Most investors are accustomed to having close to instant access to their money. If you hold shares in a stock or exchange-traded fund, you can trade shares any time during the day. Open-end funds can easily be bought and sold based on the net asset value at the end of the day.
But some funds have additional restrictions on how much investors can withdraw. Also known as semiliquid funds, these investments can take a variety of forms, including interval funds, tender offer funds, nontraded business development companies, and nontraded real estate investment trusts. Most of these funds allow investors to redeem up to 5% to 10% of their shares each quarter, although the timing and specific limits on redemptions can vary.
The advantage of these redemption gates is that they make it easier for managers to invest in asset classes that aren’t frequently traded, such as private credit, private equity, and private real estate. Semiliquid fund offerings holding more than 15% of their assets in private funds were previously limited to accredited investors. But in May 2025, the Securities and Exchange Commission issued updated guidance that makes such funds available to anyone. (Most investors will still need to work with a financial advisor to get access to these funds, as they’re not currently available on major brokerage platforms such as Vanguard, Schwab, and Fidelity.)
As investor interest in these areas has grown, assets in semiliquid funds have been expanding at a rapid clip. My colleague Jason Kephart estimates that net assets in semiliquid funds available to most investors reached nearly $450 billion as of June 30, compared with $344 billion as of the end of 2024. The majority of these new assets have been flowing into funds that invest in private credit, such as direct middle market lending funds, multisector bond funds, and nontraditional bond funds. As assets have continued flowing in, the industry has rolled out more than 60 new semiliquid closed-end funds so far this year, compared with about 50 for the full year in 2024.
Despite their recent surge in popularity, semiliquid offerings aren’t necessarily a great fit for every investor’s portfolio. And financial advisors or individuals who do choose to invest in them should carefully consider some additional factors, as outlined below.
What Asset Class Are You Getting Exposure To?
One thing to keep in mind is that, despite their structural differences, semiliquid funds aren’t fundamentally different from other types of funds, in that their performance is ultimately driven by the underlying holdings that make up their portfolios. The Morningstar Category, which we assign based on a fund’s investment strategy and underlying portfolio holdings, can be a decent starting point for determining what type of role a semiliquid fund might play in a portfolio.
The table below highlights some of the most common Morningstar Categories for semiliquid funds, along with other considerations investors should take into account.
Other Considerations for Using Semiliquid Funds in a Portfolio
As with other types of investment vehicles, deciding how to use a semiliquid fund in a portfolio involves answering two key questions:
- What percentage of my portfolio should I allocate to this fund?
- What is the appropriate time horizon, or holding period?
Morningstar’s Role in Portfolio framework, which classifies funds as stand-alone, core, building block, or limited based on their Morningstar Category assignments, is a reasonable starting point for answering these questions.
But given the additional risk, costs, and lack of liquidity in semiliquid funds, most investors will want to limit their exposure to these offerings to a small percentage of their portfolios. It’s easy to add to a position, but reducing one could take a few quarters or longer if there’s a lot of selling pressure on the asset class. Investors might also want to build positions gradually as they gain more experience with the redemption cycles.
The challenges involved in rebalancing are another reason to start small with any allocation to semiliquid funds. In the event that one of these funds performs well, it could end up being a larger percentage of the portfolio compared with an investor’s target allocation, and redemption limits could make it tougher to bring things back into balance. Because of the limited liquidity, investors probably need to be even more careful with position sizing.
Similarly, limitations on redemptions mean that investors should plan on a longer holding period than they otherwise would.
Fees and expenses are another critical consideration, as the average expense ratio for semiliquid vehicles is about 3.2%, compared with about 1.0% for actively managed mutual funds and ETFs and just 0.4% for index-based mutual funds and ETFs. Many semiliquid offerings also charge incentive-based fees, which add another layer of complexity.
Finally, investors should dig into the redemption limits on each fund to determine if it’s a good fit for their liquidity needs. Interval funds typically allow redemptions of up to 5% to 10% of assets on a monthly or quarterly schedule. Tender-offer funds, on the other hand, don’t have a preset schedule for redemptions; instead, the fund’s board of directors has discretion over the frequency and amount of tender offers made.
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