Goldman’s Nachmann warns of 'deployment pressure' from explosion of evergreen funds

The rapid proliferation of evergreen funds, projected to exceed $1 trillion in assets within five years, is creating significant market distortions and deployment pressure in alternative investments. These funds' structure incentivizes immediate capital deployment, potentially leading to sub-optimal investment decisions and compressing future returns. This dynamic is intensifying competition, particularly in secondary markets where evergreen funds are narrowing discounts and outbidding traditional buyers, with deals averaging 91.1% of NAV in H1 2025. Industry leaders, including Goldman Sachs' Marc Nachmann, acknowledge these risks, highlighting the importance of avoiding deployment targets and educating investors on the true illiquidity of these 'semi-liquid' private assets.

Analysis

The rapid proliferation of evergreen funds, projected to surpass $1 trillion in assets within five years from the current $427 billion, is creating significant market distortions in alternative investments. These funds are structured to incentivize immediate capital deployment, with their capital losing value if not spent quickly, unlike traditional drawdown funds. This deployment pressure risks driving sub-optimal investment decisions and potentially capping future returns.

This dynamic is particularly evident in the secondary market, where evergreen funds are narrowing discounts and outbidding traditional buyers. In H1 2025, evergreen funds offered to buy secondaries at an average of 91.1% of net asset value, a 432 basis point differential over the broader market, up from 403 bps in 2024. This increased competition is "bruising traditional buyers" and threatens to erode the private market premium.

Industry leaders, including Goldman Sachs' Marc Nachmann, acknowledge these risks, emphasizing the importance of avoiding deployment targets to ensure deal quality. Nachmann also highlights the critical need to educate investors that "semi-liquid" private assets do not equate to public market liquidity, stressing their inherent illiquidity. The overall sentiment is strongly negative (-0.65) with a cautious tone, reflecting concerns over market technicals and investor positioning.

Key Decisions for Investors

• Investors should critically evaluate their exposure to evergreen funds, considering the inherent deployment pressure and potential for compressed future returns
• Scrutinize secondary market investment opportunities, as narrowing discounts and increased competition from evergreen funds may erode traditional alpha
• Reassess liquidity expectations for 'semi-liquid' private assets, understanding that they retain significant illiquidity despite their structure
• Prioritize managers who explicitly avoid deployment targets, focusing instead on deal quality and long-term value creation