The semiliquid fund market is nearing $600 billion in assets, up 41% since the end of 2024, but in the past year, the market has pivoted.
After clamoring to enter private credit funds in late 2024 and early 2025, investors are now looking to exit them in droves, a reminder that access to private markets is only valuable when investors understand what they own.
It’s notable that even among advisors, only 16% report being very familiar with them, according to our 2026 Investor Perspectives Survey.
Our latest report on semiliquid funds sheds light on the factors that matter most to investors: fees, liquidity, leverage, and their combined impact on results.
Key Takeaways
- Investors are slamming the brakes on private credit
- BDCs are starting to retain more cash
- Payment-in-kind is a number to watch
- Fees are high, but transparency is improving
- Coming soon: more private multi-asset funds
Investors Are Slamming the Brakes on Private Credit
From 2023 through the end of 2025, investors couldn’t seem to get enough exposure to private credit through semiliquid funds like nontraded business development companies and interval funds. As of March 2026, those funds accounted for 49% of the total semiliquid fund market.
That appetite reversed sharply at the start of 2026. An aggressive selloff in public software stocks, driven by fears of artificial intelligence displacement, spilled over into private credit, which includes loans to many of those same software companies.
The liquidity pressure on private credit semiliquid funds shows no sign of letting up. Blackstone Private Credit Fund BCRED and Cliffwater Corporate Lending CCLFX, the two largest private credit semiliquid funds, have both reported a rise in redemption requests compared with the first quarter. BCRED shareholders sought cash-outs equal to 10% of the fund, up from 7.9%, while Cliffwater shareholders requested 17%, up from 14%. Both funds are capping redemptions at their stated 5% quarterly liquidity threshold after exceeding that cap in the first quarter.
BDCs Are Starting to Retain More Cash
There are signs that managers are quietly building cash buffers in anticipation of more investor redemption requests.
One source of that cash is “organic liquidity,” which funds can generate to meet redemptions without selling holdings. Private credit portfolios generate their own liquidity as loans mature or get repaid early, typically when a company is sold or refinances. Direct lending portfolios typically carry four- to five-year average maturities, implying that roughly 20%–25% of the portfolio naturally rolls off each year.
For nontraded BDCs, organic liquidity can help defend against redemptions, but on its own it doesn’t immunize funds from cash crunches. Managers must constantly decide whether to redeploy the cash their holdings generate or sit on it, and getting the timing wrong creates problems. One useful signal is the retention ratio, which measures how much of a fund’s returned capital (such as loan repayments or fund distributions) is reinvested versus held on the sidelines for other uses. Before 2025, nontraded BDCs were reinvesting more than they were getting back, a sign they were still deploying earlier inflows. Recently, retention rates have risen, suggesting managers are holding on to cash instead of deploying it.
Payment-in-Kind Is a Number to Watch
Another way to monitor the health of a private credit fund is to keep an eye on payment-in-kind. That’s when a borrower pays the interest on its debt in the form of more debt, growing the total loan balance instead of paying cash. Borrowers do this when they don’t have the cash on hand to pay interest or when matching the cash flow of a project with the interest payments on the loan.
The exhibit below shows those unlisted BDCs with the highest average PIK as a percent of total investment income. The average calculation begins in March 2021 or later, for BDCs that launched after that date. Blue Owl BDCs occupy three of the top five spots.
The level of PIK income is possibly a function of age. The seven unlisted BDCs launched before 2023 have an average PIK of 4.88%, while the eight launched in 2024 and 2025 average just 1%.
One possible explanation is that managers of newer BDCs are more sensitive to investor concerns about PIK and have limited the PIK loans in their portfolios. Another explanation is simply that older BDCs have had more opportunities for their loans to run into trouble and switch from cash payments to PIK.
Fees Are High, But Transparency Is Improving
Investors used to mutual funds and exchange-traded funds who look at semiliquid options are in for sticker shock. The exhibit below shows the average prospectus-adjusted expense ratio for the private equity, private debt—direct lending, and direct real estate Morningstar Categories compared with their public market equivalents.
Not only are semiliquid fund fees higher, but until recently, many private credit funds, especially unlisted BDCs, did not include incentive fees in their prospectus fee tables because fund companies often considered them unpredictable. That complicated fee comparisons with funds that did show their incentive fees. Morningstar pushed for better disclosure in early 2026, and more BDCs have updated their prospectuses.
Coming Soon: More Private Multi-Asset Funds
Morningstar now tracks semiliquid funds before they officially launch. As of the end of May, roughly 100 were in the pipeline. Private credit remains the dominant strategy, but private multi-asset funds, which invest across multiple private markets, typically by bundling existing semiliquid funds, are gaining ground. For firms that already offer a full suite of private market semiliquid funds, the multi-asset wrapper is a logical next step: It gives financial advisors a single vehicle for accessing multiple private market asset classes while simplifying rebalancing.