By Mela Seyoum, in Financial Advisor IQ, featuring Brian Spinelli, CFP®, AIF®, Co-Chief Investment Officer
Key Takeaways
- Semi-liquid funds still require long-term commitment. Investors may face redemption delays and limited liquidity during stressed markets.
- Liquidity constraints can protect long-term investors. Redemption gates may help prevent forced asset sales during periods of market stress.
- Manager due diligence remains essential. Advisors should evaluate track record, portfolio construction, and experience across market cycles.
Semi-liquid funds saw about $100 billion in net asset growth from 2024 to 2025, according to a report from Morningstar.
As retail investors’ interest in semi-liquid funds grows, thanks to the diversification and ease of use they offer, advisors should still caution clients regarding the limited liquidity and long time horizon required, industry executives said.
At the end of 2025, semi-liquid funds — a category including interval funds, tender-offer funds, business development companies and real estate investment trusts that are not traded on an exchange — had $534 billion in total net assets, which represented an increase of more than $100 billion from 2024, according to an April report from Morningstar.
That growth can be attributed partially to investors’ interest in diversifying by entering illiquid parts of the markets in an easier-to-trade vehicle, said Brian Spinelli, chief investment officer at $4.2 billion registered investment advisory firm Halbert Hargrove.
Many semi-liquid funds also have tickers, are relatively easy to trade and don’t have particularly burdensome paperwork, Spinelli said.
Despite the limited opportunities for liquidity, semi-liquid funds still require an extended time horizon, and many investors are not used to locking up their money for that long, said Steve Biggs, managing director and head of alternative investments at The Mather Group.
Most individual investors also don’t have the same insight into the funds’ liabilities the way institutional investors do, Biggs said.
“I’m of the mind that you should treat semi-liquid as illiquid,” said Omar Qureshi, managing director at Hightower Signature Wealth.
A ‘Feature, Not a Bug’
Investor concerns related to liquidity have been highlighted within the private credit space recently, with one example being two of Blue Owl’s non-traded business development companies that invest in private credit facing redemption requests totaling $5.4 billion in shares in this year’s first quarter, representing nearly 41% of their total assets. Those funds are now limiting redemptions at 5%.
While gating redemptions may make some investors nervous, it can be an important mechanism to prevent a fire sale of assets, Spinelli said.
If an investor sees other investors in a particular fund wanting to get out, but they still believe there’s long-term potential in the investment strategy, they don’t want the manager selling off assets to meet those redemption requests at the expense of long-term returns, he said.
“For a lot of these funds that limit redemptions … that is a feature, not a bug,” Qureshi said.
The long-term nature of semi-liquid funds means it’s possible that a particular asset class may have a bad year, but that doesn’t necessarily mean investors need to pull out their money, Qureshi said.
For firms at large, it’s also important to understand the percentage of ownership they have of a particular fund in comparison to other shareholders, Spinelli said.
If a fund is heavily concentrated with one advisory firm or one institutional investor, that could pose a risk to the liquidity of the fund if a full redemption request is made, Spinelli said. That scenario could lead to the fund being gated for a long period of time, making it difficult for the manager to take on new capital, he added.
While semi-liquid funds have gained popularity among retail investors in recent years, some are still quite new and there’s a need for more advisor education, especially around liquidity constraints, Biggs said.
When talking with clients about those constraints, the details might not sink in right away, but it’s still important for advisors to emphasize that semi-liquid funds require a long-term investment and that they may not have access to that liquidity in a given quarter, Biggs said.
Advisors should also explain that in some cases it may take two years or more to get their money back, Qureshi said.
Additionally, advisors should spend time explaining the specific asset class that they’ll be investing in, what exactly it can do and what its volatility may be, he said.
Beyond the liquidity requirements, advisors should also factor in a client’s mentality and whether they’re the type of person who gets nervous in the short term or if they’re unfazed by volatility, Qureshi said.
Among the various types of semi-liquid funds, including tender offer funds, non-traded BDCs and interval funds, interval funds have seen a lot of traction partially because of the daily frequency at which they can be bought, Spinelli said.
There were 18 interval funds launched in 2025, compared to 20 launched in 2024 and 16 launched in 2023, according to the Morningstar report. The slight decrease in launches in 2025 can be attributed to the government shutdown, the report stated.
Interval funds also require 5% quarterly liquidity, whereas the redemption frequency for other semi-liquid investment vehicles requires board approval, Biggs said.
Manager Due Diligence
Despite the somewhat liquid nature, the same level of investment due diligence applies to semi-liquid funds as it does to an entirely illiquid fund, Biggs said.
“If you were doing a true closed-end fund with a 10-plus-year commitment, that’s a pretty heavy amount of due diligence involved. If you want to find an established manager, you’ll certainly see how they manage through other cycles. [Just] because it’s semi-liquid does not remove that requirement for investment due diligence,” Biggs said.
Advisors should understand a manager’s track record, philosophy, how they’re building portfolios and what they stay away from, Qureshi said. These are key aspects to note as the discrepancy between the top and worst performing managers is vast compared to that in the publicly traded space, he said.
Qureshi also highlighted challenges in vetting managers in the private credit space, as the asset class has largely been built up only since the 2008 financial crisis. Many private credit managers lack experience in working through different cycles and may therefore not fully understand how to underwrite or diversify their portfolio, he warned.
