Evergreen funds have become the "new favorite" of individual investors, with risks quietly accumulating in the private lending market.

In the private credit sector with a scale of up to $2.2 trillion, risks are quietly accumulating. Supporters of private credit often emphasize a major advantage of the industry compared to traditional bank financing: stability of funds. As revealed by the 2023 collapse of Silicon Valley Bank, traditional banks' depositors may quickly withdraw funds in panic, exposing the mismatch between unstable funding sources and illiquid investments such as commercial loans. In contrast, supporters of direct lending tools invest funds for many years, making large-scale runs less likely. However, data from PitchBook shows that institutions like Blackstone Group and Apollo Global Management have raised nearly $300 billion from private investors, largely due to the popularity of so-called "evergreen stock" tools, which provide investors with the opportunity to redeem partial cash. This structure is still much more robust than traditional banking financing models, but the influx of retail investors into the emerging private credit sector also brings new risks. Evergreen funds, especially in the debt sector, are gaining popularity. As of March 31, Blackstone's private credit fund (BCRED) managed assets worth $81 billion, up from $45 billion three years ago. PitchBook estimates that last year private debt management companies raised $67 billion through such tools, about one-third of the funds they raised from major institutional supporters like pension plans. Similar products are now emerging across Europe, including the $3 billion Ares European Strategic Income Fund. Retail investors are becoming a growing force in the private credit sector. This new type of private credit has three key differences from traditional private credit. Firstly, evergreen funds have a perpetual nature, where fund managers reinvest returns from old investments into new projects, rather than returning them to investors before the established maturity date. Secondly, investors can withdraw funds on demand without long-term lock-ins, although quarterly redemption amounts typically cannot exceed 5% of net asset value. This liquidity helps explain the third key difference: mass appeal. Evergreen fund investors include ordinary affluent individuals who typically want to be able to withdraw some funds when needed. Companies like Apollo are seeking to expand their target audience to include retail investors with 401(k) savings plans. However, evergreen funds also have drawbacks. Firstly, fund managers cannot control investment timing, which may weaken one of the inherent advantages of private credit: being able to deploy capital when others are unwilling to do so. This has become especially apparent after the pandemic and the 2022 interest rate hike cycle, where direct lending institutions gained market share from banks. Data from Breakingviews shows that the private credit industry has achieved positive returns every year since 2010, with an average annual return of 9.4%. Another concern is that redemptions during crises may affect the entire private credit market. Since funds hold assets like acquisition financing debt that are difficult to trade, if evergreen investment tools must sell assets quickly to meet redemption demands, they may struggle to fetch good prices. This could lead to a more widespread decline in loan prices. Thus, an industry that prides itself on being a corporate funding backbone could become a source of problems. Additionally, since private credit valuations are not always transparent, investors may be more inclined to withdraw funds if they are suspicious of these valuations. However, industry advocates argue that since redemption limits are usually 5% of net asset value per quarter or 20% per year, evergreen funds may not need to sell assets at discounted prices. Fund managers can also manage redemptions by taking bank loans or using cash and cash-like investments to meet redemption demands. The relatively strong returns also support the industry. During the pandemic panic in 2020, evergreen funds were still in their infancy. But existing funds, such as Owl Rock Capital 2 under Blue Owl, successfully managed redemption requests. The interest rate hike and market downturn in 2022 also did not trigger an industry collapse: Fitch Ratings estimates that redemptions from top funds peaked in the first quarter of 2023, at less than 3% of equity capital. Furthermore, there is currently no evidence of large-scale redemptions following market volatility in April 2025. However, the rapid growth of the industry may attract some more unstable investors. The danger lies in the continuous huge redemption requests during crises, which may lead to managers being unable to deploy new loans, weakening returns. Another risk is that funds may struggle to deploy all the raised funds and may turn to riskier or harder-to-trade assets, such as subordinated debt, which could lead to unexpected losses and exacerbate redemption pressure. Data from Preqin shows that private credit institutions are competing to deploy over $400 billion in unused funds. Reuters columnist Neil Unmack concludes that the increasingly popular evergreen funds may attract inexperienced investors in the future, while risks in the lending business may also increase. This may not lead to as severe consequences as bank runs, but managers must remain disciplined to avoid becoming casualties.