The alternative asset management industry is experiencing a fundamental transformation as investment managers successfully expand access to private markets beyond traditional institutional and ultra-high-net-worth investors. This democratization effort has gained substantial momentum, with semiliquid funds available to nonqualified purchasers reaching nearly $450 billion in assets by the end of June 2025, representing a 16 percent increase from the end of 2024 and a remarkable 77 percent growth since the end of 2022.
Understanding Semiliquid Fund Structures
Semiliquid funds represent a hybrid investment structure designed to bridge the gap between traditional liquid mutual funds and completely illiquid private investment vehicles. These funds, which include interval funds, tender-offer funds, nontraded business development companies (BDCs), and nontraded real estate investment trusts (REITs), offer periodic redemption opportunities typically ranging from 5 to 10 percent of total assets each quarter.
This structural framework enables fund managers to invest in illiquid securities such as private equity, direct loans, and real estate assets while still providing investors with some degree of liquidity through regular redemption windows. The appeal of this structure lies in its ability to grant access to private investment strategies that were previously available only to investors meeting specific net worth requirements under securities regulations.
The periodic redemption mechanism serves multiple purposes: it allows managers to maintain exposure to illiquid, potentially higher-yielding assets while providing investor liquidity that makes these strategies accessible to a broader range of investors. However, this structure also introduces complexity in terms of asset valuation and liquidity management that investors must understand when considering these products.
Credit Strategies Dominate Market Growth
Credit-focused strategies have emerged as the most popular category within the semiliquid fund universe, with assets reaching $230 billion by mid-2025, representing a 22 percent increase since the end of 2024. This growth reflects strong investor demand for income-generating investments in an environment where traditional fixed-income securities have offered relatively low yields.
These credit funds have attracted investors by delivering higher yields than traditional public fixed-income investments through a combination of floating-rate loans and leverage utilization. Floating-rate bonds provide income that adjusts based on short-term interest rate movements, causing income to rise when rates increase and decline when rates fall. This feature has been particularly attractive during periods of rising interest rates, as investors benefit from increasing income streams.
However, the widely anticipated Federal Reserve rate-cutting cycle presents challenges for floating-rate credit strategies, as declining rates will likely reduce the income these funds generate. Despite this headwind, investor appetite for credit-focused semiliquid funds shows no signs of diminishing, suggesting that investors value these strategies for reasons beyond just current income levels.
Business Development Companies Lead Growth
Nontraded business development companies have become the most popular and fastest-growing semiliquid vehicle, with assets reaching $145 billion by the end of June 2025, up 23 percent from the end of 2024. BDCs provide direct exposure to private credit through loans to private companies or small public companies, offering investors straightforward access to this asset class.
The BDC structure requires these funds to invest at least 70 percent of their portfolios in loans to private companies or public companies with market capitalizations under $250 million. Additionally, BDCs must distribute at least 90 percent of their taxable income to shareholders, similar to REIT distribution requirements, making them attractive to income-seeking investors.
However, BDCs typically carry higher fee structures compared to traditional mutual funds, often charging management fees of 1.25 percent plus performance-based incentive fees of 12.5 percent on income. These elevated fees reflect the specialized nature of private credit investing and the additional work required to source, underwrite, and monitor direct loans to private companies.
Alternative Vehicle Performance and Growth
Tender-offer funds represented the second-fastest-growing semiliquid vehicle category, reaching $94 billion in assets, up 18 percent from the previous period. Interval funds followed with $118 billion in assets, growing 16 percent, while nontraded REITs reached $92 billion, increasing 4 percent. The more modest growth in nontraded REITs reflects ongoing challenges in the commercial real estate sector and investor caution regarding property investments.
The variation in growth rates across different semiliquid fund types reflects investor preferences for credit-focused strategies over real estate investments, likely due to concerns about commercial real estate valuations and the impact of higher interest rates on property values. Credit strategies have benefited from higher interest rates, while real estate investments have faced headwinds from the same economic conditions.
Leading Fund Performance Analysis
Among the largest semiliquid credit funds, several standout performers have demonstrated the potential of these strategies while also highlighting important considerations for investors. Cliffwater Corporate Lending (CCLFX) continues to lead interval funds in net inflows, attracting $4.54 billion in the first half of 2025, ranking second only to Blackstone Private Credit in total inflows.
Cliffwater’s approach differs from many nontraded BDCs by investing in both other private credit funds and direct loans through co-investments with owned funds, providing diversification across multiple private credit strategies. This diversified approach contrasts with BDCs that typically focus on direct lending to private companies.
