The vehicles meticulously designed to democratize access to private markets are now confronting the harsh realities of the liquidity they can truly offer. In the first quarter of 2026, a confluence of significant retail redemption requests across several prominent Business Development Companies (BDCs) and interval fund structures compelled numerous asset managers, including industry giants like Blackstone, BlackRock, Blue Owl, and Ares, to activate the pre-programmed gating mechanisms embedded within their fund designs. While labeling this episode a full-blown credit collapse would be an exaggeration, it serves as a stark and large-scale manifestation of a structural mismatch that has been simmering for years, now brought to the forefront by investor behavior.
The fundamental tension lies in the increasing flow of retail capital into strategies that promise periodic redemption features, while the underlying assets themselves – often private equity, private credit, or real estate – require months, if not years, to liquidate at fair market value. When redemption pressure escalates, this inherent illiquidity becomes palpably evident. The recent events are less a testament to a systemic failure and more a critical stress test, examining whether the promises implied by these innovative fund structures align with their practical functioning under less forgiving market conditions.
The Rise of "Semi-Liquid" Appeal
Over the past half-decade, the landscape of private market investment strategies has expanded dramatically, often packaged within wealth management wrappers generically termed "semi-liquid." These structures emerged as a direct response to long-standing regulatory hurdles that traditionally constrained broader participation in private markets. These barriers included stringent private placement rules tied to investor sophistication, prohibitively high minimum investment thresholds, and the extended capital lock-up periods characteristic of closed-end private funds.
The allure of semi-liquid products stems from a compelling combination of features. They offer intermittent liquidity windows, allowing investors a degree of access not found in traditional private funds. Furthermore, they typically feature lower minimum investment requirements, making them accessible to a wider swath of investors. Crucially, these vehicles often adopt evergreen capital structures, eschewing the decade-long commitment typical of traditional private equity or venture capital funds. The growth trajectory of assets held within these vehicles has been consistently upward, underscoring the genuine demand and a clear product-market fit. Data from industry reports indicates that interval and tender-offer funds in the United States alone have seen substantial expansion over the last decade, with fundraising momentum accelerating significantly in 2024 and 2025. These figures seemingly validated the long-held belief among product teams and distributors: investors were eager for access to private markets. However, this rapid growth in asset flows did not always fully capture the accumulating complexity beneath the surface of these wrappers.
Suitability and the Shifting Investor Profile
Originally conceived with a specific investor profile in mind, semi-liquid products were intended for sophisticated, high-net-worth individuals capable of tolerating multi-year illiquidity risk and adept at evaluating the associated trade-offs. In practice, however, the economic incentives within the wealth management channel, coupled with robust investor demand, have led to a broadening of distribution far beyond this initial target audience. This expansion has ignited pertinent questions regarding suitability and the critical aspect of expectation-setting.
The issue at hand is not inherently with the structures themselves, but rather with the potential divergence between what the term "semi-liquid" signifies within a prospectus and how it is perceived by investors and, at times, their advisors. Quarterly redemption windows, while offering some periodicity, should not be mistaken for true, immediate liquidity. A five percent quarterly cap on redemptions, for instance, can translate into years for an investor seeking a complete exit. Redemption queues, the activation of gating mechanisms, and adjustments to Net Asset Value (NAV) are not anomalies; they are integral features of these investment vehicles. Yet, they can still come as a surprise to investors who may not have fully grasped the limitations of liquidity at the time of their allocation.
Regulators have increasingly turned their attention to these dynamics, particularly as semi-liquid strategies continue to migrate closer to the retail end of the wealth spectrum. A series of notable episodes have highlighted these recurring patterns. These include the redemption limits imposed on Blackstone Real Estate Income Trust (BREIT) in 2022, the restructuring of certain BDCs like Oak Street Real Estate Capital’s Oak Street BDC II in early 2026, and more recent waves of redemption pressure experienced by private credit evergreen funds. These periods of stress consistently expose gaps in investor understanding and operational readiness, even when the underlying fund structures are functioning precisely as designed.
The Operational Realities Beneath the Wrapper
While suitability represents the public discourse surrounding semi-liquid products, the equally crucial, albeit quieter, conversation revolves around operational resilience. Managing a semi-liquid fund presents operational demands that are easily underestimated until market conditions become challenging. Liquidity windows necessitate precise governance protocols and disciplined execution. Redemption queues must be administered equitably, ensuring fairness among all investors. Valuations, a critical component of these funds, must accurately reflect assets that are not marked to market daily. Furthermore, investor communications require timeliness, accuracy, and absolute clarity, especially when redemption constraints are actively being exercised.
These demands are compounded by a complex interplay of interdependent variables that are inherently difficult to predict with precision. Factors such as asset realizations and maturities, fluctuations in net asset value, incoming subscription flows, and outgoing redemption requests can all shift simultaneously. This simultaneity can significantly reduce a manager’s ability to accurately model the scenarios they will encounter when a liquidity window opens. In benign market environments, these dynamics are generally manageable. However, under stress, when redemption demand surges, pricing becomes less favorable, and valuations grow more contested, these challenges intensify materially.
