Born in the 1980s, the 2/20 structure is increasingly at odds with the needs of modern investors who demand flexibility, transparency, and access.
For decades, private equity (PE) investing has relied on a legacy structure: the classic 10-year closed- end fund charging “2 and 20” — a 2% annual management fee on committed capital and a 20% performance-based carry. While this model was instrumental in building private equity into a powerful asset class, it is now showing its age. Born in the 1980s, the 2/20 structure is increasingly at odds with the needs of modern investors who demand flexibility, transparency, and access.
Today, the global private equity industry is enormous. According to recent data, total assets under management (AUM) across private equity reached $10.8 trillion in 2024, part of a broader $14.3 trillion private markets landscape. In the U.S. alone, PE AUM hit $3.13 trillion as of September 2024. But while asset growth has been dramatic, the structure of most private equity funds has not evolved at the same pace.
The 2/20 structure has several fundamental flaws. Management fees are typically charged on committed capital, not invested capital. This means investors pay fees even when their capital is sitting idle. In addition, investors are locked into these funds for a decade or more, with little transparency and unpredictable cash flow timing. Also, capital is deployed over a narrow investment window, exposing investors to poor timing if market conditions deteriorate and finally fund managers draw capital in stages, making it difficult for investors to plan or optimize their portfolios.
This has created friction between investors and fund managers, particularly as dry powder in private equity reached $1 trillion globally — capital committed but not yet deployed, largely due to the rigidity of the fund model and a slowdown in deal flow.
In response to these inefficiencies, leading managers are now offering evergreen private equity vehicles. These funds are open-ended, allow continuous capital inflows, reinvest proceeds, and typically offer quarterly or semi-annual liquidity. They are designed to offer the long-term return potential of private equity with significantly more flexibility and transparency.
Evergreen vehicles improve on the traditional model. They allow investors to enter at any time, spreading risk across market cycles and reducing vintage concentration. Additionally, fees are charged on invested capital (Net Asset Value), creating better alignment between cost and performance. Also, while still less liquid than public markets, these funds offer redemption windows, reducing the long-term lock-up risk and finally realized proceeds are typically reinvested, allowing returns to compound within the fund rather than being distributed.
While evergreen funds represent a small share of the $10+ trillion PE market today, they are among its fastest-growing segments. The shift is being driven by both institutional and high-net-worth investors, particularly as traditional fundraising has cooled — falling to $680 billion in 2024, down 30% from $966 billion in 2023.
Leading asset managers are launching evergreen strategies to tap into this demand e.g., Blackstone ¬- Its Blackstone Private Equity Strategies Fund (BXPE) is an evergreen structure aimed at accredited investors, combining private equity exposure with quarterly liquidity; KKR - the KKR Private Markets Opportunities Fund offers exposure to private equity and private credit through a semi-liquid, perpetual structure and Partners Group - known for its innovation in investor access, the firm operates evergreen vehicles like the Global Value Fund, which caters to both private wealth and institutional clients.
Private equity is no longer the exclusive domain of institutions willing to lock up capital for a decade. The rise of evergreen funds signals a structural evolution in the industry — one that aligns better with today’s investor expectations of access, liquidity, and performance alignment. While the traditional 2/20 fund structure helped build the private markets into a multi-trillion-dollar industry, it is increasingly outdated. As evergreen vehicles attract more capital and attention, they are paving the way for a more inclusive, agile, and investor-aligned future in private equity.
This article is authored by Mr. Vish Narain, Managing Partner, of Private Equity Firm Pulsar Capital
