2 Funds Star in Debut of Morningstar Medalist Ratings for Semiliquid Funds

Semiliquid funds have received their first-ever Morningstar Medalist Ratings, and two funds stood above the rest. Pimco Flexible Credit Income and Pimco Flexible Municipal Income were awarded Silver and Bronze ratings, respectively, indicating our conviction that the funds will outperform their Morningstar Category Indexes over a full market cycle.

Below is a full recap of the funds’ ratings:

Morningstar's First Semiliquid Medalist Ratings

What Are Semiliquid Funds?

Semiliquid funds—including interval funds, tender offer funds, unlisted business development companies, and unlisted REITs—limit investors to periodic, and often capped, withdrawals. They typically offer quarterly redemptions limited to a portion of the fund’s assets, between 5% and 10%. This allows the fund’s managers to invest in illiquid securities that require a longer holding period, unlike exchange-traded funds and mutual funds that must be able to cash out investors each day. Regular redemption windows don’t afford managers an unlimited time horizon, though. Semiliquid managers earn their keep by balancing illiquid investments with their funds’ liquidity needs.

Why Morningstar Is Rating Semiliquid Funds

Semiliquid funds have grown to over $400 billion as investors seek broader access to private markets. Private investments’ rise in popularity stems from companies staying private for longer and the growing importance of the private credit market since the global financial crisis. The number of public securities has shrunk as a result.

Private assets can expand investors’ opportunity set and potentially diversify their portfolios. But choosing the right fund to access private assets is a challenge for investors because of complexity, lack of transparency, and high fees.

That’s where Morningstar comes in. Our analysts conduct thoughtful due diligence to identify the durable advantages and risks of semiliquid funds. Analysts balance that risk and return to arrive at its Morningstar Medalist Rating, a single data point that conveys our conviction in a fund’s ability to outperform over a market cycle.

Morningstar Medalist Ratings take the guesswork out of understanding semiliquid funds and give investors a deeper look into the five pillars that support our ratings: Process, People, Parent, Price, and Performance.

What Set Apart Pimco’s Interval Funds

Investors expect something in return for less flexibility when investing in semiliquid funds. Pimco’s funds don’t disappoint. They make good use of the interval fund structure by holding a reasonable mix of higher-income illiquid securities while diligently adding leverage when opportunities arise. Not for naught, the managers have expertly managed the fund’s liquidity risk that comes from these allocations.

Likewise, Pimco’s strategies sit well within their circle of competence. The portfolio managers have extensive experience structuring deals (in the case of Pimco Flexible Credit Income) and managing illiquid municipal bonds (in the case of Pimco Flexible Municipal Income).

Where Others Fell Short

The four other funds all lacked the pronounced edge necessary to receive higher-conviction ratings. But that’s where the similarities end. Each firm takes a different approach to private assets. Here’s a quick breakdown of each strategy and why they didn’t receive a higher rating.

• Capital Group married its successful public fixed income strategies with KKR’s private credit pedigree. Its funds prioritize liquidity over maximizing the interval fund structure, which should lower risk but limit upside. Adding KKR to the fund makes sense since Capital Group lacks experience managing private assets, but the partnership is unproven, for now.
• TCW leans into its asset-backed finance expertise with TCW Private Asset Income. Named portfolio manager Peter Van Gelderen co-heads TCW’s strong global securitized team. The strategy’s focus on less-liquid mezzanine debt requires a substantial number of sources and analytical rigor to separate the wheat from the chaff. It remains to be seen whether the TCW team can effectively achieve this: The fund launched in April 2025, and its managers are still building out the private debt portion of the portfolio.
• First Trust Alternative Opportunities primarily focused on hedge funds when it launched in 2014, before adding an operational due diligence team to broaden the fund’s mandate to include more private fund investments in 2019. As of June 2025, this complex portfolio included 35 subadvisors across mutual funds, separate accounts, and private funds, spanning investments in private equity, private credit, real estate, and hedge fund strategies. Complexity, limited liquidity, and opaque pricing of its holdings raise the risks of investing in this fund. Earning back high fees requires a significant and durable edge, which this fund lacks.

