Private Equity Funds Step Into the Spotlight

Even before the wave of redemptions hit unlisted business development companies in the first quarter of 2026, cracks were forming in demand. But while private credit was beginning to wobble, private equity and venture capital semiliquid funds were moving in the opposite direction. A surge of new products helped fuel investor interest, pushing total semiliquid fund assets to a record $530 billion at the end of 2025, up 26% from a year earlier, according to the Morningstar PitchBook Q1 2026 US Evergreen Fund Landscape.

Although the Morningstar Direct Lending category grew to a record $236 billion by year-end, up from $180 billion in 2024, demand began to taper off in the final months of 2025. This cooling was evident in the fourth quarter, when net inflows into semiliquid funds dropped to $9 billion, a 45% decline from the first quarter’s $16 billion.

Investor anxiety reached a boiling point in the first quarter of 2026, as worries about artificial intelligence’s threat to smaller software firms triggered a wave of redemptions. The credit reality is equally sobering: Morningstar DBRS data shows that downgrades were over 3 times more frequent than upgrades during the first six weeks of 2026.

This rush for the exits put several major semiliquid funds in a tight spot, as withdrawal requests far exceeded their set limits. In March, shareholders of Cliffwater Corporate Lending CCLFX asked for 14% of the fund back, but the fund is only designed to return 5% each quarter. The board of directors flexed that limit to 7% to help, but for investors, that means they only got about $50 back for every $100 they asked for.

Some funds got creative to give investors their money back. Blackstone’s leadership passed the proverbial hat around the firm’s senior partners to raise an additional $150 million to inject into Blackstone Private Credit, the largest semiliquid fund, to help meet redemption requests. The firm chipped in another $250 million, bringing the total to $400 million. That allowed the fund to meet the entire 7.9% redemption request. However, it’s unclear if such maneuvers are repeatable if withdrawal pressure persists. Should negative news regarding credit defaults or energy-driven economic concerns continue to mount, the pressure on these funds is likely to intensify.

As the Private Markets Wheel Turns

Private equity and venture capital semiliquid funds, on the other hand, saw steady demand throughout 2025, pulling in more than $29 billion of net inflows, up from $20 billion in 2024 and just $5 billion in 2023. And though equity shareholders come behind loans in corporate capital structures (meaning borrowers get paid before equity owners) and are exposed to the same, if not more, economic and valuation risks as direct lending, investors have not fled yet.

Private equity in semiliquid funds isn’t new. Partners Group Private Equity, a tender-offer fund with more than $15 billion in assets at year-end, launched in 2009. But today, newer entrants are capturing investor interest. Of the 10 most popular funds in 2025, only one has more than a five-year track record, and four were launched in the last two years.

Blackstone Private Equity and KKR Private Equity Conglomerate, two semiliquid funds only available through private placements, attracted just over one-fourth of net inflows. These vehicles are built for traditional private equity. This involves acquiring a stable business by using debt to cover a portion of the purchase price, then working to increase the company’s value. Blackstone, for example, owns sandwich chain Jersey Mike’s. One of the ways Blackstone is looking to boost the restaurant’s value is by using AI and its vast real estate network to identify optimal locations for expansion. In March 2026, Capital Group launched a public/private hybrid equity interval fund that invests directly in KKR Private Equity Conglomerate.

Coatue Innovation, which invests in public and private technology companies, got a $1 billion fast start from the family offices of Amazon.com founder Jeff Bezos and Michael Dell. Its exposure to some of the hottest private equity names, including 10% stakes in Anthropic and OpenAI, is fueling the fund’s continued growth. Both AI leaders are expected to go public this year.

Unrealized Dreams

While hopes are high for some big private equity IPOs this year, like SpaceX and the AI giants, private equity exits have been sparse over the last few years. That means the returns posted by these funds are largely unrealized and driven by valuation markups rather than completed transactions.

For semiliquid investors new to private equity, that distinction is critical. Unrealized gains are based on estimates of what a company could be worth, often using comparable public companies or recent funding rounds. But it’s only when a company is sold or goes public that the market tests those valuations. In that sense, exits serve as a kind of report card, confirming whether the funds have been valuing their holdings accurately.

Without a steady pace of exits, it becomes harder to separate true performance from optimistic assumptions. Strong reported returns may ultimately prove accurate, but until funds realize them, they remain estimates.