Market Reset and the Expanding Fund Design Toolkit

Private markets entered 2025 in a mixed but stabilising position. Fundraising remains challenging as investors allocate selectively, yet deal and exit activity have improved from the lows of 2022–23. This has placed a premium on structural innovation.

Continuation funds, evergreen vehicles, NAV-based credit facilities, and blended tranches are no longer edge cases. They are now common instruments used to manage liquidity pressures, attract new investors, and realign incentives. The clear trend is that fund design has become a central element of strategy, not just a matter of legal form.

Continuation Funds and GP-Led Secondaries

Continuation funds (CVs) and other GP-led secondaries continued to grow as a core liquidity solution. Market estimates suggest GP-led transactions accounted for more than USD70 billion of secondary deal flow in 2024, with multi-asset continuation vehicles and strip sales becoming increasingly common. NAV financing and preferred equity solutions often accompany these transactions, expanding the available liquidity toolkit.

Features of these transactions remain familiar: a new vehicle capitalised by new and rollover investors; elections for existing LPs to cash out or roll over; and a lead secondary investor setting price and terms. The investor base, however, is evolving. In addition to traditional secondary funds, wealth platforms and evergreen vehicles have begun to participate, bringing new expectations around disclosure and governance.

Conflicts of interest remain a defining issue. Even after the vacatur of the SEC’s Private Fund Adviser Rules, independent valuations, fairness opinions, and robust LP advisory committee engagement remain best practices.

Overall, continuation funds have moved beyond being seen as exceptional liquidity fixes. They are increasingly viewed as strategic tools that extend value realisation horizons, introduce new capital partners, and re-underwrite key assets.

Blended Finance Elements in Alternatives

In addition to these liquidity tools, fund managers are experimenting with blended finance features that are now finding their way into mainstream alternative fund structures. Features such as first-loss tranches, guarantees, and concessionary anchors, once primarily associated with development finance institutions or philanthropic investors, are now being deployed in private equity and private credit funds. What was once viewed as a niche toolkit for impact-oriented strategies has begun to migrate into the broader alternatives ecosystem as sponsors and investors recognise its utility in solving real capital-raising challenges.

These structures address practical needs:

• They mitigate downside risk for commercial investors.
• They expand the investor base by accommodating multiple risk/return profiles.
• They provide catalytic capital that helps attract larger institutional commitments.

Public-private programmes such as the Small Business Investment Company (SBIC) regime illustrate how blended approaches can become institutionalised. SBICs combine private capital with government leverage, and financial institutions receive Community Reinvestment Act credit for qualifying investments. The more recent “reinvestor” licence pathway further channels capital to underserved managers, multiplying the programme’s reach. We are also seeing corporate-sponsored evergreen vehicles adopt similar blended features, where a strategic anchor provides downside protection or guaranteed offtake, allowing other investors to participate at scale with greater confidence. Likewise, multilateral development banks have begun deploying guarantee facilities alongside traditional private credit funds, creating risk-sharing structures that open the door to new institutional entrants.

As a result, the traditional line between “impact-driven” and “mainstream” funds is blurring. Blended structures are no longer the domain of mission-oriented investors alone; they are increasingly adopted by conventional fund managers as a pragmatic way to align diverse investors, unlock scale, and address mismatched risk and time horizons. In short, blended finance is shifting from exception to norm in the alternatives market.

Evergreen and Semi-Liquid Structures

The prominence of evergreen and semi-liquid structures is also expanding. Interval funds, tender-offer funds, and open-ended vehicles are increasingly used in private credit, infrastructure, and other strategies where flexible horizons and rolling subscriptions are advantageous.

These vehicles are particularly attractive to high net worth and wealth-management channels, but institutional investors are also showing greater interest where evergreen structures provide a better fit for long-duration assets.

Key design features include rolling subscriptions and redemptions tied to NAV, liquidity management tools such as gates or proration, and incentive resets to maintain alignment.

Regulatory expectations are rising. The SEC’s Marketing Rule emphasises substantiated performance and fee disclosure. Amendments to Regulation S-P require incident-response programmes and breach notifications. For evergreen funds that reach a broad investor base, valuation discipline, liquidity governance, and disclosure clarity are essential.

Private Credit and the Expansion of Debt Funds

Private credit remains the fastest-growing corner of alternatives. Investors continue to favour its consistent yields, shorter durations, and perceived downside protection.

Fund structuring innovation is evident here. NAV financing, preferred equity facilities, and continuation annexes are increasingly layered into credit platforms. SBIC licensing continues to provide a compelling option for managers seeking leverage and CRA-motivated bank investors.

In some cases, blended approaches are also being used in private credit, where catalytic tranches or guarantees facilitate participation by a wider range of investors. For mainstream asset managers, these tools can help overcome the structural barriers that often limit fundraising, such as mismatched risk appetites among LPs or the need to demonstrate scale to institutional allocators. By layering in concessionary anchors or credit enhancements, established sponsors can bring new investor segments into their vehicles, accelerate time to close, and offer products that appeal across the risk/return spectrum.

