Federal Reserve FEDS Notes·Oct 14, 2026, 10:00 AM ET

The Rise of Semiliquid Funds for Retail Investors

Semiliquid funds, including interval funds, tender offer funds, and non-traded perpetual-life BDCs, have rapidly expanded to $388 billion in net assets by 2025, up from $15 billion in 2018.
Asset managers are pivoting toward retail capital in private markets as institutional investors reach allocation limits, creating vehicles that offer periodic liquidity for illiquid assets.
These three fund types differ in liquidity design: interval funds mandate share repurchases (typically 5-25% per quarter), tender offer funds offer discretionary repurchases, and non-traded BDCs offer capped repurchases often limited to 5% of NAV per quarter.
Interval funds & tender offer funds are subject to standard 1940 Act leverage limits, while non-traded BDCs operate under specialized provisions allowing higher leverage (up to 150% asset coverage if elected).
Private credit exposure has surged, now representing nearly half of total interval fund net assets, while non-traded BDCs are heavily concentrated in private credit loans (93.4% of portfolios).
Tender offer funds hold the highest short-term liquid assets (8.8% of NAV) to manage illiquid equity & alternatives, whereas interval funds rely on debt cash flows & regulatory liquidity mandates (3.0% liquid assets), & non-traded BDCs hold negligible cash buffers (0.2%).
Average private credit loan sizes vary significantly, with non-traded BDCs holding much larger positions ($43.1 million) compared to interval funds ($9.3 million) & tender offer funds ($5.2 million).
Retail participation in these vehicles may increase market volatility & procyclicality due to sentiment-driven flows, herding, & coordination problems among dispersed small investors.
Recent episodes in early 2026 demonstrated redemption queues & prorated withdrawals when requests exceeded repurchase limits, highlighting potential liquidity stress under market conditions.
Opacity in private asset valuations exacerbates risks, as internal valuation models may lag behind public benchmarks, creating perceived mispricing & incentives for early redemption during stress periods.
Future growth could be amplified by policy shifts, such as executive orders facilitating 401(k) access to private market instruments, which hold over $13.9 trillion in assets.