Latest State of Semiliquid Funds points to signs of a maturing market and highlights the importance of investor understanding as private market access expands.
Morningstar, Inc. , a leading provider of independent investment insights, released “The State of Semiliquid Funds 2026,” highlighting a rapidly evolving market approaching $600 billion in assets that is entering a new phase as investor demand shifts and key risks become more apparent.
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The report finds that semiliquid, or “evergreen,” fund assets have more than doubled since 2022, following several years of growth fueled by private credit. More recently, however, demand for credit strategies has cooled sharply, redemptions are rising, and capital is rotating into private equity and venture capital funds. At the same time, early signs of fee competition are emerging as asset managers respond to increased scrutiny around costs.
“The semiliquid market has scaled rapidly on the back of investor enthusiasm, but over the past year it has begun to collide with questions about how these structures actually behave in practice,” said Jason Kephart, senior principal at Morningstar. “To effectively use private markets, we believe the focus should be on fundamentals, with investors taking a holistic view of how fees, leverage, and liquidity shape outcomes. Our independent research helps improve transparency and bring those trade-offs into focus.”
Key Findings
- Semiliquid fund assets approached $600 billion as of March 2026.
Venture capital and private equity emerged as key growth drivers, with investors seeking exposure to high-profile AI and technology companies. Venture capital funds recorded approximately $8 billion in net inflows over the 12 months ended March 2026, while private equity inflows reached $14.5 billion. - Private credit—previously the main growth engine—is losing momentum.
Concerns over software exposure and credit quality have dampened investor appetite, contributing to a roughly $1 billion dip in net assets for the category during the first quarter of 2026. - High fees remain a core challenge for outperformance.
The average expense ratio for semiliquid funds is around 3%, significantly higher than traditional funds, and often excludes the full impact of incentive fees. Investors should also be aware that many complex fee structures continue to favor managers. - Liquidity pressure is coming into focus.
Demand for redemptions has been rising, exposing the gap between limited withdrawal windows and hard-to-sell private assets. Most funds allow quarterly withdrawals, capped at 5%, which for some funds may not hold up when many investors try to exit at once. - New pricing models could reshape how investors access private markets.
Blackstone, who dominates market share by assets, recently introduced a structure that gives 401(k) plans a choice between an incentive fee or a flat fee that may lead to lower expenses over time—an early indication that fee competition may be emerging, particularly in retirement channels. - Few semiliquid funds earn strong ratings.
Morningstar rated 19 semiliquid funds last year, but only four received a forward-looking Medalist Rating of Bronze or Silver, reflecting Morningstar’s view that few funds are likely to outperform peers and public market equivalents after fees.
The trends in the report underscore the view that access to private markets is only valuable if investors understand the management of funds in their portfolio. Yet a significant knowledge gap remains, with just 16% of financial advisors saying they are “very familiar” with semiliquid fund structures1. Morningstar’s research and semiliquid fund ratings aim to promote greater transparency and a more consistent language for investors and advisors to compare fees, liquidity, leverage, and potential outcomes.
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