When designing a new fund, every fund manager eventually faces the same question: how should the financial vehicle be structured and governed to deliver on its investment thesis? Choosing the tenor or deciding between an evergreen and closed-end structure is one of the most important steps in the process, as the fund’s structure ultimately shapes how capital flows, which investors participate, and when they exit.
A closed-end fund runs for a fixed term (typically 10 years, with limited options for extension). Investors commit capital upfront, which is called/drawn down, then deployed during the investment phase, and returned to them at the end of the fund’s life based on cash flows generated through exits, repayments, interest, or other distributions. This structure is one of the most common in blended finance.
Lendable’s MSME Fintech Credit Fund demonstrates how closed-end models function in practice. The fund provides fixed-term senior credit to fintech lenders who have clear maturities and repayment schedules, making the closed-end model a natural fit. This structure provides investors with a defined timeline for capital deployment, portfolio seasoning, and the return of proceeds.
Evergreen funds, in contrast, have no set end date. In the mainstream market, they are often able to make more frequent distributions, thereby offering greater liquidity. This can be harder to achieve in a typical impact fund, where the underlying investments are typically long-term and illiquid.
Finance in Motion’s eco.business Fund, established in 2014, illustrates how an evergreen model can function in blended finance. The fund provides financing and technical assistance to financial institutions and businesses committed to environmental practices across Latin America and Sub-Saharan Africa.
Operating in sectors that require patient capital, the fund goes beyond financing. It works closely with investees to align on the use of proceeds and provides advisory support and capacity building to drive measurable impact. At the same time, investors expect rigorous impact measurement and reporting. Building and sustaining this dual infrastructure for both investees and investors requires long-term continuity and makes economic sense when costs can be amortized over time. The evergreen structure therefore, aligns directly with the fund’s impact model.
Within a blended finance architecture, stability is essential: a long-term or perpetual first-loss tranche can anchor the vehicle, while senior tranches may carry shorter maturities aligned with investor preferences and asset repayment profiles.
Convergence Market Data finds that only 82 out of 1,478 blended transactions in our database are evergreen. While evergreen structures are less common in blended finance, we have recently seen growing momentum for evergreen funds as stakeholders increasingly recognize that longer horizons can be better suited to achieve certain development outcomes than the traditional 10-year cycle.
In this context, Convergence recently hosted a webinar examining how a vehicle’s structure affects fundraising, flexibility, and long-term impact. The session highlighted not only the conceptual differences between evergreen and closed-end models, but also how these choices play out in real fundraising conversations with investors. Here we share some key insights from the discussion.
Balancing Flexibility with Fundraising Simplicity
Participants agreed that simplicity is essential, especially when engaging institutional investors. These investors are accustomed to clear timelines, predictable exits, and straightforward reporting, features typical of closed-end funds.
By contrast, evergreen structures offer greater flexibility, allowing capital to remain in the vehicle and be redeployed. This feature can attract strategic investors who value sustained impact and the ability to remain invested for longer periods without premature exits. However, evergreen models also introduce more limitations related to liquidity, valuation, and redemption mechanisms, which can be a barrier for many institutional investors.
To help bridge this gap, new, innovative solutions are emerging that combine long-term flexibility with clearer liquidity pathways. The recently launched Octobre Liquidity Guarantee Facility illustrates how thoughtful design can introduce liquidity options even in traditionally illiquid impact funds. The facility allows investors to sell their stakes and access liquidity without forcing fund managers to unwind assets before their natural timeline. Complementing such fund-level solutions, ecosystem-level initiatives are also beginning to address structural liquidity constraints. The Liquidity Platform for Impact (LPI), an EFSD+ Guarantee Programme run by EDFI Management Company, aims to support the development of a secondary market for impact investments in emerging markets by coordinating public and private actors and facilitating exit opportunities for investors holding positions in impact funds. While LPI is not a liquidity solution in itself, its focus on secondary market development underscores the growing recognition that attracting institutional capital into long-term emerging market investments will require both targeted fund-level innovations and broader market-building efforts.
Recycling Capital and Maximizing Impact
Evergreen funds can amplify impact by allowing capital to be recycled and redeployed multiple times. Reinvested proceeds extend the reach of the same funding and compound results over time, creating a multiplier effect for long-term impact. For fund managers, this approach provides the flexibility to scale with successful investees and remain engaged beyond a single investment cycle.
However, many participants noted that recycling capital depends on a strong, predictable investment pipeline. If new opportunities are slow to materialize, capital may sit idle, reducing efficiency. In practice, evergreen funds can deepen impact within a single market where a steady pipeline exists, while closed-end funds allow capital to be refreshed and redirected toward new frontiers.
Matching Fund Horizons to Sector Realities
The discussion then shifted to whether certain sectors naturally lend themselves to one structure over the other. Participants agreed that some sectors with long project life cycles or uncertain revenue models require patient, long-term capital. Evergreen vehicles provide the flexibility to hold investments for longer periods, allowing businesses to mature and deliver meaningful impact over time. However, closed-end funds can also serve these sectors when designed with extended tenors, such as 20-year maturities.
The Forestry and Climate Change Fund (FCCF) offers a practical example. Forestry investments often require longer horizons than traditional closed-end structures allow. FCCF was structured with a 15-year term, but many benefits only began to materialize toward the end of the fund’s life, highlighting the trade-off between time and impact. One of the key insights from Convergence’s case study on the Fund was that a longer-term vehicle with a 20-year tenor would have been a better fit for forestry cycles.
Choosing the right structure
The session reaffirmed that no single structure is universally better. Evergreen funds offer flexibility and compounding, while closed-end funds offer simplicity, liquidity, and fundraising efficiency. The choice depends on the investment strategy, the investors involved, and the desired sector. As one speaker summarized, “it is not evergreen versus closed-end, it is about designing what works for your mission and your market.”
This webinar was one of Convergence’s member trainings, hosted quarterly for our global network. Explore upcoming sessions and topics here.
