Private Markets Managers Face New Legal Risks as Evergreen Funds and AI Expand

Private equity and alternative asset managers face increasingly complex legal and operational challenges as they expand into private wealth, introduce evergreen investment funds and adopt artificial intelligence.

The discussion with London-based law firm Travers Smith examines how changes in fund structures, investor distribution and asset management consolidation are bringing regulatory considerations into decisions traditionally driven by fundraising and investment strategy.

The developments have implications for private equity, private credit, infrastructure and real estate managers seeking to broaden their investor bases while maintaining controls over liquidity, suitability, governance and conflicts of interest.

For institutional investors, the central issue is whether fund managers can expand their product offerings without weakening the protections and oversight arrangements associated with long-term private capital investments.

Evergreen Funds Bring New Liquidity and Distribution Challenges

One of the most significant changes involves the expansion of private markets beyond traditional institutional investors into private banks, wealth management platforms and eligible individual investors.

Historically, private equity funds have generally operated through closed-end structures in which investors commit capital for extended periods and managers draw those commitments as investment opportunities arise.

Evergreen funds offer a different approach.

These vehicles typically permit periodic subscriptions and may provide limited redemption opportunities, making them operationally more accessible to private wealth distribution channels.

However, the underlying investments often remain illiquid.

That creates a structural challenge: investors may expect periodic access to their capital even though portfolio assets cannot necessarily be sold quickly or at independently observable market prices.

European Long-Term Investment Funds, or ELTIFs, and the United Kingdom’s Long-Term Asset Funds, or LTAFs, are among the structures designed to facilitate investment in long-term assets through regulated frameworks.

Their liquidity arrangements, eligibility requirements and investor protections differ, making product design and distribution controls particularly important.

Private banks and wealth managers also play a significant role in assessing whether such investments are appropriate for their clients.

The distinction matters because access to private markets does not eliminate the risks associated with valuation uncertainty, extended holding periods or restrictions on withdrawals.

PE NEWSWIRE previously examined similar liquidity pressures in its coverage of structured private equity fund financing, including structured fund stakes and investor liquidity solutions.

Although structured secondaries and evergreen funds serve different purposes, both demonstrate how private capital participants are developing financing and liquidity mechanisms around assets that cannot be readily traded.

AI Governance Becomes a Regulatory Priority

Artificial intelligence introduces another layer of complexity for private markets managers, particularly those operating across multiple jurisdictions.

The regulatory approaches of the United Kingdom, European Union and United States differ, creating additional compliance considerations for firms deploying AI across international investment platforms.

In the UK, the Financial Conduct Authority published updated guidance on Oct. 19, 2026, outlining good practices and areas requiring improvement in financial services AI adoption.

The regulator’s AI governance and supervisory guidance emphasizes accountability, operational resilience, human oversight and risk-based controls.

Rather than establishing an entirely separate regulatory regime for AI, the FCA explains how existing financial services obligations apply to AI systems developed, purchased or deployed by regulated firms.

The guidance identifies weaknesses including unclear management responsibility, insufficient testing, inadequate documentation and excessive reliance on automated outputs.

For private equity and private credit managers, these issues have practical implications for investment research, portfolio monitoring, risk analysis and operational decision-making.

AI systems can accelerate information processing, but managers still need to establish who is responsible for investment decisions and how automated recommendations are reviewed.

This becomes particularly important when AI tools influence portfolio valuations, credit assessments or capital allocation decisions.

The European Union has adopted a different approach through its AI Act, which establishes requirements according to the characteristics and risk classifications of particular AI applications.

Consequently, internationally active asset managers may need different compliance arrangements depending on where they operate and how specific AI systems are used.

Private Markets Consolidation Changes the Manager Landscape

Consolidation is another important development affecting the legal and commercial structure of alternative asset management.

Large investment firms increasingly operate across multiple private markets strategies, while smaller specialist managers face decisions about remaining independent, forming partnerships or accepting outside investment.

Acquisitions of investment management businesses can provide access to new strategies, investment teams, distribution networks and geographic markets.

Minority investments in general partners, commonly known as GP stakes transactions, offer another route for capital investment without necessarily transferring full ownership or operational control.

These arrangements can create additional considerations involving governance rights, management incentives, succession planning and potential conflicts between investors in management companies and investors in underlying funds.

For buyers, the value of an asset management business depends on more than its assets under management.

Revenue durability, management fee structures, investment performance, fundraising prospects and the retention of key investment professionals can materially affect the attractiveness of a transaction.

For independent firms, remaining outside a large investment platform may preserve greater flexibility over compensation arrangements, investment strategy and organizational culture.

Consolidation therefore creates different strategic choices for managers rather than a single industry-wide outcome.

US Regulatory Experience Shows Why Legal Risk Remains Material

Regulatory developments in the United States provide an additional perspective on the challenges facing expanding private markets businesses.

In June 2024, the U.S. Court of Appeals for the Fifth Circuit vacated the Securities and Exchange Commission’s 2023 private fund adviser rules.

The regulations had included requirements addressing investor disclosures, preferential treatment, certain fund expenses and adviser-led secondary transactions.

The SEC subsequently confirmed the vacatur of its private fund adviser rules, clarifying that the newly adopted requirements were no longer in effect.

The decision did not remove private fund managers’ obligations under other applicable securities laws and existing investment adviser regulations.

For asset managers operating internationally, the case illustrates why compliance frameworks must distinguish between proposed rules, enforceable requirements and contractual commitments negotiated with investors.

Regulatory changes can also influence fund documentation, operating costs and the design of investor reporting arrangements.

What Institutional Investors Should Evaluate

For limited partners, the expansion of evergreen products and increasingly diversified asset management platforms creates several additional due diligence considerations.

Investors need to understand how managers value illiquid assets, fund redemption requests, allocate investment opportunities and address conflicts across different vehicles.

These questions become particularly relevant when an asset manager operates both traditional institutional funds and private wealth products investing in overlapping strategies.

A manager may also face competing commercial considerations when determining whether to retain an asset, sell it, transfer it between vehicles or arrange a continuation transaction.

PE NEWSWIRE’s previous reporting on private equity liquidity and structured fund stakes provides related context for the financing arrangements investors are using when conventional distributions remain constrained.

The growing use of AI adds another due diligence dimension, including the quality of underlying data, cybersecurity controls, third-party technology dependencies and accountability for automated recommendations.

Ultimately, the commercial benefits of scale must be assessed alongside the complexity of managing multiple investment strategies, distribution channels and regulatory obligations.

For private markets firms, growth increasingly requires investment not only in fundraising and portfolio management capabilities but also in legal infrastructure, compliance systems and operational governance.