Private wealth is a big picture trend now being certified in small print as private equity firms revise limited partnership agreements (LPAs) to give retail vehicles a larger portion of deals.

KKR is a case in point. For around 15 years, the firm has relied on catch-all provisions enabling it to assign equity to other affiliated entities. During new fundraises, language has been updated to reference specific evergreen funds with designated allocation caps, according to a source familiar with the situation.

The firm markets multiple evergreen funds to private wealth investors, including its K-Series suite of products, which had assets under management (AUM) of more than USD 35bn as of 1 January. This is a small portion of KKR’s USD 744bn in overall AUM, but the sum is nearly twice what it was a year earlier.

In other scenarios, sponsors that don’t have these provisions in place are negotiating with LPs to include them. Last summer, the Financial Times reported that Thoma Bravo had secured LP approval across its three newest funds, totaling about USD 34bn, to carve out portions of future buyouts for other vehicles. Thoma Bravo is exploring the launch of a fund aimed at wealthy individual investors, the report noted.

Evergreen funds are already popping up in deals. Last October, TPG and Blackstone agreed to buy Hologic, a NASDAQ-listed medical technology business, for an enterprise value of up to USD 18.3bn. A subsequent proxy filing revealed that an unspecified portion of TPG’s equity would go to TPG Private Equity Opportunities, which launched earlier in 2025.

To some, this is simply a function of market evolution, with retail capital stepping in to give large-cap sponsors the firepower to pursue more mega deals. They note that these tweaks in LPA language are typically made in conjunction with authorizations provided by fund LP advisory committees (LPACs).

Others see it as a broader re-adjustment of the dynamics that have kept GPs and institutional LPs aligned in private equity for decades. The traditional closed-ended funds these investors have backed across multiple vintages might receive progressively smaller shares of a sponsor’s overall deal flow.

“We’re seeing some of the allotments for investments via retail capital increase from 7.5% to 15% or 20%,” said Neal Prunier, a managing director for industry affairs at the Institutional Limited Partners’ Association (ILPA). “Unless the deals are increasingly large, mathematically those additional allocations going to retail investors are going to have to come from somebody.”

Retailization

Evergreen funds are not solely aimed at the private wealth channel; institutional investors also use them to some extent. Neither does this product type represent a high-net-worth individual’s only entry point to private markets; many continue to participate in closed-ended funds via feeders.

But the proliferation of evergreen funds in recent years is inextricably linked to the rise of private wealth as a fundraising target. Moreover, it is spreading across asset classes – private credit still dominates, but private equity is a growing rapidly – and may soon encompass a broader swath of investors.

According to McKinsey & Company’s 2026 global private markets report, higher-liquidity products such as interval funds, tender-offer funds, and private business development companies were responsible for 25%-30% of overall year-on-year alternatives AUM growth in 2025. In the US, retail capital flowing into alternative structures reached USD 204bn in 2025, more than double the 2023 level of USD 92bn.

This “retailization” of private markets could accelerate following the Trump administration’s move last year to enable participation by US defined contribution (DC) pensions, which were worth an estimated USD 12tn last year. In January, the Department of Labor submitted a proposed rule on alternative investments in 401(k) plans.

Major alternative asset managers are already mobilizing to target DC pensions, announcing partnerships with traditional asset management firms to launch target date funds, as previously reported.

“Once those retirement channels open up more meaningfully, the amount of retail capital flowing into private equity could change dramatically,” Alexander Edlich, a senior partner at McKinsey and one of the report’s authors, told Mergermarket.

Regardless of this development, a McKinsey survey of more than 1,300 US-based financial advisors found that 42% of registered investment advisor (RIA) respondents expect more than one-quarter of their clients to have private markets exposure by 2030.

The private wealth phenomenon prompted ILPA to publish a white paper exploring the potential implications for institutional investors. It was accompanied by list of questions for LPs to put to GPs during negotiations and due diligence.

