Key Takeaways
- • Semiliquid fund assets approached $600 billion as of March 2026, more than doubling since 2022, according to Morningstar's "The State of Semiliquid Funds 2026" report.
- • Private equity inflows reached $14.5 billion and venture capital roughly $8 billion in net inflows over the 12 months ended March 2026, as capital rotates away from private credit.
- • Private credit, previously the main growth engine, lost about $1 billion in net assets in Q1 2026 amid concerns over software exposure and credit quality.
- • Average expense ratio for semiliquid funds is around 3%, well above traditional funds, and often excludes the full impact of incentive fees.
- • Only four of 19 semiliquid funds rated by Morningstar last year earned a Bronze or Silver Medalist Rating, and just 16% of financial advisors say they are "very familiar" with the structures.
Summary
Morningstar, Inc. (Nasdaq: MORN) released "The State of Semiliquid Funds 2026," reporting that the semiliquid, or "evergreen," fund market is approaching $600 billion in assets and entering a new phase as investor demand shifts and key risks become more visible. Semiliquid fund assets have more than doubled since 2022, a period of growth driven largely by private credit.
Demand for credit strategies has cooled sharply, redemptions are rising, and capital is rotating into private equity and venture capital funds. Morningstar attributes the private credit slowdown partly to concerns over software exposure and credit quality, which contributed to a roughly $1 billion decline in category net assets during the first quarter of 2026. Private equity inflows reached $14.5 billion and venture capital funds recorded approximately $8 billion in net inflows over the 12 months ended March 2026, with investors seeking exposure to high-profile AI and technology companies.
Fees and liquidity are the report's central concerns. The average expense ratio for semiliquid funds is around 3%, significantly higher than traditional funds, and often excludes the full effect of incentive fees. Most funds permit quarterly withdrawals capped at 5%, a limit that Morningstar notes may not hold if many investors seek to exit simultaneously given the gap with hard-to-sell private assets. Early signs of fee competition are emerging: Blackstone, which holds the largest market share by assets, recently introduced a structure giving 401(k) plans a choice between an incentive fee and a flat fee that may lower expenses over time.
Morningstar rated 19 semiliquid funds last year, and only four received a forward-looking Medalist Rating of Bronze or Silver, reflecting its view that few are likely to outperform peers and public market equivalents after fees. Jason Kephart, senior principal at Morningstar, said the focus should be on fundamentals, with investors weighing how fees, leverage, and liquidity shape outcomes. The report also notes a knowledge gap, with just 16% of financial advisors saying they are "very familiar" with semiliquid structures.
Demand for credit strategies has cooled sharply, redemptions are rising, and capital is rotating into private equity and venture capital funds. Morningstar attributes the private credit slowdown partly to concerns over software exposure and credit quality, which contributed to a roughly $1 billion decline in category net assets during the first quarter of 2026. Private equity inflows reached $14.5 billion and venture capital funds recorded approximately $8 billion in net inflows over the 12 months ended March 2026, with investors seeking exposure to high-profile AI and technology companies.
Fees and liquidity are the report's central concerns. The average expense ratio for semiliquid funds is around 3%, significantly higher than traditional funds, and often excludes the full effect of incentive fees. Most funds permit quarterly withdrawals capped at 5%, a limit that Morningstar notes may not hold if many investors seek to exit simultaneously given the gap with hard-to-sell private assets. Early signs of fee competition are emerging: Blackstone, which holds the largest market share by assets, recently introduced a structure giving 401(k) plans a choice between an incentive fee and a flat fee that may lower expenses over time.
Morningstar rated 19 semiliquid funds last year, and only four received a forward-looking Medalist Rating of Bronze or Silver, reflecting its view that few are likely to outperform peers and public market equivalents after fees. Jason Kephart, senior principal at Morningstar, said the focus should be on fundamentals, with investors weighing how fees, leverage, and liquidity shape outcomes. The report also notes a knowledge gap, with just 16% of financial advisors saying they are "very familiar" with semiliquid structures.
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