A significant contributing factor to these operational strains is that many of the systems supporting these complex products were not originally engineered to handle this level of intricacy. Legacy fund administration platforms, custody infrastructure, and transfer agency technologies evolved in an era characterized by simpler fund structures and less frequent valuations. Semi-liquid funds, by their very nature, require more robust data integration capabilities, clearer reporting frameworks tailored for advisors, and compliance systems capable of supporting heightened scrutiny around suitability and best-interest standards. Bridging this technological and operational gap necessitates sustained investment, often less visible than the fanfare surrounding product launches but no less critical for the long-term viability of these offerings.
As the CAIA Association has previously highlighted in its research and industry engagements, the capacity to operate semi-liquid products safely and at scale varies considerably across the asset management industry. In some instances, the emphasis has leaned more heavily towards the innovative design of fund wrappers and aggressive distribution strategies, rather than toward the robust operational infrastructure required to navigate these vehicles through periods of market stress.
Are Today’s Structures Built to Last? The Promise of Tokenization
Running parallel to the exponential growth of semi-liquid vehicles is an ongoing evolution in financial infrastructure that holds the potential to fundamentally reshape how liquidity itself is delivered. Tokenization and related innovations, including blockchain-enabled settlement, digital fund administration, programmable secondary trading, and on-chain identity verification, are steadily transitioning from experimental phases toward practical implementation.
If these emerging systems mature as their proponents anticipate, liquidity could cease to be a mere feature of product structure and instead become an inherent characteristic of the underlying infrastructure. Processes that currently constitute the operational burden of semi-liquid funds – such as managing redemption queues, manual reconciliation of data, and fragmented reporting – could be re-engineered into simpler technical challenges rather than complex governance hurdles.
This trajectory raises a critical strategic question for the entire industry, and particularly for asset managers. Is capital being disproportionately allocated to incremental innovations in fund wrappers, while simultaneously being under-invested in the foundational architecture that could fundamentally alter how private market exposure is accessed and managed?
Charting the Path Forward
Semi-liquid vehicles undeniably address a genuine market need and, in many cases, do so effectively. However, it is becoming increasingly clear that not all products are created equal. Certain asset managers have successfully constructed offerings underpinned by robust governance frameworks, transparent investor education initiatives, and operational infrastructure deliberately designed to handle complexity. Conversely, others are encountering limitations only after their products have scaled or when faced with market stress.
Looking ahead, asset managers and wealth platforms would be well-served by simultaneously prioritizing three key areas. Firstly, they must focus on strengthening governance and liquidity management frameworks proactively, before the next market stress event occurs, rather than reactively. Secondly, investment in operational infrastructure must be approached with the same strategic rigor applied to product design and distribution. The "back office" should no longer be viewed as a mere cost center; it is a core component of effective risk management. Thirdly, advisor and investor education must be treated as a fundamental prerequisite for distribution, rather than an afterthought.
Concurrently, firms should evaluate tokenization not as a distant, abstract future concept, but as a tangible strategic capability with real capital allocation and defined timelines.
The Unfolding Question for the Industry
Semi-liquid products may ultimately prove to be a durable and responsible bridge, connecting individual investors to private markets at scale. Alternatively, they might represent a transitional solution, effective within specific market conditions but inherently limited by structural assumptions that require fundamental rethinking.
Which of these outcomes prevails will likely depend less on product innovation alone and more on the seriousness with which operational resilience, suitability, and governance are treated alongside ambitious growth and fundraising objectives. The market has unequivocally affirmed the demand for private market access. The more complex task, and one that remains actively unfolding, is earning and sustaining the trust that this demand implies.
About the Contributor
Adele Kohler, CFA, joined the CAIA Association in 2025 as its inaugural Managing Director of the Americas. In this capacity, she spearheads the Association’s initiatives across Canada, the United States, and Latin America – some of the world’s largest and most dynamic capital markets. Her role is instrumental in advancing CAIA’s Vision 2035 and redefining the professional identity of investment practitioners in an era where virtually all asset classes are increasingly considered alternatives.
With over 25 years of leadership experience in global asset management, Adele brings profound expertise across both passive and active investment strategies, encompassing traditional and alternative asset classes. Her career has consistently been marked by a dedication to bringing innovative solutions to market, including the design, development, and scaling of investment products that meet the evolving needs of allocators, institutions, and advisors. During her tenure at Wellington Management and State Street Global Advisors, Adele led product innovation across more than 250 strategies, launched transformative initiatives in private markets, and was a pioneer in developing new structures for Separately Managed Accounts (SMAs) and Exchange-Traded Funds (ETFs) that effectively bridged the gap between institutional and wealth management clients.
Her unique ability to think holistically across diverse asset classes and investment disciplines positions her as a key driver of the CAIA Association’s educational programming, member experience initiatives, and thought leadership strategy, as modern investment portfolios continue their rapid evolution.
Learn more about the CAIA Association and how to become part of a professional network actively shaping the future of investing by visiting https://caia.org/.