The ten largest semiliquid credit funds have generally outperformed the Morningstar LTSA US Leveraged Loan Index, though much of this outperformance can be attributed to leverage utilization rather than superior security selection. Leverage amplifies returns during favorable market conditions but also increases risk during periods of market stress.
Pimco Flexible Credit Income (PFLEX) received a Morningstar Medalist Rating of Silver, indicating analyst conviction that the fund will outperform its benchmark over a full market cycle. The fund is managed by experienced professionals Dan Ivascyn and Alfred Murata, who apply an opportunistic, relative value approach across both traditional and higher-risk credit strategies.
PFLEX distinguishes itself from many competitors by maintaining only 6 percent exposure to direct lending while holding 63 percent in public debt securities as of June 30. This approach provides greater liquidity and transparency compared to funds focused primarily on private credit, though it also employs leverage to enhance returns relative to peers.
Equity-Focused Semiliquid Fund Performance
The equity-focused segment of semiliquid funds has shown generally positive performance during the first half of 2025, though this category faces unique valuation and performance measurement challenges. The Morningstar US Market Index experienced a nearly 20 percent drawdown from February through April, which provided a challenging benchmark for comparison.
Cascade Private Capital, which was acquired by Cliffwater in 2024, continues to attract substantial asset inflows. This fund primarily invests in secondary offerings of private equity funds, a strategy that can provide return enhancement through purchasing private equity fund shares at discounts to stated net asset values.
Secondary-focused funds benefit from being able to acquire private equity positions below their reported values and subsequently mark them to fair value, creating immediate return enhancement. However, investors should approach high early returns from secondary funds with caution, as strong inflows can artificially inflate performance metrics through this marking process.
Semiliquid equity funds have faced criticism for potentially understating the volatility of their underlying holdings, which may contribute to their apparent outperformance relative to public market benchmarks. This smoothing effect occurs because private asset valuations are typically updated less frequently than public market prices, potentially creating an illusion of reduced volatility.
Market Concentration and Provider Dynamics
The semiliquid fund market demonstrates significant concentration among specialized alternative asset managers, with traditional mutual fund and ETF companies struggling to gain meaningful market share despite increased marketing efforts over the past year. This concentration reflects the importance of specialized expertise and established distribution networks in successfully marketing alternative investment strategies.
The five largest semiliquid fund providers manage approximately 46 percent of all assets in funds available to nonqualified purchasers, indicating substantial market concentration among established players. Blackstone, which launched its private wealth group in 2011, exemplifies the early-mover advantage in marketing alternative strategies to financial advisors and individual investors.
Blackstone’s market share declined slightly during the first half of 2025, primarily due to tepid investor interest in nontraded REITs, where Blackstone Real Estate Income represents the largest fund by substantial margins. This decline reflects broader investor caution regarding real estate investments rather than specific issues with Blackstone’s fund management capabilities.
Regulatory and Structural Considerations
The growth of semiliquid funds reflects both investor demand for alternative investments and regulatory changes that have made these strategies more accessible to non-accredited investors. However, these products introduce complexity that investors must carefully consider, including liquidity constraints, valuation methodologies, and fee structures that differ substantially from traditional investment vehicles.
For nontraded REITs, recent changes in net asset reporting methodology now base valuations on manager estimates of fair value rather than Generally Accepted Accounting Principles (GAAP), which historically used cost basis minus depreciation. This change increases reported asset levels compared to previous methodologies, though the overall trend of flat to declining REIT assets remains consistent.
These valuation methodology changes highlight the complexity involved in assessing semiliquid fund performance and the importance of understanding how different asset classes are valued within these structures. Investors should carefully review fund documentation and consider seeking professional advice when evaluating these products.
Investment Implications and Risk Considerations
The rapid growth of semiliquid funds provides expanded access to alternative investment strategies but also requires careful consideration of associated risks and limitations. The periodic redemption structure means that investors cannot access their full investment immediately, and redemption requests may be subject to queuing during periods of high demand.
Additionally, the performance advantages demonstrated by many semiliquid funds may reflect structural factors such as leverage utilization and valuation smoothing rather than superior underlying investment returns. Investors should carefully evaluate whether apparent outperformance justifies the additional complexity, fees, and liquidity constraints associated with these products.
The concentration of assets among specialized alternative managers suggests that successful investing in this space requires specific expertise that traditional mutual fund companies have yet to develop effectively. This specialization requirement may continue favoring established alternative asset managers while creating barriers for new entrants seeking to capture market share in this growing segment.
Acknowledgment: This article was written with the help of AI, which also assisted in research, drafting, editing, and formatting this current version.
