By Adele Kohler, CFA, Managing Director, Americas, CAIA Association
The innovative structures designed to democratize access to private markets are now confronting the practical realities of the liquidity they promise. In the first quarter of 2026, a confluence of substantial redemption requests across several prominent Business Development Companies (BDCs) and interval fund structures compelled a number of leading asset managers, including industry giants like Blackstone, BlackRock, Blue Owl, and Ares, to implement the pre-designed gating mechanisms within their fund offerings. While the term "credit collapse" might be an overstatement, this episode serves as a stark illustration of a long-standing structural mismatch within these products, a vulnerability that had not been tested at such a significant scale until now. Retail capital has increasingly gravitated towards investment strategies that offer periodic redemption features, even as the underlying assets—often illiquid private equity, debt, or real estate—require months or even years to liquidate at their fair market value. When redemption pressures escalate, these inherent tensions inevitably surface. What has transpired is less a fundamental failure of these vehicles and more a critical stress test, examining whether the liquidity promises embedded in their designs align with their actual functioning under less favorable market conditions.
The Rise of "Semi-Liquid" Investments
Over the past half-decade, a proliferation of private market strategies has emerged, often packaged within wealth management wrappers broadly categorized as "semi-liquid." These structures were conceived with the primary objective of broadening investor access to private assets, circumventing traditional regulatory hurdles that historically limited participation. These barriers included stringent private placement rules tied to investor sophistication, substantial minimum investment thresholds, and prolonged capital lock-up periods inherent in traditional closed-end private funds.
The appeal of these semi-liquid vehicles is multifaceted. They offer intermittent liquidity windows, typically quarterly, significantly lower minimum investment requirements compared to their closed-end counterparts, and evergreen capital structures that eschew the decade-long commitment typical of traditional private equity funds. The growth in assets managed within these vehicles has been substantial and consistent, underscoring a real market demand and a clear product-market fit. In the United States alone, interval and tender-offer funds have expanded meaningfully over the past decade, with fundraising momentum accelerating again in 2024 and 2025. These robust numbers validated the prevailing belief among product development teams and distribution networks: investors were eager for greater exposure to private markets. However, the impressive growth figures often obscured the accumulating complexity operating beneath the surface of these wrappers.
Suitability and the Mismatch of Expectations
Semi-liquid products were initially envisioned for a specific investor profile: high-net-worth individuals with a sophisticated understanding of financial markets, capable of tolerating illiquidity risk over multi-year horizons, and able to critically evaluate the inherent trade-offs. In practice, however, the economic incentives of the wealth management channel, coupled with strong investor demand, have led to a broader distribution of these products, extending beyond the original target audience. This expansion raises legitimate questions about their suitability for a wider range of investors and the critical importance of accurate expectation-setting.
The core issue is not necessarily the structures themselves, but rather the divergence between the precise meaning of "semi-liquid" as articulated in a fund’s prospectus and how this term is often interpreted by investors, and at times by their advisors, in practical application. Quarterly redemption windows, while offering periodic access, should not be conflated with true, on-demand liquidity. A common feature, such as a five percent quarterly redemption cap, can mean that a complete exit from an investment could realistically take several years. Redemption queues, the activation of gating mechanisms, and adjustments to net asset value (NAV) are not unforeseen anomalies; they are integral features of these investment vehicles. Yet, these mechanisms can still surprise investors when the limitations of liquidity were not fully appreciated at the point of initial investment allocation.
Regulatory bodies 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. Incidents such as the redemption limitations experienced by Blackstone Real Estate Income Trust (BREIT) in late 2022, the significant restructuring of Oak Street Real Estate Capital’s Oak Street BDC II in early 2026, and more recent waves of redemption pressure across private credit evergreen funds, collectively point to a recurring pattern. Periods of market stress have a tendency to expose gaps in investor understanding and highlight areas where operational readiness may be lacking, even when the underlying fund structures are functioning precisely as designed.
The Operational Undercurrents of Semi-Liquid Funds
If investor suitability represents the public discourse surrounding semi-liquid products, then operational resilience stands as the quieter, yet equally critical, counterpart. Managing a semi-liquid fund presents operational challenges that are often underestimated until market conditions become more demanding. Liquidity windows necessitate rigorous governance frameworks and disciplined execution to manage the flow of capital. Redemption queues must be administered equitably, ensuring fair treatment for all investors seeking to exit. Valuations of underlying assets, which are not marked to market on a daily basis, require meticulous and defensible methodologies. Crucially, investor communications must be timely, accurate, and transparent, especially when liquidity constraints are imposed.
