Private Credit Dominates $350B Semiliquid Fund Explosion

What's New

According to Morningstar's "The State of Semiliquid Funds 2025" report, assets in semiliquid funds surged 60% to $344 billion by end-2024, with credit overtaking real estate as the largest asset class at $188 billion. Interval funds are experiencing record launches, with 19 new funds through May 2025 already approaching 2024's record of 27 launches.

Why It Matters

This dramatic shift represents Wall Street's aggressive push to democratize private markets for investors with less than $5 million in assets. The surge signals a fundamental transformation in how retail investors access previously exclusive alternative investments, though it comes with significantly higher fees and liquidity constraints that could reshape retirement planning and wealth management.

Big Picture Drivers

• Credit demand: Nontraded business development companies offer higher distribution rates through increased leverage limits, attracting yield-hungry investors in a volatile market environment.

• Regulatory evolution: May 2025 SEC guidance allows semiliquid funds with 15%+ private fund exposure to be available to non-accredited investors, expanding the addressable market.

• Platform adoption: Interval funds' mutual-fund-like structure makes them operationally easier for wealth management platforms to implement compared to state-regulated nontraded vehicles.

• Real estate retreat: Blackstone REIT's 2022 redemption limits and ongoing outflows demonstrate liquidity risks, driving investor rotation toward private credit strategies.

• Institutional partnerships: Major collaborations like Capital Group-KKR and the upcoming Wellington-Vanguard-Blackstone "WVB All Markets" fund signal mainstream adoption.

By The Numbers

• $188 billion: Credit semiliquid fund assets, up from $75 billion in 2022

• 3.16%: Average annual expense ratio for semiliquid funds vs. 0.97% for active mutual funds

• 66.67%: Maximum leverage limit for nontraded BDCs vs. 33.33% for interval funds

• 10.4%: Blackstone Private Credit Fund's 2024 yield, 3 percentage points above credit interval fund average

• $12 trillion: Target defined-contribution plan assets that providers are eyeing for private market access

Key Trends to Watch

• Retirement integration: State Street Global Advisors leads major asset managers in developing target-date strategies with private market exposure through semiliquid vehicles.

• Fee transparency: Some funds charging fees on total assets rather than net assets create potential conflicts, with lending spreads needing to exceed fee ratios to benefit investors.

• Liquidity stress tests: Real estate fund redemption limitations provide early warning signals for how semiliquid structures perform during market dislocations.

• Performance validation: Early private equity semiliquid funds have largely underperformed the S&P 500, raising questions about whether illiquidity premiums justify higher fees and reduced access.

The Wrap

While semiliquid funds democratize private market access, investors face a classic risk-return tradeoff with 2-3x higher fees, limited liquidity, and unproven performance in market downturns. Success will depend on whether these vehicles can consistently deliver returns that justify their premium cost structure and operational complexity, particularly as they eye the massive retirement plan market.