At the same time, these structures create opportunities for niche and emerging managers to access capital that would otherwise be out of reach. The reinvestor SBIC licence offers one pathway for directing capital toward underserved managers, but the logic is broader: blended features allow funds of all sizes and strategies to mobilise a deeper pool of capital, expand investor diversity, and achieve alignment among stakeholders who would not ordinarily participate in the same vehicle.

Regulatory Reset: Innovation Under Constraint

The regulatory environment in 2024–25 created both relief and new complexities.

• Private Fund Adviser Rules: In June 2024, the Fifth Circuit vacated the SEC’s Private Fund Adviser Rules. While this removed a set of obligations around audits, disclosures, and consents, the SEC has indicated that it will continue pursuing many of the same policy objectives through examinations and enforcement.
• Chevron Deference Overturned: The Supreme Court’s Loper Bright decision requires courts to interpret ambiguous statutes without deferring to agency interpretations, limiting regulatory discretion but increasing uncertainty.
• Corporate Transparency Act: Beneficial ownership reporting requirements came into effect in 2024, but subsequent litigation has created a patchwork of injunctions. Fund sponsors need to carefully map which entities are in scope and monitor evolving case law.
• FinCEN AML Rule: Finalised in 2024 with a 2026 compliance date, the investment adviser AML rule is now expected to be delayed until 2028. Managers should nonetheless begin planning for programme design.
• Regulation S-P Amendments: Adopted in May 2024, these require advisers to implement written incident-response programmes, data protection protocols, and customer notifications.
• DOL QPAM Amendment: The Amendment raises thresholds, introduces mandatory filings, and imposes disqualification triggers.
• New Dealer Rules: The Rules expand the definition of “dealer” under the Exchange Act, potentially capturing certain liquidity-providing hedge fund strategies.

The consistent theme is that structural innovation must be grounded in compliance. New fund designs should anticipate AML, BOI, data security, and ERISA-related obligations from the outset.

Alternatives on the Rise

The shifting investor base is also driving structural innovation, as high net worth and mass affluent investors take on a larger presence in the market. Interval, tender, and evergreen funds are being tailored to this audience, often distributed through wealth platforms.

This broadens the capital base but creates new challenges. Managers must address liquidity mismatches between assets and redemption terms, ensure valuation and performance reporting are defensible, and maintain parity in side letter arrangements. Regulators are attentive to these issues, particularly under the Marketing Rule.

SBICs as a Case in Point

The SBIC programme continues to attract strong interest as a fundraising avenue. SBA leverage enhances returns and capacity, and CRA credit creates a compelling rationale for financial institution participation.

Among the licence types, reinvestor SBICs are notable for directing capital toward underserved managers, who then deploy it into small businesses. This extends the programme’s reach while reinforcing its public-private character.

Looking Forward: Design for Alignment

Across continuation vehicles, evergreen funds, private credit annexes, blended tranches, and regulatory compliance programmes, a common theme is alignment. Structures are being designed to better match investment horizons, liquidity needs, and risk tolerances across a diverse investor base.

What was once considered “alternative” is increasingly the market standard. Fund design is now central to strategy, investor relations, and regulatory compliance.

The year ahead will likely bring continued use of GP-led liquidity solutions, broader adoption of evergreen models, expansion of private credit platforms, and further integration of blended approaches. At the same time, regulatory oversight will remain active, requiring managers to integrate compliance into structural innovation.

New York Practice

While these trends are shaping the private funds landscape nationally and globally, New York remains a uniquely influential jurisdiction, both as the governing law of choice and as a hub for innovation in alternative fund structures.

Although Delaware remains the dominant jurisdiction for US private fund formation, New York continues to play a central role in the structuring and operation of private funds, particularly in the alternative space. Most fund-level credit agreements, subscription facilities, and investor-side letters are governed by New York law, making New York the de facto standard for enforcement of financing arrangements and contractual covenants. New York’s usury statutes (civil cap of 16% and criminal cap of 25%) are an important consideration in the design of private credit and blended finance structures, particularly where higher-yield instruments are contemplated.

Fund managers must also navigate New York’s broader fiduciary and anti-fraud regime. Unlike Delaware, which permits fiduciary duties to be contractually modified or waived, New York common law continues to recognise expansive fiduciary obligations in certain investment relationships. In addition, the New York Attorney General wields broad investigatory and enforcement authority under the Martin Act, which can extend to the marketing and sale of fund interests, even in exempt offerings.

Finally, New York serves as a key anchor for emerging managers and blended finance initiatives. The New York State Common Retirement Fund and the New York City Retirement Systems operate robust emerging manager programmes, while public-private financing models such as the Rikers Island social impact bond and the New York Green Bank have established the state as a proving ground for innovative structures. For many market participants, New York remains not only the established financial market of choice but also a laboratory for the evolution of alternative investment strategies.