A Bit on Each Rated Fund

Pimco Flexible Credit Income Fund, Silver

Having two past winners of Morningstar’s Manager of the Year at the fund’s helm can’t hurt. Dan Ivascyn and Alfred Murata lead a cadre of other portfolio managers and analysts that collectively are among the best in the industry. In this fund, they apply an opportunistic and relative-value-driven version of the same process that has generated success in other Pimco-managed offerings, running the gamut from conventional to higher-risk strategies. Morningstar is initiating analyst coverage of the fund with High and Above Average People and Process ratings, respectively.

The strategy invests in both direct lending and asset-backed finance across a range of subgroups, including a 40% stake that was roughly two-thirds residential and a third commercial real estate mortgages and loans as of mid-2025. Pimco classifies another 41% as corporate debt, subdivided into special situations (19%), performing credit (15%), and direct lending (6%). Another 9% was devoted to a mix of specialty finance-linked debt.

Most peers use some combination of illiquid private debt, leverage, and lower-rated exposures to chase higher returns than conventional open-end fund portfolios. Many also stick with floating-rate loans and have little direct sensitivity to interest rate shifts.

This fund uses a mix of those tools but in proportions that distinguish it from many rivals. It held more than 80% of net assets in a combination of nonrated and below-investment-grade debt as of March 2025, for example, though a portion are nonagency residential mortgages with legacy ratings that don’t reflect their recovery to health. The fund also uses leverage to get roughly 135% in market exposure via repurchase agreements. And compared with the near-zero rate sensitivity of most floating-rate funds, this one has also carried a longer duration, standing at roughly 3.5 years in mid-2025. Those factors have helped it generate one of the highest yields among private debt-focused diversified funds.

Fees matter for semiliquid funds. The institutional share class’ 1.76% prospectus adjusted expense ratio (which removes the costs associated with leverage) fell in the cheapest third of semiliquid fixed income funds, earning it a Morningstar Medalist Rating of Silver. More expensive A shares charge 50-75 basis points more, resulting in a Bronze rating.

Pimco Flexible Municipal Income Fund, Bronze

One of the first municipal interval funds in the industry, Pimco Flexible Municipal Income stands out as a thoughtful and well-run approach to the municipal-bond market. Morningstar is initiating coverage of this strategy with Above Average People and Process ratings, resulting in Morningstar Medalist Ratings of Bronze across all share classes.

Lead manager and muni team head David Hammer has anchored this effort since its March 2019 inception … The team uses a flexible, tax-efficient investment approach across the credit spectrum to take advantage of the muni-bond market’s inherent illiquidity. While the strategy isn’t managed to a specific benchmark and aims to capitalize on the limited liquidity requirements of the interval fund structure, it does recognize allocation limits around leverage, below-investment-grade bonds, taxable securities, and closed-end funds. Indeed, most of the assets are in liquid investment-grade muni bonds, coupled with allocations to remarketable variable-rate municipal term preferred securities to generate financial leverage of up to 42.5% of assets. That allows the team to take advantage of periods of muni outflow cycles, when forced selling within traditional muni strategies may drive yields up.

Investors can expect a blended portfolio of investment-grade and high-yield muni bonds, with an influx of the latter when the managers find relative value opportunities. Lower-rated bonds and leverage add to the fund’s volatility. Investors that could bear it were rewarded by one of the top-performing muni-bond funds, regardless of vehicle.

Capital Group KKR Core Plus+, Neutral

Capital Group, in partnership with KKR, launched its core-plus and multisector interval funds in late April 2025. Capital Group’s approach differs from others on this list in a couple of ways. This offering is tamer than other semiliquid peers, with 60% of the portfolio allocated to public debt and 40% private credit, no leverage, and higher redemption limits (it offers to redeem 10% of net assets each quarter instead of the more typical 5%). Investors wary of illiquidity may find this option more appealing than most semiliquid funds, but it doesn’t take full advantage of the interval fund’s structure. Morningstar is initiating coverage of this strategy with Average People and Process ratings, resulting in Morningstar Medalist Ratings of Neutral across all share classes.

The strategy’s much-anticipated partnership between Capital Group and KKR brings together two top managers within their respective areas of public and private fixed income. Capital Group’s experienced team and vast supporting resources are among the industry’s deepest, while KKR has decades of experience managing all areas of private markets, including private credit. However, as the fund’s investment advisor in charge of the whole strategy, Capital Group is still in the early stages of navigating how to combine public and private assets in the less liquid interval fund vehicle structure.

