By Adele Kohler, CFA, Managing Director, Americas, CAIA Association
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-Liquids: Bridging the Private Market Divide
Over the past five years, private market strategies have proliferated within wealth management platforms, commonly referred to as "semi-liquid" vehicles. These structures were meticulously designed to democratize access to private assets, circumventing regulatory hurdles that traditionally confined participation to sophisticated, high-net-worth individuals. These hurdles included stringent private placement rules tied to investor accreditation, prohibitively high minimum investment thresholds, and extended capital lock-up periods characteristic of traditional closed-end private funds.
The appeal of these semi-liquid products is multi-faceted. They offer intermittent liquidity windows, often on a quarterly basis, significantly lowering the barriers to entry with reduced minimum investment requirements. Furthermore, their evergreen capital structures eliminate the decade-long commitment typical of traditional private equity or venture capital funds, providing investors with a perceived greater degree of flexibility. The growth trajectory of assets within these vehicles has been substantial, underscoring a clear and demonstrable product-market fit and confirming that investor demand for private market exposure is robust. In the United States alone, interval and tender-offer funds have experienced significant expansion over the past decade, with fundraising momentum accelerating sharply in 2024 and 2025. These figures validated the long-held belief among product development teams and distribution networks that a substantial investor appetite existed for private market investments. However, the impressive growth figures did not fully encapsulate the accumulating complexity that lay beneath the surface of these wrappers.
Suitability and Expectations: A Growing Disconnect
The initial design of semi-liquid products targeted a specific investor profile: sophisticated, high-net-worth individuals possessing the capacity to tolerate illiquidity risk over a multi-year horizon and adept at evaluating the inherent trade-offs. However, the economic incentives within the wealth management channel, coupled with strong investor demand, have led to a broader distribution of these products, extending beyond their original target audience. This expansion has consequently raised pertinent questions regarding the suitability of these investments for a wider range of investors and the effectiveness of expectation-setting processes.
The fundamental 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 the practical understanding of this term by investors, and at times, their advisors. Quarterly redemption windows, while offering a degree of regularity, should not be misconstrued as true liquidity. A common feature, such as a five percent quarterly redemption cap, can translate into a multi-year timeframe for a complete exit. Redemption queues, gating mechanisms, and adjustments to net asset value are not anomalies; they are integral features of these vehicles. Nevertheless, these inherent limitations can still surprise investors who may not have fully appreciated the constraints on liquidity at the point of allocation.
Regulators have taken increasing notice of these dynamics, particularly as semi-liquid strategies continue to permeate further down the wealth spectrum toward the retail investor base. A series of episodes, including the redemption limitations experienced by Blackstone Real Estate Income Trust (BREIT) in 2022, the restructuring of OpenDoor BDC II (ODBC) in early 2026, and more recent waves of redemption pressure across private credit evergreen funds, highlight a recurring pattern. Periods of market stress have consistently exposed gaps in investor understanding and operational readiness, even when the fund structures perform precisely as designed.
Operational Resilience: The Unseen Backbone of Semi-Liquid Funds
While suitability represents the public discourse surrounding semi-liquid products, operational resilience forms the quieter, yet equally critical, foundation. Managing a semi-liquid fund presents operational demands that are often underestimated until market conditions become more challenging. The execution of liquidity windows necessitates precise governance frameworks and disciplined operational execution. Redemption queues must be administered equitably and transparently. Valuations of underlying assets, which are not marked to market daily, require rigorous and consistent methodologies. Investor communications must be timely, accurate, and exceptionally clear, especially when liquidity constraints are implemented.
These demands are further compounded by a complex interplay of interdependent variables that are notoriously difficult to predict with precision. The timing of asset realizations and maturities, fluctuations in net asset value, the volume of new subscriptions, and the volume of redemption requests can all occur simultaneously. This confluence of factors significantly diminishes 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 escalates, pricing becomes less favorable, and valuations grow more contested, these operational challenges intensify materially.
A significant contributing factor to these challenges is that many of the underlying systems supporting these products were not originally architected to handle this level of complexity. Legacy fund administration platforms, custody infrastructure, and transfer agency technologies were developed in an era characterized by simpler fund structures and less frequent valuation cycles. Semi-liquid funds, in contrast, demand 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 requires sustained investment, which, while often less visible than product launches, is no less critical to the long-term success and stability of these offerings.
