The vehicles designed to broaden access to private markets are now being tested against the practical realities of the liquidity they offer. In the first quarter of 2026, a concentration of retail redemptions across several large business development companies (BDCs) and interval fund structures led a number of managers, including Blackstone, BlackRock, Blue Owl, and Ares, to activate gating mechanisms embedded in their fund designs. Calling this episode a credit collapse would be an overstatement. It is more accurately understood as the manifestation of a structural mismatch that has long existed, but had not previously been tested at scale. Retail capital has increasingly flowed into strategies that offer periodic redemption features, while the underlying assets themselves often require months or years to liquidate at fair value. When redemption pressure rises, those tensions become visible. What has unfolded is less a failure than a stress test of whether the promises implied by fund structures align with how they function under less forgiving conditions.
The Allure of Semi-Liquid Investments
Over the past five years, private market strategies have proliferated within wealth management wrappers, commonly referred to as "semi-liquid" products. These structures were conceived to democratize access to private assets by circumventing regulatory hurdles that historically limited participation. These barriers included private placement rules tied to investor sophistication, substantial minimum investment thresholds, and prolonged capital lock-up periods. The appeal of these semi-liquid vehicles is multifaceted, offering features such as intermittent liquidity windows, lower entry points compared to traditional private funds, and evergreen capital structures that eschew the typical decade-long commitment associated with closed-end private funds.
The growth in assets held within these vehicles has been substantial, underscoring a tangible demand and a clear product-market fit. In the United States alone, interval funds and tender-offer funds have experienced significant expansion over the last decade, with fundraising momentum accelerating further in 2024 and 2025. These figures validated the widespread belief among product teams and distributors that investors were eager for greater exposure to private markets. However, the impressive growth statistics did not fully illuminate the accumulating complexity hidden beneath the surface of these wrappers.
Suitability and the Erosion of Expectations
Semi-liquid products were initially envisioned for a specific investor profile: sophisticated, high-net-worth individuals capable of tolerating illiquidity risk over multi-year horizons and adept at evaluating the inherent trade-offs. In practice, however, the economic incentives of the wealth management channel, coupled with robust investor demand, have broadened the distribution of these products beyond their original target audience. This expansion has raised pertinent questions regarding suitability and the management of investor expectations.
The core issue is not necessarily with the structures themselves, but rather with the divergence between the technical definition of "semi-liquid" as presented in a prospectus and how this term is sometimes perceived by investors, and occasionally by their advisors, in real-world application. Quarterly redemption windows, while offering a degree of regularity, should not be conflated with true liquidity. A five percent quarterly redemption cap, for instance, implies that a complete exit from an investment could realistically take several years. Redemption queues, gating mechanisms, and adjustments to net asset value (NAV) are not anomalies; they are intrinsic features of these investment vehicles. Nevertheless, these aspects can still surprise investors when the limitations of liquidity were not fully grasped at the initial allocation stage.
Regulators have increasingly focused on these dynamics, particularly as semi-liquid strategies continue to penetrate further into the retail segment of the wealth spectrum. Incidents such as the redemption limits imposed on Blackstone Real Estate Income Trust (BREIT) in 2022, the restructuring of the Oak Street Medical Properties BDC (OBDC II) in early 2026, and more recent waves of redemption pressure across private credit evergreen funds, all point to a recurring pattern. Periods of market stress tend to expose gaps in investor understanding and operational preparedness, even when the fund structures are functioning precisely as designed.
Operational Realities Beneath the Surface
While suitability represents the public discourse surrounding semi-liquid products, operational resilience is the less visible, yet equally critical, dimension. Managing a semi-liquid fund presents operational demands that are often underestimated until market conditions become challenging. Liquidity windows necessitate precise governance frameworks and disciplined execution. Redemption queues must be administered equitably, ensuring fair treatment for all investors seeking to exit. Furthermore, valuations of underlying assets, which are not marked to market on a daily basis, must be meticulously calculated and reflect fair value. Investor communications, especially when redemption constraints are exercised, must be timely, accurate, and transparent.
These demands are compounded by a set of interdependent variables that are notoriously difficult to predict with precision. The timing of asset realizations and maturities, fluctuations in net asset value, the inflow of new subscriptions, and the volume of redemption requests can all occur simultaneously. Collectively, these factors diminish a manager’s ability to accurately model the scenarios they will encounter when a liquidity window opens. In benign market conditions, these dynamics are generally manageable. However, under stress, when redemption demand escalates, pricing becomes less favorable, and asset valuations grow more contested, these challenges intensify significantly.
