Morningstar, Inc., (Nasdaq: MORN), a leading provider of independent investment insights, today published a report, "The State of Semiliquid Funds," offering a comprehensive examination of the investment vehicles that have emerged as a key entry point to private markets. As investor access and demand for private asset exposure become more mainstream, Morningstar’s research team delivers new data and analysis to a growing but complex space. Morningstar will also begin assigning qualitative, forward-looking Medalist Ratings to semiliquid funds next quarter.

"Semiliquid funds have quickly become one of the most talked-about corners of the investment universe, yet definitions, data, and transparency have lagged behind the headlines," said Jason Kephart, senior principal, multi-asset strategy ratings. "Our report shows that while these funds promise greater access and returns, they also bring steep fees, heavy use of leverage, and liquidity limits that investors must carefully evaluate."

The report focuses on semiliquid funds accessible to investors with less than $5 million in investable assets. It covers interval funds, tender-offer funds, nontraded business development companies (BDCs), and nontraded real estate investment trusts (REITs).

Key findings include:

Assets, Flows, and Competitive Landscape

• Semiliquid fund assets grew to $344 billion in 2024, up 60% from $215 billion in 2022, as investors seek smoother, higher yield returns from private markets.
• Credit overtook real estate/infrastructure as the largest semiliquid broad asset class with $188 billion in net assets at the end of 2024, up from $75 billion in 2022. Nontraded BDCs lead the charge in private credit.
• Interval funds are the preferred vehicle for new product development due to their operational ease for brokerage and wealth platforms. Nineteen interval funds launched in 2025 through May, on pace to exceed the 2024 record of 27 launches.

Investor Access

• Most semiliquid funds are only available through financial advisors with limited direct access. Several prominent retail brokerages don’t allow individual purchases of interval funds.
• Eligibility varies widely across funds and platforms with some restricting access to accredited or qualified clients even when regulatory standards allow broader participation.
• Momentum is building to bring private markets to retirement plans, but adoption has been slow due to concerns over fees, liquidity, and transparency.

Fee Structures

• On average, semiliquid fund fees are three times higher than traditional open-end funds, meaning their return premiums must be significant to offset the high costs.
• Full catch-up provisions on incentive fees benefit managers more than investors. These are set up with a hurdle rate that is easy to achieve, applying the fee to the entire return, not just the excess.
• Some funds charge fees on total assets, including assets borrowed by the fund, which may encourage managers to take on more debt to increase fees.

Leverage Usage

• Widespread use of fund-level leverage, common in private credit funds, has enhanced returns but masked underlying risks. Interval and tender-offer funds are limited to borrowing one-third of their assets, while BDCs can borrow up to two-thirds.
• Leverage-related losses can be delayed but not avoided. Some funds use tactics that postpone recognizing losses, temporarily obscuring risks without eliminating them.
• Leverage helps some semiliquid funds outperform public market peers, but reported volatility may understate the actual level of risk investors are exposed to.

To further help investors navigate these new opportunities, Morningstar has expanded its established Medalist Rating framework to the growing segment of semiliquid funds. Announced in May and debuting in the third quarter of 2025, the new methodology and ratings are tailored to the distinct structures of semiliquid vehicles.

To read the full State of Semiliquid Funds report, please click here.

About Morningstar

Morningstar, Inc. is a leading provider of independent investment insights in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, institutional investors in the debt and private capital markets, and alliances and redistributors. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $341 billion in AUMA as of March 31, 2025. The Company operates through wholly-owned subsidiaries in 32 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on X @MorningstarInc.

Morningstar’s Manager Research Group

Morningstar’s Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Morningstar Manager Research provides independent, fundamental analysis on managed investment strategies. Morningstar views are expressed in the form of Morningstar Medalist Ratings, which are derived through research of three key pillars—People, Process, and Parent. The Morningstar Medalist Rating is the summary expression of Morningstar’s forward-looking analysis of investment strategies as offered via specific vehicles using a rating scale of Gold, Silver, Bronze, Neutral, and Negative. A global research team issues detailed research reports on strategies that span vehicle, asset class, and geography.

Medalist Ratings are not statements of fact, nor are they credit or risk ratings, and should not be used as the sole basis for investment decisions. A Medalist Rating is not intended to be nor is a guarantee of future performance. This press release is for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.

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