Traditional private equity funds have long locked up capital for several years, an investment horizon that requires patience and commitment from investors. Over the past few years, however, a new breed of “semi-liquid funds” has started gaining traction. These vehicles combine the features of open-ended funds, such as regular subscription and redemption windows, with the long-term, illiquid investments typical of private markets.

These structures, typically evergreen or interval funds, act as a bridge between the traditional buy-and-hold world of private equity and the accessibility of listed investments. For investors, this means the opportunity to participate in private markets without fully sacrificing the liquidity that has historically been required.

What Are Semi-Liquid Funds

Semi-liquid funds are investment vehicles that blend private equity’s return potential with limited liquidity. Positioned between mutual funds and closed-end funds, they typically allow quarterly subscriptions and redemptions, capped at around 5–10% of NAV, with gates applied if requests exceed limits.

To manage liquidity, managers hold a portion of assets in liquid securities while investing most capital in illiquid opportunities. Unlike drawdown funds, evergreen structures provide continuous entry and exit but require careful portfolio management. For investors, semi-liquid funds offer a compromise: access to private markets without decade-long lockups at the expense of a return dilution due to liquidity management.

These structures are particularly attractive to individual investors, often accessed through wealth channels, who seek diversified portfolios but still want greater control over liquidity, whether to rebalance their holdings or access cash when needed.

The Growth of a Market Frontier

Momentum has been building quickly. According to Morgan Stanley, net assets in U.S. evergreen private equity funds reached $381 billion across 351 vehicles as of Q3 2024, with more than half of those funds launched in just the prior four years⁽¹⁾. Meanwhile, individual investors have allocated approximately $2.7 trillion across U.S. private markets overall.

Within that, semi-liquid structures remain a relatively small but rapidly expanding segment, growing more than 60% since 2022 as they democratize access to investments once reserved for institutions.⁽²⁾

At the same the European ELTIF (European Long-TermInvestment Fund) market reached €13.6 billion at the end of 2023, growing 24% from the previous year, with significant regulatory reforms under ELTIF 2.0 expected to accelerate growth as the framework becomes more accessible toretail investors⁽³⁾. Global asset managers, including UBS, Apollo, and Blackstone, have already rolled out semi-liquid products to serve this expanding audience.

Why Investors Are Drawn to Semi-Liquid Structures

Semi‑liquid funds offer several benefits that have attracted both retail and institutional investors:

• Diversification: By providing access to private equity, infrastructure, and private credit, semi‑liquid funds help investors diversify away from public markets.
• Compounding benefits: Continuous capital deployment supports long-term growth through reinvestment of distributions.
• Psychological comfort: As Adams Street Partners notes, investors often struggle with decade-long lockups. Having the option of periodic liquidity helps overcome this hurdle and “meets clients where they are.” ⁽⁴⁾
• Flexibility: Managers can rebalance portfolios in response to market conditions, as semi-liquid vehicles are not bound by a fixed term. This flexibility is  particularly valuable during periods of volatility.

From an institutional perspective, semi‑liquid funds also reduce cash drag, capital is invested quickly rather than waiting for a traditional private‑equity fund to close. The average private‑equity fundraising cycle increased from 11 months pre-pandemic to 20 months currently, prompting institutions to seek quicker deployment via semi‑liquid structures.⁽⁵⁾

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How Semi-Liquid Funds Are Constructed

Managers have adopted different approaches to structuring semi-liquid private equity funds, balancing the need for long-term return generation with the operational demands of providing periodic liquidity.

One used approach is the fund-of-funds model, where capital is allocated across a manager’s own strategies or to a selection of third-party funds. This structure provides diversification within a single vehicle while helping to smooth capital deployment and cash flows.

Other managers focus on direct secondary transactions, purchasing existing private equity interests with relatively high liquidity.  These positions can later be sold in the secondary market to meet redemption requests, offering an additional layer of flexibility.

By combining diversified exposures with liquidity management tools, these structures aim to deliver the benefits of private markets while maintaining the redemption features that appeal to wealth managers and individual investors.

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Navigating the Challenges

The flexibility of semi-liquid strategies comes with trade-offs. Key considerations include:

• Redemption risk: In periods of market stress, redemption requests can spike, forcing managers to sell assets at unfavorable prices.
• Liquidity sleeve-drag: Maintaining a pool of liquid securities can dilute returns relative to fully invested private equity funds.
• Valuation complexity: More frequent liquidity events require more regular and transparent valuations, a demanding task for illiquid holdings.
• Operational burden: Administrators face higher reporting and compliance requirements, particularly under evolving regulatory regimes.
• Investor education: Clear communication of redemption mechanics, notice periods, and liquidity limits is essential to maintain confidence and align expectations.

These challenges underscore the importance of manager selection. Successful operators must balance competing demands, generating strong returns while ensuring liquidity commitments can be met without compromising portfolio integrity.

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Looking Ahead

Semi-liquid private equity strategies have emerged as a bridge between illiquid private markets and the liquidity needs of today’s investors. Innovation, regulation, and rising demand have driven the launch of dozens of new funds and billions in assets. These vehicles offer diversification, accessibility, return potential, and flexibility, but also bring challenges around liquidity management, valuation, fees, and investor fairness.

While they will not replace traditional closed-end funds, semi-liquid structures are carving out a distinct role in portfolios. For both wealth managers and individual investors, they represent a pragmatic middleground: enough flexibility to ease concerns about long lockups, while preserving exposure to private equity’s growth potential.

As the market matures, success will depend on sound structures, skilled managers, and clear alignment with investor needs. Those who navigate these complexities stand to benefit from a broader, more inclusive era of private equity participation.

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Author

Saad Adada, CFA

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_Sources:

_{1- https://www.morganstanley.com/im/publication/insights/articles/article_evergreenprivateequityfunds.pdf}

_{2- https://www.morningstar.com/business/insights/research/semiliquid-funds-report}

_{https://advisoroutlook.adamsstreetpartners.com/wp-content/uploads/Adams-Street-Partners-2025-Advisor-Outlook.pdf}

_{3- https://www.scopegroup.com/dam/jcr:2d90e111-d620-4183-aecf-f6c222d2799f/ScopeELTIF study 2024 final (3).pdf}

_{4- https://webreprints.djreprints.com/2595125.html}

_{5- https://www.bain.com/insights/outlook-is-a-recovery-starting-to-take-shape-global-private-equity-report-2025/}

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