Many of the technological systems underpinning these products were not originally engineered to handle this level of complexity. Legacy fund administration platforms, custody infrastructure, and transfer agency technologies evolved during an era of simpler fund structures and less frequent valuations. Semi-liquid funds, in contrast, require more robust data integration capabilities, clearer reporting mechanisms for financial advisors, and compliance frameworks capable of supporting heightened scrutiny around suitability and best-interest standards. Bridging this technological and operational gap necessitates sustained investment, which, while often less visible than new product launches, is no less critical for long-term viability.
As the CAIA Association has highlighted in its prior research and industry engagements, the capacity to operate semi-liquid products safely and at scale varies considerably across the industry. In some instances, the emphasis has leaned more heavily towards the design of the product wrapper and the distribution strategy rather than on the foundational operational infrastructure required to support these vehicles through periods of market stress.
Are Today’s Structures Built to Last?
Running parallel to the growth of semi-liquid vehicles is an evolution in financial infrastructure that could fundamentally reshape how liquidity itself is delivered. Innovations such as tokenization, coupled with blockchain-enabled settlement, digital fund administration, programmable secondary trading, and on-chain identity verification, are steadily progressing from experimental phases toward practical implementation.
If these nascent systems mature as their proponents anticipate, liquidity may transition from being a feature of product structure to becoming a characteristic of the underlying technological infrastructure. Processes that currently constitute the operational burden of semi-liquid funds, including the management of redemption queues, manual reconciliation, and fragmented reporting, could be transformed into more manageable engineering challenges rather than complex governance issues.
This trajectory raises a significant strategic question for the financial industry, particularly for asset managers. Is capital being disproportionately allocated to incremental innovations in fund wrappers, while simultaneously being under-invested in the architectural advancements that could fundamentally alter how private market exposure is accessed and managed?
What Comes Next: Priorities for the Industry
Semi-liquid vehicles address a genuine market need and, in many cases, fulfill that need effectively. However, it is crucial to recognize that not all products are created equal. Some managers have successfully developed offerings underpinned by robust governance, clear investor education, and operational infrastructure designed to handle complexity. Others encounter limitations only when their products scale significantly or when they face market stress.
Looking forward, asset managers and wealth platforms would benefit from concurrently focusing on three key priorities. Firstly, strengthening governance and liquidity management frameworks before the next stress event occurs, rather than in reactive response to it. Secondly, investing in operational infrastructure with the same rigor and strategic importance applied to product design and distribution. The "back office" should no longer be viewed merely as a cost center but as a core component of risk management and operational resilience. Thirdly, treating advisor and investor education as a prerequisite for distribution, rather than an afterthought.
Concurrently, firms should evaluate tokenization not as an abstract future concept, but as a strategic capability with tangible capital and timeline implications.
The Industry’s Defining Question
Semi-liquid products may ultimately prove to be a durable bridge, responsibly connecting individual investors to private markets at scale. Alternatively, they may serve as a transitional solution, effective under certain conditions but ultimately limited by structural assumptions that require re-evaluation.
The outcome will depend less on product innovation alone and more on the degree to which operational resilience, suitability, and governance are prioritized alongside ambitious growth and fundraising objectives. The market has clearly affirmed demand for private market access. Earning and sustaining the trust that this demand implies remains the more complex task, and one that is still actively unfolding.
About the Contributor
Adele Kohler, CFA, joined CAIA Association in 2025 as its first Managing Director of the Americas. She leads the Association’s efforts across Canada, the United States, and Latin America, some of the largest and most dynamic capital markets in the world, advancing CAIA’s Vision 2035 and helping to redefine what it means to be an investment professional in a world where alternatives are increasingly mainstream.
With over 25 years of leadership experience in global asset management, Adele brings deep expertise across both passive and active strategies, spanning traditional and alternative asset classes. Her career has consistently focused on bringing innovation to market – designing, developing, and scaling investment solutions that meet the evolving demands of allocators, institutions, and advisors. At Wellington Management and State Street Global Advisors, Adele led product innovation across more than 250 strategies, launched transformational initiatives in private markets, and helped pioneer new structures in Separately Managed Accounts (SMAs) and Exchange-Traded Funds (ETFs) that bridged the gap between institutional and wealth clients.
Her ability to think holistically across asset classes and investment disciplines positions her as a key driver of CAIA’s educational programming, Member experience, and thought leadership strategy as modern portfolios continue to evolve.
Learn more about CAIA Association and how to become part of a professional network that is shaping the future of investing, by visiting https://caia.org/.
