Semi-Liquid Fund
Definition
A semi-liquid fund is an investment vehicle that offers periodic or limited liquidity while investing in assets that may be illiquid, privately valued, or difficult to sell quickly. The structure sits between daily-liquid funds and locked-up private funds: investors may see regular NAVs and scheduled repurchase opportunities, but full exit is not guaranteed.
Why it matters
Semi-liquid structures have become a major access point for private credit, real estate, infrastructure, secondaries, and other alternatives. They solve one problem while creating another: investors get easier entry and some potential exit liquidity, but the underlying assets often cannot be sold on demand at NAV. That mismatch is managed through tender limits, gates, proration, cash sleeves, credit facilities, anti-dilution mechanisms, and board discretion. The structure works best when investor flows are balanced and asset marks are credible; it is tested when many investors want liquidity at once.
Common misconceptions
- •Semi-liquid does not mean liquid.
- •A published NAV does not guarantee executable exit value.
- •Periodic tenders can work in normal markets but become constrained when many investors exit at once.
- •A low-volatility NAV does not necessarily mean low risk; it may reflect appraisal smoothing or stale marks.
- •A semi-liquid wrapper does not make private assets liquid. It allocates limited liquidity through rules.
Technical details
Common Wrappers
Interval funds: Registered funds that make periodic repurchase offers, often quarterly, subject to stated limits and board oversight.
Tender-offer funds: Closed-end funds that may conduct discretionary tender offers rather than mandatory interval repurchases.
Non-traded REITs and BDCs: Often provide share repurchase programs that can be capped, modified, or suspended.
Evergreen private funds: Private-market funds with periodic subscriptions and redemptions, typically subject to gates, lockups, investor-level limits, and manager discretion.
Liquidity Toolkit
Cash sleeve: The fund holds cash or liquid assets to meet ordinary tenders, reducing drag only if flows are predictable.
Tender limits: The fund caps repurchases as a percentage of NAV or shares.
Proration: If requests exceed capacity, each investor receives a partial redemption.
Gates or suspensions: The fund can limit or pause redemptions during stress.
Credit facilities: Borrowing can bridge redemptions, but it adds leverage and can create margin or covenant risk.
Anti-dilution levies: Exiting or entering investors may bear estimated transaction costs.
Example of Liquidity Mismatch
A semi-liquid private credit fund offers quarterly tenders up to 5% of NAV. The portfolio consists mostly of directly originated loans that cannot be sold quickly without discounts.
In normal quarters, investors tender 2% and the fund pays everyone. In a credit scare, investors tender 18%. The fund accepts only 5%, prorating requests to about 28% of each tender. The remaining 72% stays invested and may face future NAV changes.
Why NAV Quality Matters
Semi-liquid funds rely on NAV for subscriptions and redemptions. If NAV is stale or smoothed, entering and exiting investors may transact at prices that transfer value between shareholders.
Assets valued by models, broker quotes, appraisals, or manager marks may lag executable market prices. That lag becomes more important when flows accelerate.
Diligence Questions
What percentage of NAV can be repurchased each period?
How often has the fund gated, suspended, or prorated redemptions?
How much of the portfolio can be sold within 30, 90, and 180 days without material discounts?
Who values Level 3 assets, and how often are marks refreshed?
Does the fund use leverage or NAV facilities to meet liquidity?
Are subscription and redemption prices adjusted for transaction costs?