Prunier noted that the organization has formed a dedicated working group comprised of in-house and external lawyers, as well as investment professionals from the LP community. LPA language has emerged as an area of focus, given some LPs have reported receiving requests from GPs to increase allocation caps for retail vehicles to as much as 25%.

For many institutional LPs, the most immediate concern is reduced access to co-investment as the equity portion of deals gets divided up between more pools of capital.

Securing co-investment on a zero-management fee, zero carried interest basis – or at least low-fee and low-carry – is critical to many groups looking to mitigate the relatively high cost of participating in private equity.

“We love co-investment,” said one senior investment professional at an Australian superannuation fund. “It’s a way to reduce extremely high fees in this asset class over time.”

Half of the GP respondents in a recent survey conducted by Mergermarket and law firm Dechert said they had established co-investment programs. On the LP side, many larger players have built out capabilities with a view to co-investing more often, and they bake that into blended fee calculations, an advisory source noted.

Minimum check-size requirements are another contributing factor to the rise of LP interest in co-investments. If an LP cannot contribute less than USD 100m and is unable to account for more than 10% of a fund, the difference could be channeled into a co-investment sidecar.

As a result, any potential threat to co-investment allocations may imperil the GP relationship. “There is a concern about what it means for them if that access is reduced,” said Prunier. “And, realistically, that will influence which GPs they invest in.”

Another senior investment professional at a superannuation fund was blunter in their assessment: “If a GP said, ‘I’m giving all my co-investment to evergreen,’ my response would be: ‘Ok, great, I’m not in your next fund.’”

Checkbooks out

The counterargument is that LPs shouldn’t be worried because there’s plenty of co-investment to go around. On one hand, GPs have become better at including it in deal processes. On the other, transactions are getting bigger.

Globally, a slew of mega deals drove average buyout size to a record USD 785m in 2025, up 32% year-over-year and 14% higher than the previous peak in 2021, Mergermarket data shows. In total, 13 transactions topped USD 10bn in enterprise value, led by the over USD 56bn buyout of video game maker Electronic Arts by Saudi Arabia’s Public Investment Fund (PIF), Silver Lake and Affinity Partners.

Consequently, large asset managers say private wealth capital helps give them more firepower, envisaging it as a supplement to – rather than a replacement for – institutional LP co-investment.

However, such reassurances only stand up if a sponsor has sufficient deal flow to generate a stable and consistent flow of co-investment opportunities.

Since the launch of KKR’s evergreen funds in 2023, co-investment availability for LPs hasn’t changed at all, the source familiar with the situation said. In some cases, KKR reaches out to hundreds of LPs to fill co-investment capacity for larger deals, the source noted. Overall, the firm raised a record USD 129bn in 2025, with a recent media report suggesting its latest North America buyout fund is set to exceed its USD 20bn target and hit the USD 22bn hard cap by the time it closes sometime during the first quarter of this year.

Meanwhile, EQT recently reported that it delivered nearly USD 1 in co-investment for every USD 1 committed to its funds in 2025 – the ratio was closer to 1:2 a year earlier. Co-investment realizations reached a record EUR 14bn, nearly 3x the combined total for the previous three years.

In a recent interview with this news service, Jean Eric Salata, EQT’s Asia chairperson, emphasized the importance of maintaining alignment with institutional LPs and the role co-investment plays in that. He noted that co-investment could continue to scale even as private wealth fundraising scales.

“We don’t have deals that go to one pool of capital but not to others – whatever goes into the private wealth vehicles also goes into the funds,” Salata added. “This is part of the evolution of the industry, and we will have to make sure we manage it well, but we believe we have deal flow to support multiple sources of funding.”

The notion of natural market evolution is reinforced when considered in the context of capital formation evolution that has already happened over the past two decades. Where once several private equity firms clubbed together on large-cap deals, now an individual sponsor might be able to go solo and rely on a wider array of internal sources of capital.

