Over the past year, evergreen fund structures have seen a notable rise in popularity within the alternative investment space, which has traditionally been dominated by closed-ended partnerships. In the European Union, reforms to the regulatory framework for long-term investment funds aimed at retail investors—known as ELTIFs—have been a key driver of this trend.

Revival of the ELTIF Product Category

Following the market’s lukewarm response to the original ELTIF framework, ELTIF 2.0—and the subsequent adoption of regulatory technical standards in October 2024—appears to have successfully revitalized this product category. In 2025, 113 ELTIFs were launched—approximately double the number recorded in 2024 under the original ELTIF framework—with 45 of these adopting semiliquid evergreen structures. Assets under management in ELTIFs grew by more than 50% year on year.

Shift Towards Evergreen Structures

While most ELTIFs remain closed ended, the revised framework explicitly permits evergreen structures. Although the ELTIF market remains fragmented due to local regulatory and tax incentives, Luxembourg continues to be the leading domicile for evergreen funds in Europe, including ELTIFs, and particularly for internationally active sponsors. Other jurisdictions, notably France, Italy and, recently, Spain, have also experienced increased activity in new ELTIF launches.

Facilitating Private Credit Strategies

Professional ELTIFs have been used to facilitate loan origination in jurisdictions such as France and Italy, where regulatory constraints have historically limited direct lending by alternative investment funds. However, forthcoming changes under AIFMD II are expected to ease these restrictions more broadly across EU AIFs.

Appeal to Retail and Private Wealth Investors

One of the key advantages of the ELTIF structure is its ability to be marketed to retail and private wealth investors across Europe. Compared to institutional investors, private investors tend to place greater emphasis on liquidity—an area where evergreen structures are better positioned to respond. The removal in ELTIF 2.0 of the EUR 10,000 minimum investment requirement has further enhanced accessibility, making the product particularly attractive for bank distribution channels and digital wealth platforms. Evergreen ELTIFs also benefit from continuous distribution, without the constraints of fixed subscription periods or closing dates.

Regulatory Trade-Offs and Requirements

The ELTIF marketing passport to retail investors comes with more prescriptive investment and borrowing restrictions compared to non-ELTIF structures. In addition, distribution to retail investors entails enhanced governance, disclosure and suitability assessment requirements.

Another Evergreen Fund Structure: UCI Part II Regime

Another widely used regime for evergreen fund structures targeting a broader investor base is the UCI Part II framework, which is well suited to alternative investments and is not subject to specific eligibility requirements regarding the underlying assets.

However, compared to ELTIFs, a standard UCI Part II fund without the ELTIF label has a key drawback: it does not benefit from a marketing passport to retail investors across the European Union. While Luxembourg law allows UCI Part II funds to accept capital from nonprofessional investors, cross-border marketing in Europe remains more complex. In the absence of the ELTIF label, such funds may be marketed to EU professional investors under the EU marketing passport and to nonprofessional EU investors only in accordance with the national marketing rules of each target jurisdiction.
 
Despite this limitation, UCI Part II funds remain widely used. In practice, they are often combined with ELTIF labels. For example, they may be established as umbrella funds with multiple sub-funds, which can be either open-ended or closed-ended, and may or may not carry the ELTIF label.

Liquidity Challenges and Structural Considerations

Despite their advantages, evergreen structures face an inherent tension between liquidity expectations and illiquid investment strategies. Managers must strike a balance between maintaining sufficient liquidity buffers to meet redemption requests and avoiding excessive cash drag that may negatively impact returns.

As a result, evergreen structures are generally better suited to strategies that generate stable cash flows, such as private debt and secondaries. Private equity strategies, which typically provide less regular distributions, are less naturally aligned with evergreen formats. However, ELTIFs may still be used effectively as captive fund-of-funds structures, investing in a combination of affiliated vintage funds (to generate cash flows) and new funds, and since the adoption of ELTIF 2.0, co-investing in assets alongside other parallel funds managed by the same manager.

Although evergreen funds are open ended in principle, those that invest in illiquid assets typically offer only limited liquidity and are more accurately described as semi-open ended. This may create a mismatch with retail investor expectations, highlighting the importance of clear and transparent disclosure and education of sales intermediaries.

AIFMD II further introduces a requirement for managers to select at least two liquidity management tools (LMTs) from a prescribed list and provides that redemptions may be suspended in extraordinary circumstances. The use of such tools—such as redemption gates or suspensions—may carry heightened reputational risks, even when implemented in the best interests of investors.

Incentives for Solvency II Investors

The ELTIF regime also offers specific advantages for regulated institutional investors. For example, insurers subject to the Solvency II framework may benefit from reduced capital charges for investments in qualifying long-term equity assets. Where such investments are made through ELTIFs, eligibility criteria can be assessed at the fund level. Even where full qualification is not achieved, capital requirements may still be lower than for direct investments.

National-Level Incentives

Various national jurisdictions have established additional incentives to support ELTIF adoption. In France, ELTIFs may be used within unit-linked life insurance products, which benefit from favorable tax treatment where investments are held for at least eight years. In this context, ELTIFs must be structured through French-law vehicles in order to qualify as eligible underlying assets. In a master-feeder setup, this constraint extends to both vehicles. However, these funds may be managed by EU AIFMs, which do not need to be established in France. ELTIFs may also be used within French retirement savings plans (PER), where similar structuring considerations generally apply for insurance-based PER. By contrast, French equity savings plans (PEA and PEA-PME) offer tax advantages after five years and are not limited to French-law ELTIFs. Foreign ELTIFs may also be used, provided they meet the applicable eligibility criteria.
 
Italy similarly provides tax incentives for long-term ELTIFs that invest substantially in domestic companies. In Germany, the proposed replacement of the government-subsidized private pension scheme (Riester-Rente) with retirement savings accounts (Altersvorsorgedepot) is expected to include ELTIFs as eligible investments, which could further support market growth. At present, successful distribution in Germany remains closely tied to access to established banking networks.

Conclusion

The growing adoption of evergreen fund structures—particularly in combination with the ELTIF label—marks a significant development in the European alternative investment landscape. However, structural challenges, most notably around liquidity management and investor expectations, persist. The long-term success of these products will depend on how effectively managers address these issues, ensure clear disclosure and target an appropriate investor base.

Private Equity Report Spring 2026, Vol 26, No 1