Private markets rethink ‘semi-liquid’ label
Private market managers and wealth advisers are reconsidering how they describe funds offering periodic access to private credit and private equity after a wave of redemption requests exposed the limits of their liquidity provisions, according to a report by Bloomberg.
The term “semi-liquid”, once widely used to market private-market strategies to wealth clients, is increasingly being replaced by descriptions such as “conditional” or “periodic” liquidity. The shift follows a period in which investors seeking to withdraw capital found that fund managers had imposed redemption limits, leaving money tied up for longer than expected.
The issue has highlighted the tension between the illiquid nature of private-market assets and the growing push to make them available to individual investors.
Private credit funds typically offer quarterly redemption windows, often capped at 5% of assets. Managers can restrict withdrawals when demand exceeds those limits, allowing them to avoid selling loans or other difficult-to-trade assets at distressed prices.
The mechanisms are generally disclosed in fund documentation. However, some advisers argue that the way the products have been marketed has created unrealistic expectations among retail investors.
“The client hears ‘half-liquid’ and anchors on the liquid part of the word,” Robert Picard, head of alternative investments at Hightower Advisors, wrote in a recent paper advocating clearer terminology such as “conditional liquidity”.
He argued that the language used to describe the products had implications for investor confidence and relationships between advisers and their clients.
The debate has intensified after a surge in withdrawal requests across the private credit market. Declining fund returns and concerns over the impact of artificial intelligence on software valuations have contributed to investor anxiety, while inflows into some products have slowed.
The private wealth channel has become an increasingly important source of capital for alternative asset managers. Firms including Blackstone, Blue Owl Capital, Ares Management and KKR have expanded their efforts to distribute private-market products to individual investors, helping drive global private-market assets under management to approximately $14tn.
Matt Malone, head of investment management at Opto Investments, said liquidity provisions had historically been presented to investors as being readily available, despite the ability of managers to restrict withdrawals.
Some industry participants have criticised the “semi-liquid” label. JPMorgan Asset Management global alternatives strategist Aaron Mulvihill has described such products as “semi-illiquid”, while DoubleLine Capital chief executive Jeffrey Gundlach has attacked the terminology more forcefully.
Goldman Sachs has said it has avoided using the term with clients. Michael Brandmeyer, global head and chief investment officer of the firm’s External Investing Group, said investors were instead given a detailed explanation of how the products worked.
Vivek Bantwal, global co-head of private credit at Goldman Sachs Asset Management, said the illiquidity of the underlying assets was an important part of the risk and return proposition of private credit compared with public markets.
Goldman Sachs is also unusual among large asset managers in that its retail private credit product has not had to impose a redemption cap during the recent wave of withdrawal requests, with demand remaining below the 5% quarterly threshold over the past two quarters.
However, simply changing the terminology is unlikely to address the fundamental concerns surrounding the products, according to Stacy Havener, founder and chief executive of Havener Capital Partners.
She said managers should focus on improving transparency rather than attempting to avoid language that had become controversial.
