The rapid rise of semiliquid funds has brought both strong interest and heightened scrutiny. Much of the concern reflects how quickly the segment has grown (Exhibit 1), particularly among retail investors who are more accustomed to daily liquidity in traditional mutual funds. This is less a case of a fundamentally flawed structure and more a relatively new product that is still being understood.
Exhibit 1: Semiliquid fund assets have more than doubled since the end of 2022
At the same time, a degree of scrutiny is both expected and appropriate. Semiliquid funds are built around a core trade-off, offering access to inherently illiquid assets while providing periodic liquidity. As our paper Demystifying Semiliquid Fund Structure – an APAC Perspective outlines, there is no free lunch. Balancing the trade-off between liquidity and returns is easier said than done, and many of these structures have not yet been tested through a full market cycle.
Several Key Concerns Stand Out
First is investor familiarity and expectations. Many of the risks are not new, but they are less familiar in a retail context, creating a gap between what investors expect and how these funds behave in practice. Liquidity mismatch is central, with redemption features layered over assets that cannot be easily sold. This becomes more visible in stressed conditions, when gating or limits may apply.
Fees are another area of focus. These funds often come with higher and more complex fee structures, raising questions around value for money. According to Morningstar’s recent study, the average annual report net expense ratio (adjusted for borrowing costs) for semiliquid funds was just over 3%. Transparency is also a key issue. Valuations are frequently model-based and updated less often, reducing visibility into underlying asset values. In addition, product design can vary widely. Some strategies may hold larger liquid allocations while still charging private market fees, potentially diluting expected exposure.
More broadly, transparency gaps extend beyond valuation. Morningstar has always advocated for clearer and more consistent disclosure on portfolio holdings, portfolio manager responsibilities and track records, as well as performance objectives and benchmarks. Without this level of visibility, it becomes difficult for investors to assess what they own and how these strategies are being managed.
Regulatory Developments in Hong Kong and Singapore
From a regulatory perspective, markets such as Hong Kong and Singapore are taking a measured and deliberate approach to expanding retail access. Rather than opening access broadly, safeguards are embedded directly into product structures. Redemption limits, gating, and notice periods are designed to prevent forced selling and protect investors, helping align liquidity features with the nature of private assets.
This approach is reflected in how access is being implemented. Singapore’s Long-Term Investment Fund framework introduces purpose-built structures with defined safeguards, while Hong Kong is expanding access more incrementally within its existing regime. Both point to a controlled opening, where broader participation is paired with clear guardrails.
There is also an opportunity to further strengthen transparency and disclosure. Valuation practices can vary, fee structures can be complex, and disclosure remains uneven across products. The next phase should focus on greater consistency through stronger and more standardized disclosure, increased use of independent valuation, and clearer governance frameworks.
At the same time, the broader trend toward expanding retail access to private markets remains intact. The convergence between public and private markets is a structural shift, and investor demand continues to grow. The semiliquid fund market itself is approaching $600 billion in assets, more than doubling since 2022, underscoring the scale and momentum of this segment.
Recent headlines around gating and redemption constraints in the US have made some investors more cautious. Rather than signaling a reversal, this reflects a shift from early enthusiasm to closer scrutiny of how well the structure performs in practice.
Building Trust Will Take Time
It requires better investor education, improved transparency, and consistent outcomes across market cycles. Trust is particularly important in this segment, where product complexity, limited liquidity, and less frequent valuation mean investors need greater confidence in both the structure and the manager to enable broader and more sustainable adoption.
Ultimately, success will depend not just on expanding access, but on building trust, ensuring investors understand what they are buying, and delivering outcomes that align with their expectations.
