CHICAGO — A new report from Morningstar reveals that semiliquid fund assets have surged past the $600 billion mark as of late March 2026, representing a more than 120% increase since the end of 2022. These funds, which include interval funds, tender-offer funds, nontraded business development companies, and nontraded REITs, have opened the door for a broader range of investors to access private market assets that were previously out of reach. However, they come with significant trade-offs, including limited liquidity and higher costs compared to traditional mutual funds or ETFs.
The rapid growth comes at a time when private credit, which still accounts for roughly 40% of the semiliquid fund sector, is experiencing a notable slowdown. Morningstar's State of Semiliquid Funds 2026 report highlights that demand for direct-lending private credit began to cool in the second half of 2025, driven by growing concerns over software exposure, credit quality deterioration, and lower base interest rates. Net assets in private credit funds declined by approximately $1 billion in the first quarter of 2026, a clear sign of shifting investor sentiment.
In contrast, capital is flowing more actively into private equity and venture capital strategies. Over the 12-month period ending in March 2026, venture capital semiliquid funds attracted roughly $8 billion in net inflows, while private equity funds saw $14.5 billion. This pivot reflects a broader search for higher returns amid a changing macroeconomic landscape.
Morningstar analyst Jason Kephart noted, "The semiliquid market has scaled rapidly on the back of investor enthusiasm." However, the report warns that the sector faces a tougher phase ahead, with redemption requests piling up for large private credit semiliquid funds. Most funds cap quarterly withdrawals at 5%, but the rising outflow pressure underscores liquidity risks that could test investor patience.
The report also flags high fees as a major barrier. The average annual net expense ratio for semiliquid funds, including borrowing costs, stands at just over 3%. Morningstar points out that this figure may understate total costs, as incentive fees and acquired fund fees are not always reported consistently. As of May 30, Morningstar rated 19 semiliquid fund strategies, but only four of the cheapest share classes achieved Bronze or Silver Medalist Ratings.
Advisor familiarity remains low, with only 16% of financial advisors describing themselves as "very familiar" with semiliquid fund structures. This knowledge gap poses a challenge for asset managers aiming to push these products into retirement vehicles like 401(k) plans, where broader adoption would require greater advisor confidence and investor education.
The findings come amid heightened scrutiny of liquidity in private markets. Recent turmoil at evergreen private-market funds, including capped withdrawals at Partners Group and Blackstone in private credit, has made institutional investors more selective, according to a Reuters report citing Swiss pension fund consultants. There is now greater focus on valuations, lending standards, and liquidity terms.
Looking ahead, the semiliquid fund market's trajectory will depend on how well managers navigate these headwinds. While the asset class has democratized access to private investments, the combination of high fees, limited liquidity, and shifting investor preferences could temper future growth. Morningstar's report serves as a cautionary note for investors weighing the allure of private market exposure against the practical risks.
