Understanding how these mechanisms work—and what trade-offs they involve—is key to evaluating whether these funds align with an investor’s needs and expectations.

What Are the Key Pros and Cons of Using Semi-Liquid Funds?

How Does Liquidity Work in Semi-Liquid Funds?

Open-ended evergreen funds are designed with built-in liquidity mechanisms to help prevent potential mismatches before they become problematic. These mechanisms vary depending on the fund’s structure and the nature of its underlying assets. Typically, liquidity is managed through thoughtful portfolio construction and the use of targeted liquidity-management tools.

How Can Portfolio Construction Be Used to Manage Liquidity?

A well-constructed portfolio can offer a prudent spread of risk, helping to avoid overconcentration. It may be diversified across different investment vintages, geographic regions, asset classes, and sectors. In addition, most open-ended evergreen funds maintain a liquidity buffer—a portion of the portfolio held in more liquid assets, such as cash. This buffer allows the fund to more readily meet redemption requests without disrupting longer-term investments.

Which Tools Are Essential for Liquidity Management?

Liquidity-management tools may include extended notice periods, which give managers time to plan for redemptions; redemption limits (typically 5% of NAV); lock-up periods for initial investments; minimum holding periods; and special dealing procedures following a suspension. These tools provide fund managers with flexibility in managing liquidity while helping protect shareholders’ interests.

What If Circumstances Change and Liquidity Is Needed?

Redemptions are typically managed through a combination of factors. These include the strong cash flow generated by private assets (such as private-equity and infrastructure), a modest allocation to liquid assets, and, if necessary, the fund manager’s ability to sell stakes in private assets to a growing secondary market of buyers and sellers.

In some semi-liquid funds, redemption requests are first offset by new subscriptions received during the same period. If there’s a net outflow, it’s covered by the fund’s liquidity buffer. If redemptions for the quarter exceed a predefined threshold, requests may be reduced on a pro rata basis. Any portion not fulfilled is rolled into the next dealing day, unless cancelled by the investor.

How Often Can Investors Access Their Capital?

This depends on the fund. Some offer monthly redemptions, while others allow quarterly access. Because these funds aren’t priced daily, as is the case with closed-ended funds, price volatility tends to be lower.

When and Why Would Fund Managers “Gate” a Fund?

Gating is a measure of last resort. Semi-liquid funds may use gating provisions to limit the amount investors can redeem at any one time, helping to prevent a rush of withdrawals. These provisions are designed to protect investors from the risk of a “fire sale”—where assets must be sold quickly, potentially at a loss. It’s important that investors are made aware of these mechanisms when they subscribe.

Keep in mind that liquidity features such as gating may introduce additional risks and limitations. Fund structures and their liquidity mechanisms can also vary depending on the jurisdiction and regulatory framework.

A Flexible Future for Private Markets?

Evergreen semi-liquid funds reflect a growing interest in making private markets more accessible and adaptable. By incorporating structured liquidity features, they offer a potential solution for investors seeking long-term exposure with some flexibility. While these funds aren’t without limitations, understanding how they work can help investors make more informed decisions as they navigate an evolving investment landscape.