and the capital and its growth are returned to the investor. This lifecycle generates a “J-Curve” effect, illustrated below.

One of the defining features of these funds is the lockup of capital; the investor will not have access to invested funds until the distribution period at the end of the fund’s life. This feature has been touted as one of the reasons private investments have the potential to generate higher returns; unlike publicly listed investments that are subject to short-term investment flows, the lockup of capital allows the manager to take a long-term approach to influencing and improving business operations and financials.
As is often the case in financial markets, innovation in private markets is constantly occurring. Enter the evergreen fund. Designed to create a semi-liquid option for investors desiring private investment exposure without the capital lockup, an evergreen fund provides windows of liquidity during which investors may redeem their shares. Because the underlying investments in an evergreen fund are a mix of liquid and illiquid holdings, there is a limited amount of liquidity available. Investors must provide advance notice of redemption and are not guaranteed to receive their full withdrawal.
Below is a snapshot of some other differences between traditional private equity funds and evergreen funds:

In both cases, manager due diligence is a key component of an effective alternatives program. However, the additional liquidity of the evergreen fund requires an additional layer of screening. For example, will the investments underlying the fund generate cash flows that align with the availability of liquidity? How will periods of market volatility impact the ability to redeem shares? Will flows in and out of the fund dilute, or, in periods of volatility, incapacitate the strategy?
Evergreen funds are just one example of how private investments have become more widely available. As financial innovation continues to occur, we evaluate which strategies and investment structures may be appropriate for our clients based on their specific needs; innovation can be a good thing for the marketplace, but it must be vetted closely not only to evaluate client suitability but also to understand the long-term implications for the investment landscape. We discuss some of these potential implications in our latest Independent Insights.
As always, please do not hesitate to reach out your Cornerstone advisor if you wish to discuss our approach to alternative investments and their role in your portfolio.
This report was prepared by Cornerstone Advisors Asset Management, LLC / Cornerstone Institutional Investors, LLC and reflects the current opinion of the firm, which may change without further notice. This report is for informational purposes only and is not intended to replace the advice of a qualified professional. Nothing contained herein should be considered as investment advice or a recommendation or solicitation for the purchase or sale of any security or other investment. Opinions contained herein should not be interpreted as a forecast of future events or a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s portfolio. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Investors cannot invest directly in an index. Commentary regarding the returns for investment indices and categories do not reflect the performance of Cornerstone Advisors Asset Management, LLC / Cornerstone Institutional Investors, LLC, or its clients. Historical performance results for investment indices and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Figures contained herein are obtained from sources deemed reliable, but we do not guarantee its accuracy or completeness. Past performance is no guarantee of future results. Investments fluctuate in value. Securities Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services are offered through Cornerstone Advisors Asset Management, LLC. Cornerstone Advisors Asset Management, LLC and Cornerstone Institutional Investors, LLC are independently owned and operated. 4716664