KKR launched a capital markets business in 2006, enabling it to syndicate debt and equity in-house. Evergreen capital is viewed in the same vein, the source familiar with the situation said. It represents a reliable internal capital base, affording more underwriting certainty in an environment where deal timelines have compressed significantly.

KKR declined to comment for this article.

Even if there is enough co-investment to satisfy institutional and retail appetite right now, some industry participants caution that continued growth in the latter’s share of overall private wealth AUM could cloud the picture.

“When you’re talking about 5% or 10% of AUM, it’s manageable,” said Edlich of McKinsey. “But I don’t think as an industry we really know at what percentage of AUM the dynamics begin to change.”

Same terms, same times

Evergreen funds are the most prominent of an array of structures used by large asset managers to accommodate private wealth investors.

Many US vehicles are registered under the Investment Company Act of 1940, whereby co-investments are only authorized if they adhere to so-called US Securities & Exchange Commission (SEC)-approved “same terms, same time” conditions.

“Under the ‘40 Act, if you want a retail fund to participate in investments side-by-side with any affiliate – even another retail fund – you generally need to rely on a co-investment exemptive order,” explained Chris Healey, a partner at Davis Polk, adding that these legal mechanics are designed to ensure parity across participating funds.

Last year, the SEC streamlined the exemptive order process, rolling out a framework for simplified co-investment relief.

Other options are increasingly favored, however. Operating company structures are among the latest innovations. This works if the vehicle in question is acting as an operator, taking majority stakes, but also comes with challenges. “It’s rigid and there’s latent risk that over time purchases and sales of investments looks like trading in securities rather than long-term ownership,” said Healey.

He also points to the proliferation of retail 3(c)(7) vehicles, which are not subject to the ‘40 Act’s regulatory regime, including the affiliated transaction rules, leverage rules, independent board requirements and capital structure limitations, Last year, Carlyle, Macquarie and Warburg Pincus all filed for retail 3(c)(7) funds.

Brookfield used the 1934 Act for its first private equity retail vehicle, which launched last year. The fund will invest directly in companies alongside Brookfield’s closed-ended vehicles, participating in buyouts and structured non-control investments.

“What we’re doing with the evergreen strategy is exactly the same as we’ve done in our closed-ended private equity business for 25-plus years, and we’re offering that through a different channel to a sophisticated purchaser group,” David Nowak, president of Brookfield’s private equity group, told Mergermarket in September 2025.

In Europe, Luxembourg’s SICAV regime is popular, with Ardian, Carlyle, KKR and Partners Group, among others, offering open-ended, semi-liquid funds that use the structure. Introduced in 2024 and notably allowing quarterly redemption, the ELTIF 2.0 regime is also seeing significant growth, with sponsors such as EQT launching funds under the structure.

Meanwhile, Seven2 launched APEO, an evergreen fund accessible to retail investors through life insurance contracts, under France’s 2020 Fonds Commun de Placement à Risque (FCPR) framework for funds that invest in unlisted companies. In its annual report a year later, the Paris-based sponsor noted that the vehicle would primarily co-invest alongside its development and mid-market teams.

Five years on, the focus remains on “ensuring total alignment between retail and institutional investors through identical assets and execution,” according to Avidan Geissman, a managing director for investor relations and private wealth at Seven2.

“Our evergreen fund APEO co-invests alongside our institutional closed-ended funds – same assets, same pricing, same timing, same teams, same value creation approach,” he explained. “The evergreen structure doesn’t change our investment strategy. It changes how retail investors access private equity: through capitalization of exit proceeds, automatic reinvestment, and continuous exposure to institutional deals.”

Right strategy, wrong structure?

Regardless of framework, some LPs see misalignment with funds largely raised via private wealth channels and designed to reflect the more immediate liquidity needs of such investors. They fear that this could undermine the dynamics that have served private equity well as an asset class characterized by long-duration investments.

