[2025 Alternative Investment Forum] Liquidity Shrinks in Private Equity Market...Wealthy Investors Flood In

No Maturity and Flexible Capital Flows
Competition for Retail Capital Among GPs
Alternative Investors Must Understand the AI Boom

Hyunhyuk Heo, Head of Private Equity Investment at Korea Investment Corporation, is giving a lecture on the topic of "Latest Global Alternative Investment Trends" at the "3rd Asia Economy Alternative Investment Forum" held at Conrad Hotel in Yeouido, Seoul on the 16th. 2025.9.16 Photo by Jinhyung Kang

Liquidity in the global private equity fund market investing in alternative assets has been shrinking following rapid interest rate fluctuations. Experts note that a cycle of reduced deal activity and worsening liquidity has persisted amid an uncertain external environment. In response, 'evergreen funds,' which attract capital from wealthy investors and offer the advantage of no maturity date and flexible subscription and redemption, are injecting new liquidity into the market.

Hyunhyuk Heo, Head of Private Equity Investment at Korea Investment Corporation (KIC), emphasized this point at the 3rd Asia Economy Alternative Investment Forum held at Conrad Hotel in Yeouido, Seoul, on September 16.

Heo pointed out that while the alternative investment market has grown to $12 trillion (approximately 16,553 trillion won) in assets under management, the fundraising environment has become challenging since 2023. He explained, "In 2022, as the U.S. Federal Reserve rapidly raised its benchmark interest rate, stock prices plummeted, asset sales became difficult, and deal activity declined." He added, "As the distribution to paid-in ratio (DPI) of funds has dropped, it has become harder for institutional investors to recover their investments, resulting in a continued cycle of worsening liquidity."

Cycle of Worsening Liquidity... The Rise of 'Evergreen Funds' That Never Dry Up

Against this backdrop, open-ended funds are emerging as a new means of supplying liquidity-so-called 'evergreen funds.' Traditional private equity funds collect capital for a set period, then go through the cycle of investment, divestment, and liquidation, meaning they have a limited lifespan. In contrast, evergreen funds have no fixed maturity (liquidation point) or set a much longer term than ordinary funds. Investors can regularly add or withdraw capital. Once established, the fund continues to operate, circulating capital in a structure that remains 'evergreen.'

Evergreen funds are primarily fueled by capital from wealthy individuals. Although their scale is not insignificant, they are not limited to institutional investors and have characteristics of 'retail funds.' Major global private equity managers are already competing to attract such retail capital. Heo analyzed, "While the total capital from individual investors in the alternative market is not much different from that of institutional investors, the proportion of alternatives in institutional portfolios is around 23%, whereas for retail investors, it is only about 3%." He added, "As the share of alternative investments grows, the influence of retail investors on the market will increase significantly, prompting major managers to actively seek their capital."

Expansion of Secondary Deals and NAV Financing... Asset Managers Also Benefit from AI

The growth of evergreen funds is expected to energize the market, coinciding with the expansion of 'secondary deals'-transactions between private equity funds. Heo stated, "In the first half of this year, the secondary market recorded the largest transaction volume in its history, and it is expected to reach an all-time high on an annual basis as well." He continued, "With the fundraising environment remaining difficult, managers are actively utilizing secondary deals and continuation vehicle (CV) transactions-where a new fund is established at the end of a fund’s life to extend the investment period-to improve DPI, provide liquidity to existing limited partners (LPs), and secure future fundraising momentum."

Another means of expanding liquidity is net asset value (NAV)-based financing. This method allows private equity managers to obtain loans using the fund's assets invested in portfolio companies as collateral. Unlike lending to individual companies, this approach diversifies risk across the portfolio, reduces risk, and increases capital efficiency. Heo noted, "As market interest rate spreads decrease, the cost of NAV financing is also coming down." He added, "Some expect the NAV financing market to grow from $100 billion in 2022 to $700 billion by 2030."

Meanwhile, Heo also emphasized the importance of understanding the artificial intelligence (AI) boom sweeping the alternative investment market. He explained, "With the development of AI, the rising demand for data centers and electricity is creating opportunities not only in real estate but also in infrastructure investment." He continued, "AI is helping not only portfolio companies but also private equity funds and institutional investors to streamline due diligence and better assess the operational efficiency and asset value of investee companies."