With its late April 2025 inception, the fund has yet to build a meaningful track record. The fund’s cheapest F-3 and R-6 share classes charge 0.84% and are among the cheapest fixed income interval funds available.

Capital Group KKR Multi-Sector+, Neutral

The second interval fund formed in partnership by Capital Group and KKR in April 2025, Capital Group KKR Multisector+ follows the same premise as Capital Group KKR Core—Plus+ but applied to a slightly riskier opportunity set. A 60% allocation to public markets and larger redemptions make this fund more approachable for public market investors, but it doesn’t fully utilize the tools at an interval fund’s disposal.

The partnership takes advantage of each firm’s personnel and process strengths. Capital Group’s three other seasoned bond managers have specialties across core bonds, high-yield, and securitized debt. KKR’s crew brings broad private debt experience with niche expertise in direct middle-market lending and asset-based finance. Each manager will apply robust research and risk management capabilities to build their individual portfolios. It’s up to [Capital Group’s principal investment officer Robert] Caldwell to monitor overall risk in conjunction with KKR and ensure ample liquidity to meet redemptions, when necessary. And while the fund has some leeway around these neutral targets, any differences are likely to be small.

With its late April 2025 inception, the fund has yet to build a meaningful track record. The fund’s cheapest F-3 and R-6 share classes charge 0.89% and are among the cheapest fixed income interval funds available.

TCW Private Asset Income, Neutral

TCW Private Asset Income launched in April 2025 with compelling traits. It’s focused on private asset-based holdings well known to its veteran portfolio manager team, Peter Van Gelderen, Dylan Ross, and Max Scherr. Van Gelderen co-heads TCW’s global securitized team and has managed successful funds under Morningstar’s coverage for several years. Morningstar is initiating coverage of this strategy with Above Average People and Average Process ratings, respectively, resulting in Morningstar Medalist Ratings of Neutral across all share classes.

The fund’s process is appealing … It’s focused on private asset-based holdings that generate higher returns in exchange for some mix of complexity, difficulty of execution, and lower liquidity. That dovetails with a structure distinct from peers linked to large, private debt specialists with their own origination platforms and private equity mandates, whose selling point is access to loan deals. By contrast, TCW’s value proposition is analytical rigor in choosing debt from a broader menu of sources, without the expectation that the fund will buy in-house-generated debt deals. That selectivity is critical, given the strategy’s focus on less-liquid mezzanine debt tranches with more return potential than higher-rated slices of a deal, but less risk than highly leveraged bottom-level tranches.

The fund has yet to build a meaningful track record and is in the process of ramping up its portfolio of private deals that it expects to comprise 90% of its portfolio. Its focus on less-liquid mezzanine debt tranches adds enough risk that the fund forgoes financial leverage.

First Trust Alternative Opportunities, Negative

First Trust Alternative Opportunities invests in a mix of private markets and hedge funds primarily through coinvestments and subadvisors. Coinvestments refer to a specific loan or equity stake where the originator invites others to coinvest in the loan directly, typically under the same terms. Coinvestments can be a cost-effective way to access deals, but cede they control to the originator. Less cost-effective is the fund-of-fund approach to investing. It diversifies manager risk but layers fees on top of this fund’s management fee, potentially including performance fees that don’t make it into the fund’s expense ratio.

Investors looking for a simple way to invest in a broad mix of alternatives, with experienced managers and a good track record, may find this an appealing option. However, its complexity, limited liquidity, and limited mark-to-market require investors to carefully weigh the risks alongside potential rewards.

The fund’s institutional share class charges an adjusted fee of 3.25%, which is high but comparable to other semiliquid alternatives and allocation funds. Clearing that hurdle requires a meaningful edge, which this fund lacks.

Why Morningstar Chose These Funds, and What Comes Next

Morningstar selected this initial group of interval funds to give investors a cross-section of different types of strategies and approaches from previously rated asset managers. In our next round of ratings, most of the interval funds will come from firms that primarily manage private assets, rather than invest in public securities. We’re initiating coverage of several new firms, which requires additional due diligence and a longer lead time.

Where to Find Medalist Ratings for Semiliquid Funds

Morningstar Medalist Ratings for semiliquid funds will appear on Morningstar.com for Investor subscribers and within other products, including Morningstar Direct, Direct Advisory Suite, and semiliquid fund data feeds. Those with access to Morningstar Direct can view interval funds with Morningstar Medalist Ratings.