How Semiliquid Funds Expand Access to Private Markets

With more than $500 billion in assets, semiliquid funds are becoming an increasingly important gateway to private market investing. As adoption grows, investors need a clear framework for assessing both the opportunities and the tradeoffs.

In this video, Jason Kephart, Senior Principal, Multi-Asset Strategy Ratings, explains how the Morningstar Medalist Rating brings greater transparency to semiliquid funds by evaluating the people, process, and parent behind each strategy.

Jason Kephart:

As private assets go mainstream, we're starting to see public and private markets converge. This means investors are now facing a wave of complex new options promising access to exclusive investments.

But how do you know which ones are worth the cost? To help you navigate these new waters, we've introduced the Morningstar Medalist rating for semiliquid funds. In this video, we'll break down how semiliquid funds work and how our research can help you spot the ones that show true potential.

Think of semiliquid funds like interval or tender offer funds as the middle ground between your standard mutual fund and a private equity drawdown fund. Unlike a mutual fund, where you can sell any day the market is open, these funds usually limit you to taking money out once per quarter.

This gives the manager the freedom to invest in private companies or issue private debt without having to worry about a sudden rush of investors pulling their cash. It's a bit of a balancing act, as managers must expertly time investments to meet regular redemption windows.

With $500 billion in assets, the private market trend is here to stay, but these vehicles can be complex and expensive. That's where Morningstar comes in. Our analysts dig deep into the details of these funds to find the real advantages and the hidden risks.

The Morningstar Medalist rating is a long-trusted resource for assessing traditional funds. Now we've expanded our framework to the private market at a perfect time to offer the same forward-looking assessment of semiliquid funds.

Our Medalist rating for Semiliquid funds aims to answer a critical question: Are these complex high fee strategies worth your investment? To find out, we evaluate funds based on three pillars, the people making the decisions, the process they follow, and the parent company's track record as a steward for investors.

While we always factor in price and performance, semiliquid funds need more rigorous screening to assess their high cost and the risk of their illiquid securities. Gold, Silver and Bronze ratings highlight strategies with return potential or diversification benefits that we believe justify their costs.

In short, semiliquid funds offer unique opportunities but come with added costs and complexity. The Morningstar Medalist rating for semiliquid funds is designed to provide a clear, forward-looking assessment that can help you decide for yourself if these assets are fit for your portfolio.