Evergreen Funds Reach $534.6B Despite Headwinds
The market for evergreen or “semiliquid” funds continued to show strong growth in 2025, in spite of some emerging headwinds, according to the new Evergreen Fund Landscape report released by Morningstar and PitchBook.
By year-end 2025, all evergreen fund structures combined held $534.6 billion in AUM, an increase of over 25% compared to year-end 2024. There were 98 new funds launched during the period, according to Morningstar. BDCs saw the largest year-over-year AUM growth, at 31.2%, to $192.8 billion. Non-traded REIT registered the slowest growth, at 3.0%, to $92.8 billion.
Together, evergreen strategies focusing on direct lending and alternative credit now make up the largest share of funds in the industry, with 26.3% and 20.4% of the total 548 funds, respectively. Direct lending also remains the largest strategy by AUM, with $236.7 billion as of year-end 2025, while real estate is in distant second place at $103.9 billion. Meanwhile, funds focusing on alternative credit experienced AUM growth totaling $50 billion from 2024 to 2025, now almost equaling evergreen private equity AUM at $57.2 billion. There were 22 new alternative credit funds launched last year, Morningstar researchers report, compared with 12 for direct lending funds.
This has happened against the backdrop of rising redemption requests from investors in evergreen funds focused on private credit, which have been exceeding most of the funds’ typical quarterly caps of 5% of NAV. The increased redemption requests, which analysts broadly believe are more due to panic contagion than fundamental issues with the funds’ portfolios, impacted all evergreen vehicle structures, but BDCs have taken the brunt of the hit so far. Morningstar researchers note that VanEck BDC Income ETF, which tracks a market-cap-weighted BDC index, lost 15% of its value in January and February alone.
Yet, evergreen fund performance in 2025, including that of vehicles focused on direct and alternative lending, was quite positive, even against the backdrop of more economic uncertainty, according to Morningstar PitchBook Evergreen Fund Indexes. Overall, these funds delivered a net total return of 7.8% for 2025 and 7.2% since 2014.
Returns ranged from 5.5% for real estate-focused funds (an improvement from 1.3% in 2024) to 12.3% for private multi-asset funds. Direct lending and alternative lending funds delivered returns of 8.8% and 8.1%, respectively. In both cases, there was a decline from net total returns delivered the year prior, but by less than 300 basis points.
What Morningstar found, however, was that there was a much wider return dispersion between various funds than would be expected in the public markets. For example, in the alternative credit category, the best funds delivered a net total return of 22.2% during the year. The worst funds posted a loss of 19.4%. The difference was even more dramatic in the private equity sector, where the best funds delivered a return of 22.8%, while the worst ones saw returns decline by 51.0%. The dispersion was least pronounced for funds focusing on infrastructure, where the best performers delivered 17.9% in total returns, and the worst still ended up in the positive category, with 7.4%.
“Private market funds typically hold unique assets, highlighting the importance of manager selection,” Morningstar researchers noted.
When it comes to whether evergreen funds outperformed public markets (a major point asset managers use for private wealth investors), the picture was uneven, Morningstar and PitchBook found. For example, Morningstar’s Direct Lending Evergreen Index has consistently outperformed its LSTA US Leveraged Loan Index. Evergreen real estate and public equity funds, however, underperformed the public markets over the past three years.