Semi liquid funds lack historical data
Maturity concerns are mounting for semi-liquid structures as investors express apprehension over insufficient historical data and the potential pitfalls of applying return expectations from closed-end models. The report highlights a critical risk: assuming semi-liquid private-market funds will match the returns of traditional closed-end funds, which provided the historical data, according to Bradley Budd, head of wealth at bfinance.
Bradley Budd, head of wealth at bfinance, argued that investors cannot expect semi-liquid structures to simply provide private market exposure with more access to liquidity without any drawbacks. Semi-liquid, evergreen, and open-ended funds’ development can be traced to recent years, with bfinance using a sample of 151 semi-liquid and evergreen vehicles and finding that the median launch year was 2023.
The investment consultancy argued that asset classes once accessible only through closed-end structures, such as private equity and private credit, are now more widely available through middle-ground structures like semi-liquid assets. These types of funds are designed to make the sectors accessible to a broader range of investors, including wealth clients who often require lower minimum investment sizes, according to Budd.
However, Budd remarked that this growth had not yielded maturity yet. bfinance’s recent manager research highlights the “immaturity” of the universe, with only 50 out of 151 semi-liquid and evergreen vehicles able to show a usable five-year annualized return.
Historically, with closed-end funds, investors are generally unable to withdraw their assets whenever they want, and the manager can keep almost all the capital invested in private assets. A semi-liquid fund is different, as investors can request their money back periodically, so the manager needs to keep some money in cash or liquid investments to meet those withdrawals.
The lack of historical data is a concern, as these structures’ growth is so recent, and historic datasets are dominated by close-ended vehicles, which make it harder to trust and visualize returns. Budd highlighted this issue, stating that it is a challenge for investors to accurately assess the potential returns of semi-liquid funds.
bfinance’s research found that these vehicles have very little exposure to primary funds and that they tend to turn towards more direct investments. As such, returns can differ substantially. Earlier, bfinance had found that investors in semi-liquid funds were being charged materially more than their institutional peers.