As the CAIA Association has consistently highlighted in its research and industry engagements, the capacity to operate semi-liquid products safely and at scale varies significantly across the industry. In certain instances, the emphasis has disproportionately leaned towards the design of the product wrapper and the distribution strategy, rather than the robust operational infrastructure necessary to support these vehicles through periods of market stress.
The Evolving Landscape of Financial Infrastructure: Tokenization’s Promise
Running parallel to the growth of semi-liquid vehicles is a significant evolution in financial infrastructure that has the potential to fundamentally reshape how liquidity is delivered. Tokenization and its related innovations—including blockchain-enabled settlement, digital fund administration, programmable secondary trading, and on-chain identity verification—are steadily progressing from experimental phases toward widespread implementation.
Should these emerging systems mature as their proponents anticipate, liquidity may evolve from being a feature inherent to a product’s structure to a characteristic derived from the underlying technological infrastructure. Processes that currently constitute the primary operational burden of semi-liquid funds, such as managing redemption queues, manual reconciliation efforts, and fragmented reporting, could potentially be simplified into engineering challenges rather than complex governance hurdles.
This trajectory raises a critical strategic question for the financial industry, particularly for asset managers. Is capital being over-allocated to incremental innovations in fund wrappers, while simultaneously being under-invested in the foundational architecture that could fundamentally transform how private market exposure is accessed and managed?
Navigating the Future: Priorities for Asset Managers and Wealth Platforms
Semi-liquid vehicles address a genuine market need, and in many instances, they do so effectively. However, it is crucial to recognize that not all products are created equal. Some managers have meticulously built offerings supported by strong governance, comprehensive investor education, and operational infrastructure designed to handle complexity. Others, however, encounter limitations only when their products achieve scale or when faced with market stress.
Looking ahead, asset managers and wealth platforms would be well-advised to simultaneously prioritize three key areas. Firstly, strengthening governance and liquidity management frameworks proactively, before the next period of market stress materializes, rather than reactively. Secondly, investing in operational infrastructure with the same strategic rigor applied to product design and distribution. The "back office" should be viewed not merely as a cost center, but as an integral component of risk management and client service. Thirdly, treating advisor and investor education as a prerequisite for distribution, rather than an afterthought, ensuring that all parties fully comprehend the nature and implications of semi-liquid investments.
Concurrently, firms should evaluate tokenization not as an abstract, futuristic concept, but as a strategic capability with tangible capital requirements and defined implementation timelines.
The Industry’s Defining Question
Semi-liquid products may ultimately prove to be a durable and effective bridge, connecting individual investors to private markets responsibly and at scale. Alternatively, they may represent a transitional solution, proving effective under specific market conditions but ultimately limited by structural assumptions that require fundamental rethinking.
The outcome of this evolutionary process will depend less on product innovation alone and more on the seriousness with which operational resilience, suitability, and governance are addressed alongside ambitious growth and fundraising objectives. The market has unequivocally affirmed its demand for private market access. Earning and sustaining the trust that this demand implies, however, remains the more complex and ongoing task for the industry.
About the Contributor
Adele Kohler, CFA, joined the CAIA Association in 2025 as its first Managing Director of the Americas. She leads the Association’s initiatives across Canada, the United States, and Latin America, overseeing efforts in some of the world’s largest and most dynamic capital markets. Her role is instrumental in advancing CAIA’s Vision 2035 and redefining the role of investment professionals in an era where alternatives are increasingly becoming mainstream.
With over 25 years of leadership experience in global asset management, Adele possesses deep expertise across both passive and active investment strategies, encompassing traditional and alternative asset classes. Her career has consistently been marked by a commitment to bringing innovation to market, focusing on the design, development, and scaling of investment solutions that meet the evolving demands of allocators, institutions, and advisors. Prior to her role at CAIA, Adele held leadership positions at Wellington Management and State Street Global Advisors, where she spearheaded product innovation across more than 250 strategies, launched transformational initiatives in private markets, and played a key role in pioneering new structures in Separately Managed Accounts (SMAs) and Exchange-Traded Funds (ETFs) that effectively bridged the gap between institutional and wealth management clients. Her ability to synthesize cross-asset class knowledge and investment discipline positions her as a key driver of CAIA’s educational programming, member experience, and thought leadership strategy as modern investment portfolios continue their dynamic evolution.
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/.