Across multiple options, preliminary results showed that the growth of private wealth channels ranked as the top threat to GP-LP alignment in a recent survey of ILPA members, ahead of continuation vehicles and NAV [net asset value] facilities. “There is a concern with the idea of right strategy, wrong structure,” said Prunier.

Retail vehicles are intended to invest at higher velocity than drawdown funds. For instance, semi-liquid, evergreen funds maintain exposure to hundreds of portfolio investments within a concurrent, perpetual investment period. This means continuously sourcing deals to keep evergreen vehicles invested – and it’s possible that GPs unused to this tempo will compromise on strategic discipline and decision quality.

At the same time, evergreen funds must demonstrate that they can continuously raise capital to avoid concerns around vintage concentration, which can weigh on performance. “You have to raise as much next year,” said Victor Mayer, a partner and head of international wealth at Pantheon.

In theory, evergreen and other semi-liquid vehicles should be expected to deliver performance broadly in line with the median of closed-ended funds over time, albeit with a wide dispersion of returns, noted Olivier Cassin, a managing director and head of investment solutions at bfinance.

“Well-designed evergreens — those with disciplined pacing, sensible use of secondaries, strong governance, and LP-friendly terms — should track the return profile of a diversified closed-ended program reasonably well,” he said. “Others will lag, sometimes materially, especially if they deploy too quickly, over-pay in secondaries, or carry structural drag from liquidity sleeves, leverage usage, or fee design.”

Evergreen funds are also fueling concerns around valuation, with some market participants cautioning about the risk of performance being driven by unrealized gains and periodic NAV marks rather than realized exits.

“There are important valuation considerations and incentive dynamics to be aware of,” added Cassin. “When carry can be crystallized on unrealized returns, and valuations are struck periodically, it naturally raises questions about alignment”

One practice attracting scrutiny is the so-called “NAV squeezing” of secondary assets – where assets are bought at discounts and then immediately valued above the GP’s prior mark, locking in an early performance bump. “Because you can earn carry on paper gains, that creates risk,” added ILPA’s Prunier.

Additional questions are being asked about how sponsors deploy talent with the introduction of new pools of capital. Are the same teams presiding over institutional and retail mandates – and potentially passing judgment on any conflicts of interest between the two? Will investment professionals who have years of experience with closed-ended funds be transferred to retail-oriented vehicles?

“If it’s the same team, there are concerns about how much time is spent on institutional versus retail,” said Prunier. “If it’s different teams, there are concerns about key persons shifting over to retail, or the best talent shifting over.”

Liquidity matters

Still, the concerns about retail structures do not necessarily mean institutional LPs are averse to participating in them. Indeed, numerous sponsors have observed that the characteristics of evergreen funds – no j-curve, no capital call management – appeal to certain kinds of institutional investor.

While these are typically smaller LPs with limited budgets and bandwidth, there are also situations in which institutional players anchor products launched by large sponsors. “It’s very common,” said Healey of Davis Polk. “There are limited ways to align incentives without violating the equal treatment requirement.”

California Public Employees’ Retirement System (CalPERS) has invested in evergreen funds across asset classes, for example. The pension plan, which as of last year had over USD 550m in AUM, notably committed USD 1.15bn to TSSP Adjacent Opportunities Partners, a credit fund managed by Sixth Street.

In many cases, large allocators use evergreens to preserve liquidity options, noted the advisory source. For example, a USD 100m commitment to a sponsor’s flagship closed-ended fund might be accompanied by a USD 10m check for an evergreen vehicle. “The smarter LPs are generally getting more proactive,” the source added.

This twist serves as a reminder that the evolutionary path for private equity’s retail push will be far from straightforward. The institutional investor hegemony remains largely intact, and so the likes of ILPA’s working group are focusing on maintaining alignment in the near term – yet with one eye on what best practice should look like in the years to come.

LPA language is a starting point because it helps establish essential guardrails, shaping discussions about investment allocation, percentage limits for individual deals, and information sharing. “We’re trying to help minimize the risks,” said Prunier.