These demands are further compounded by a complex interplay of interdependent variables that are inherently difficult to predict with precision. Factors such as the timing of asset realizations and maturities, fluctuations in net asset value, incoming subscription flows, and outgoing redemption requests can all shift simultaneously. This confluence of events 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 operational challenges intensify materially.
Many of the technological systems underpinning 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, conversely, demand more robust data integration capabilities, clearer and more actionable reporting for financial advisors, and compliance frameworks that can effectively support heightened scrutiny around suitability and best-interest standards. Bridging this operational gap requires sustained investment, often less visible than product launches, but no less critical to the long-term viability and trustworthiness of these offerings.
As the CAIA Association has highlighted in its prior research and ongoing industry engagements, the capacity to operate semi-liquid products safely and at scale varies considerably across the asset management industry. In some instances, there has been a discernible emphasis on the design of the fund wrapper and the distribution strategy, potentially at the expense of the underlying operational infrastructure required to effectively navigate these vehicles through periods of market stress.
The Future of Liquidity: Tokenization and Infrastructure
Running parallel to the growth of semi-liquid vehicles is an ongoing evolution in financial infrastructure that may fundamentally reshape how liquidity itself is delivered. Innovations such as tokenization, enabled by distributed ledger technology (DLT), are steadily moving from the realm of experimentation toward practical implementation. These advancements include blockchain-enabled settlement processes, digital fund administration, programmable secondary trading capabilities, and on-chain identity verification.
If these emerging systems mature as their proponents anticipate, liquidity may transition from being an inherent feature of a specific product structure to becoming a characteristic of the underlying technological infrastructure. Processes that currently constitute the operational burden of semi-liquid funds—such as managing redemption queues, performing manual reconciliations, and dealing with fragmented reporting—could potentially be simplified into more manageable engineering challenges rather than complex governance issues.
This trajectory raises a pivotal strategic question for the financial industry, and particularly for asset managers. Is capital being disproportionately allocated to incremental innovations in fund wrappers, while simultaneously being underinvested in the foundational architecture that could fundamentally transform how private market exposure is accessed and managed?
Navigating the Path Forward
Semi-liquid vehicles demonstrably address a genuine market need, and in many instances, they fulfill that need effectively. However, it is increasingly clear that not all products are created equal. Some managers have successfully established offerings that are underpinned by robust governance frameworks, comprehensive investor education initiatives, and operational infrastructure meticulously designed to handle complexity. Others, however, are encountering limitations only when their products achieve significant scale or when confronted with market stress.
Looking ahead, asset managers and wealth platforms would be well-advised to prioritize three key areas simultaneously. Firstly, strengthening governance and liquidity management frameworks proactively, before the next stress event materializes, rather than reactively. Secondly, investing in operational infrastructure with the same strategic rigor and financial commitment applied to product design and distribution. The "back office" should no longer be viewed merely as a cost center, but as an indispensable component of risk management and investor protection. Thirdly, treating advisor and investor education as an absolute prerequisite for distribution, rather than an ancillary afterthought.
Concurrently, firms should evaluate the potential of tokenization not as a distant, abstract concept, but as a strategic capability with tangible capital requirements and defined implementation timelines.
The Industry’s Defining Question
Semi-liquid products may ultimately serve as a durable bridge, responsibly connecting individual investors to private markets at scale. Alternatively, they may prove to be a transitional solution, effective within certain market conditions but ultimately constrained by structural assumptions that require a fundamental reevaluation.
Which of these outcomes prevails will likely depend less on product innovation alone and more on the industry’s commitment to treating operational resilience, suitability, and governance with the same seriousness as growth and fundraising ambitions. The market has unequivocally affirmed its demand for private market access. The more complex, and still unfolding, task is to earn and sustain the trust that this demand implies.
About the Contributor
Adele Kohler, CFA, joined the CAIA Association in 2025 as its inaugural Managing Director for the Americas. In this role, she spearheads the Association’s initiatives across Canada, the United States, and Latin America, territories encompassing some of the world’s largest and most dynamic capital markets. Her leadership is instrumental in advancing CAIA’s Vision 2035 and redefining the role of investment professionals in an era where alternative investments are becoming increasingly mainstream.
With over 25 years of leadership experience in global asset management, Adele brings extensive expertise across both passive and active investment strategies, encompassing traditional and alternative asset classes. Her career has been consistently marked by a dedication to bringing innovative investment solutions to market, focusing on the design, development, and scaling of products that meet the evolving demands of institutional allocators, advisors, and individual investors. Prior to joining CAIA, Adele held significant leadership positions at Wellington Management and State Street Global Advisors. In these roles, she 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 ability to synthesize insights across diverse asset classes and investment disciplines positions her as a key driver of CAIA’s educational programming, member experience initiatives, and thought leadership strategy, as modern investment portfolios continue their rapid evolution.