Slow Way Out: When Semiliquid Fund Exits Get Too Crowded

Key Takeaways

• Money is flowing into semiliquid funds to get access to private markets, but investors need to plan around the limited liquidity these vehicles offer.
• Semiliquid funds don’t have to perform poorly for large numbers of investors to line up for redemptions.
• It could take up to a year, or longer, to fully exit a semiliquid fund if there’s a rush to the exits.
• Investors need to plan for when, not if, they are unable to make full redemptions.

Investors are piling into semiliquid funds to gain exposure to once inaccessible asset classes like private credit, private equity, and private real estate. Net assets in semiliquid funds available to most investors reached $344 billion in 2024, up from $215 billion at the end of 2022, according to Morningstar’s State of Semiliquid Funds 2025.

Semiliquid funds come in various structures, such as interval funds, tender offer funds, nontraded business development companies, and nontraded real estate investment trusts. These funds are generally easy to invest in, if you have a financial advisor, but they restrict how much investors can withdraw. Most allow redemptions of up to 5% of the fund’s net assets per quarter, though the specific limits and timing can vary by fund manager. These restrictions are intended to prevent managers from having to sell illiquid assets at unfavorable times and prices, but they can also result in investors being unable to access some, even most, of their money for extended periods.

Private credit is capturing the majority of asset flows into semiliquid funds. For investors drawn to the higher yields and seemingly steady returns these strategies offer, quarterly liquidity of up to 5% of a fund’s net assets may seem sufficient, and often is, during calm periods.

However, when investor sentiment shifts, redemptions can surge, making it difficult for fundholders to exit. As we saw in 2023 with Blackstone Real Estate Income Trust BREIT, a nontraded real estate investment trust and the second-largest semiliquid fund, it can take several quarters to fully redeem shares in those environments. BREIT owns and oversees the management of properties like multifamily homes, data centers, and industrial real estate like warehouses on behalf of its shareholders. In this article, we’ll look at lessons from the BREIT experience.

Lesson 1: Liquidity Could Dry Up Without Poor Reported Performance

In mutual funds and exchange-traded funds, investor outflows tend to follow poor performance, but that’s not necessarily the case in semiliquid funds, which report less variability of their net asset values. Since valuations can move slowly for semiliquid funds, investors may try to front-run performance and get out while the net asset values are still high.

The exhibit below shows the growth of a $10,000 investment in both BREIT and index-ETF Vanguard Real Estate VNQ, which owns a market-cap-weighted portfolio of publicly traded REITs, from January 2017 through May 2025. Over the period, the investment in BREIT would have grown to more than $21,000, about $6,000 more than an investment in Vanguard Real Estate ETF, and it did so with only small, infrequent reported drawdowns. '

In 2022, the US Federal Reserve’s aggressive interest rate hikes created significant turbulence in the real estate market, especially for publicly traded real estate investment trusts. Vanguard Real Estate ETF, for example, fell 26% over the year. In contrast, nontraded BREIT, which reports its net asset value per share rather than having it determined by trades on a public market, delivered a positive return of 8.4%, with those returns coming largely from distributions rather than a rising net asset value per share, and reported losses in only one month during the year, a 0.84% decline in November.

Despite the strong performance, investor concerns about the broader real estate outlook led to rising redemption requests for the semiliquid fund. BREIT, which allows monthly redemptions of up to 2% of net assets under management (and no more than 5% per quarter), saw a spike in investor redemption requests starting in the fourth quarter of 2022.

Lesson 2: It Could Be a Long Walk to the Exit

The next exhibit illustrates the monthly redemption requests fulfilled and the number of shares oversubscribed each month starting in October 2022. Between November 2022 and December 2023, BREIT received more redemption requests than it fulfilled, which means some fundholders wanted more of their money back than they were able to receive. BREIT didn’t do anything wrong here; it always met the obligation its prospectus put forth that it would redeem up to 2% of its assets each month, up to a 5% quarterly limit. But that may have felt like cold comfort to those who wanted out at the time.

Redemption requests exceeded the quarterly limit, often significantly, for 14 consecutive months. When requests surpass the 5% threshold, they are fulfilled on a pro rata basis, meaning each investor receives only a portion of their requested amount. For example, if redemption requests equal 10% of the fund, each investor would get back only 50% of what was requested. Any unfulfilled redemption requests must be resubmitted the following month. Having to get back in line repeatedly can be a taxing investor experience if they weren’t adequately prepared for the possibility.

The managers successfully navigated the oversubscription period without incurring significant losses. However, since 2023, BREIT has underperformed public REITs, as represented by Vanguard Real Estate ETF. Its liquidity was supported in part by a $4.5 billion investment from the University of California’s pension fund in January 2023. That capital could be used to manage redemptions and reduce the need for large asset sales. Investors should not assume that every semiliquid fund can rely on such institutional relationships for support.

Lesson 3: Be Committed, Be Diversified

Don’t let the “semi” fool you. Investing in a semiliquid fund is a full commitment. As BREIT’s liquidity crunch showed, investors must not only take a long-term view but also consider how much portfolio liquidity they’re willing to sacrifice. In a stampede for the exists during times of panic, investors can get trampled.

Semiliquid funds restrict redemptions for a reason: Their underlying holdings aren’t always readily tradable. Unlike mutual funds or ETFs, they’re typically built on privately originated deals with multiyear exit strategies. If large-cap stocks require a long-term horizon (and they do), private assets demand even more patience.

Given the illiquid nature of the holdings and limited redemption windows, investors also need a separate source of liquidity. While many semiliquid funds can meet redemption requests, access isn’t guaranteed when you might need it most.

That’s why the most important consideration when allocating to a semiliquid fund is whether the overall liquidity profile of your portfolio matches your actual needs. A mismatch can force you to sell other assets at the wrong time or leave you unable to respond to unexpected events. Getting that balance right is key to long-term success.